Speaker 1: This is Bloomberg Daybreak Weekend. I'm Tom Busby in New York.
Speaker 1: This week a special edition of the show after what's
Speaker 1: been in historic week in the financial markets, marked by
Speaker 1: crisis in the global banking industry. The meltdown of Silicon
Speaker 1: Valley Bank spread across the sector, touching signature bank first
Speaker 1: Republic and then to Europe and Credit Suis. It's a
Speaker 1: story that played out right here on Bloomberg in exclusive
Speaker 1: interviews that move shares of Credit Suite throughout the week.
Speaker 1: On this show, we usually look forward, but today we're
Speaker 1: looking back, covering the timeline of events that got us
Speaker 1: where we are right now. Full disclosure, we're taking this
Speaker 1: program on Friday, so it's decidedly a look back and
Speaker 1: not a view of what's to come. But stay tuned
Speaker 1: to our news updates every thirty minutes throughout the weekend
Speaker 1: for the latest developments. We start on Wednesday morning. The
Speaker 1: chair of Credit Suis's largest shareholder, the Saudi National Bank,
Speaker 1: spoke to Bloomberg saying he wasn't open to injecting further
Speaker 1: cash into the Swiss lender. The answer is absolutely not,
Speaker 1: for many reasons outside the simplest reason, which is regulatory
Speaker 1: and statutory We now own nine point eight percent of
Speaker 1: the bank. If we go abuff ten percent, all kinds
Speaker 1: of new rules kick in. More on that interview later
Speaker 1: this hour. It caused Credit Suite's share price to tumble
Speaker 1: to a new record low, sparking concern about the strength
Speaker 1: of global lenders after the swift collapse of three US
Speaker 1: banks in the last week. Now. On Thursday, the CEO
Speaker 1: of Credit Sweee told his staff to focus on facts
Speaker 1: as he pledged to rapidly move ahead with a plan
Speaker 1: to streamline operations. In a memo to staff, Ulric Corner
Speaker 1: said the bank would continue to focus on the transformation
Speaker 1: of Credit Suites from a position of strength. That memo
Speaker 1: came after the bank said it reached an agreement with
Speaker 1: the Swiss National Bank to borrow as much as fifty
Speaker 1: four billion dollars from a liquidity facility. Flashback to Monday,
Speaker 1: that same CEO was on Bloomberg telling off Francine Laquis
Speaker 1: that the bank had seen inflows of client funds, which
Speaker 1: happened after markets and banks were pummeled by the collapse
Speaker 1: of Silicon Valley Bank. So as we be, as you know,
Speaker 1: it's a very recent thing which happened so far, it's
Speaker 1: pretty calm even so material good inflows yesterday. Still Also,
Speaker 1: you know, I had a client meeting which was very
Speaker 1: positive on everyone. So so far it's cold, but I
Speaker 1: think it's early days to look at the calm. Are
Speaker 1: you suggesting that you could also actually get inflows? We
Speaker 1: got them yesterday, which is a positive sign, I would say,
Speaker 1: and you know, for us, and that is maybe a
Speaker 1: little bit if I may say so, fun seeing in
Speaker 1: comparison to SVB, it's a very different situation. You know,
Speaker 1: we are GCP, as you know, we are following materially
Speaker 1: different and higher standards when it comes to capital funding,
Speaker 1: liquidity and so on. And that's why we said, you know,
Speaker 1: we gave I think this situation is important. We gave
Speaker 1: r capital ratio of like hundred and forty forty at
Speaker 1: the at the end of Q four, which is strong ratio,
Speaker 1: which has improved as we went through this quarter to
Speaker 1: like hundred and fifty on average and being even high
Speaker 1: on that. But so outflows have not reversed, but they've
Speaker 1: actually lowered. What are they reversing? Look, they have significantly moderated.
Speaker 1: As I put it, we gave an update on February
Speaker 1: nine in terms of where we are deposits and add
Speaker 1: ass and so only we give next update with the
Speaker 1: first quarter result. But this is also very clear. You
Speaker 1: know if and we talked about that, what has happened
Speaker 1: in like fourth quarter. You know, we are fully focused
Speaker 1: on it, turn it around, but that takes longer than
Speaker 1: like just two months. But then you do you have
Speaker 1: this material weakness today? What happened there? There's concern that
Speaker 1: actually almost every day there's some kind of bad news
Speaker 1: and you have your share price at a record low
Speaker 1: like that can't be a comfortable position, no, But we
Speaker 1: published our report today as we have seen the financial result.
Speaker 1: I think that's a key message. The financial result is
Speaker 1: unchanged for twenty twenty two and previous years. We delayed
Speaker 1: the reporters you have seen a couple of days to
Speaker 1: approbately deal with you know question the SEC head and
Speaker 1: we did, and that is part of an longer ongoing dialogue.
Speaker 1: And we acknowledge that we haven't metier weakness in the
Speaker 1: financial independential reporting control, which we are addressing and imediating forcefully.
Speaker 1: How are you addressing that? So is that an auditor
Speaker 1: problem had PwC on the case. Is it their fault? No,
Speaker 1: it's absolutely not their fault. That is obviously you know
Speaker 1: that cause higher hand in hand as you work together
Speaker 1: with your auditor. But it's a collective fining and we
Speaker 1: are addressing it. We have immediation planner. We are addressing it.
Speaker 1: So you have an anchor investor that put one point
Speaker 1: five million in the bank, now their share value has
Speaker 1: gone down by one third? Will they have to inject more?
Speaker 1: What kind of conversations are you having with them? No, Look,
Speaker 1: nobody is pleased develot the Shaperrice development, you know, but
Speaker 1: we match what we can match. And this is the
Speaker 1: execution of our plan. That's a white swag. This is
Speaker 1: a white plan. We are executing at pace and even
Speaker 1: ahead of the plan. And I think I'll shall to
Speaker 1: see that as well. That's an unpleasant situation. Chaprice for Dicom,
Speaker 1: manage Chaprice, manage the executioner. I do. So you don't
Speaker 1: think you're getting pressure from shareholders. You're not getting pressure
Speaker 1: from you know, certain big shareholders to do more and
Speaker 1: actually to have all options on the table now as
Speaker 1: I said, they are obviously they're obviously not pleased with
Speaker 1: the development. I'm not pleased with developing the first tent obviously,
Speaker 1: but you know, we are executing, and once we are executing,
Speaker 1: step by step, we show the marketing. This is exactly
Speaker 1: why we said it's this wee years process and we
Speaker 1: are executing, and that is you know, the market will
Speaker 1: acknowledge that and the share proce will follow. Do you
Speaker 1: think all options should be on the table? What about
Speaker 1: breaking up the bank? If you look and I understand
Speaker 1: your frustration with the share price and saying, look, you're
Speaker 1: just executing, but when you look at the share price
Speaker 1: ninety seven percent below that two thousand and seven high,
Speaker 1: like how do you regain from that now? But that
Speaker 1: you can can compare as you know, But you know,
Speaker 1: as I said, it's a right swatgy and fully fully
Speaker 1: convinced off the swagy. We are executing at past we
Speaker 1: have the right team, and you know that's why we
Speaker 1: said in October it needs radical change. You know, the
Speaker 1: bank needs to be changed, and we said it's the
Speaker 1: three years transformation. And you can't come after two months
Speaker 1: and say, look why is not everything done? But radical
Speaker 1: change could be splitting off the bank. Is it something
Speaker 1: that you're valuing. Oh look, the new creates vices focused
Speaker 1: on the course lengths of the bank. This is routs management,
Speaker 1: the swisspend passons asset management. What we put the market
Speaker 1: either trading and sales business that makes entirely sense, entirely
Speaker 1: different risk profile, will be very profitable and well reward shareholders.
Speaker 1: And I think the shelters understand it. When will you
Speaker 1: be able to say, like the worse is really behind us?
Speaker 1: But we said it's three years transformation. We said we
Speaker 1: are going to make a loss unfortunately this year because
Speaker 1: you know, and this is something which you need to understand,
Speaker 1: a lot of the restructuring course you know, baked into
Speaker 1: the transformation are coming in twenty twenty three before we
Speaker 1: see a lot of benefits out of that transformation. And
Speaker 1: that is something which happens. That's why we said it
Speaker 1: takes three years. Three years is a long time work.
Speaker 1: I mean a lot of us, but a lot of
Speaker 1: the shareholders will start asking questions. I mean, have you
Speaker 1: asked them for more money to make it faster? For years,
Speaker 1: especially in this banking world, than anything could happen. No,
Speaker 1: But you know, as I said, our LCR ratio is
Speaker 1: strong and very strong, has has has getting stronger as
Speaker 1: we speak. Our capital ratio is very strong at fourteen
Speaker 1: point one percent as we gave it to Q four,
Speaker 1: So we have everything we need to go through a transformation, Maise.
Speaker 1: Or are you expecting, you know, the first quarter to
Speaker 1: be good enough to keep shareholders off your back? The
Speaker 1: first quarter is, as we said, and we put it
Speaker 1: very clearly, we will make a loss in the first quarter,
Speaker 1: but you will see progress in the first quarter numbers
Speaker 1: in terms of what outflows in certain business momentum. We're
Speaker 1: specifically businessman in the market business for example, which was
Speaker 1: as we all discussed for the for four reasons, clearly
Speaker 1: understandable reasons. A week in the Q four looks better.
Speaker 1: We else management, we are making progress, certainly not yet
Speaker 1: there where we should be, but we are making progress.
Speaker 1: Or are you comfortable with the banking system as a whole?
Speaker 1: I mean, we've we've lived through a pretty incredible couple
Speaker 1: of days and if you look at the markets are
Speaker 1: all over the place. No, I think so, I mean
Speaker 1: this is this is somewhat an isolated problem. If you
Speaker 1: want too and as I said, you know, if you
Speaker 1: are gusipit or if you look at the large banks.
Speaker 1: I think we will manage to it. Talk to me
Speaker 1: a little bit about Cratie Sweets First Boston. So first
Speaker 1: of all, what's the timeline for the IPO. The timeline's
Speaker 1: fan seen is unchanged as it discussed last time. So
Speaker 1: we have a very clear plan to put it into market,
Speaker 1: create an liquidity event most likely in IPO. We are
Speaker 1: working against our internal plans forcefully, and I would expect
Speaker 1: such an event in like twenty twenty five. As I
Speaker 1: said earlier, Okay, any news I mean today you had
Speaker 1: news about the you know, twenty percent that would go
Speaker 1: to Critzwe's First Boston partners. What happens to the rest? Right?
Speaker 1: The rest is owned by us and obviously also portioned
Speaker 1: by Michael as we as we announce it in like February,
Speaker 1: and the rest is own past So this is this
Speaker 1: is our Our part of the bank remains all part
Speaker 1: of the bank. We are going into liquidity and again
Speaker 1: most likely IPO. You will be probably a majority and
Speaker 1: let me make decision. You know how our holding develops
Speaker 1: over the next following in So you're still looking for
Speaker 1: an anchor investor? Are you closer to finding well? I
Speaker 1: don't know. We are close to but I'm not sure
Speaker 1: if it's anchor investor. We have a lot of interest
Speaker 1: from sir parties to be invested into that. It tells
Speaker 1: you something about the surge, I would say, and we
Speaker 1: are evaluating that Middle Eastern investors, different kinds of investors,
Speaker 1: different parts of the world. A couple of weeks it
Speaker 1: will come before the first quarter. I will tell the
Speaker 1: market if we are there. What do you find most
Speaker 1: difficult about your job is to make it understandable. I
Speaker 1: would say, you know that we are absolutely doing the
Speaker 1: right things that we need some time to get through.
Speaker 1: And and this is what all my colleagues and I
Speaker 1: try to do, you know, to regain the trust of
Speaker 1: the bank over the next couple of months. But is
Speaker 1: it more important to regain the trust of shareholders or
Speaker 1: or clients? It is look client, I told you last time.
Speaker 1: Clients is I would say, one of the best experience,
Speaker 1: even in this very difficult months last year. I mean,
Speaker 1: they are so supportive of us, they are listening to us,
Speaker 1: they're doing active things to support They like to bank
Speaker 1: with credit. Switz is a fantastic experience. But you know,
Speaker 1: the convincing of this is the right thing to do.
Speaker 1: The executing at pace and the head of plan is
Speaker 1: with all different stakeholders, all different months. That's Credit Suite
Speaker 1: CEO all recorders speaking with Bloomberg's Francine Laqui on Monday. Now,
Speaker 1: as we all know, things got worse from there. Up next,
Speaker 1: we'll hear more from the chair of the Saudi National
Speaker 1: Bank and its concerns about the financial health of Credit Suites.
Speaker 1: You're listening to a special edition of Bloomberg Daybreak Weekend.
Speaker 1: I'll look back at an historic week in the markets
Speaker 1: and crisis in the banking sector. This program was recorded
Speaker 1: on Friday. If you're looking for the latest developments on
Speaker 1: this story, make sure to stay tuned to our news
Speaker 1: updates twice an hour all weekend long on Bloomberg Radio.
Speaker 1: This is Bloomberg Daybreak Weekend. I'm Tom Busby. This week
Speaker 1: a special edition of the show. It's been in historic
Speaker 1: week in financial markets, marked by crisis in the banking industry.
Speaker 1: The meltdown of Silicon Valley Bank spread across the sector,
Speaker 1: touching Signature Bank, First Republic and eventually Credit Suis. It's
Speaker 1: a story they've played out right here on Bloomberg in
Speaker 1: exclusive interviews that moved shares of Credit Suits throughout the week.
Speaker 1: On this show, we usually look forward, but today we're
Speaker 1: looking back, covering the timeline of events that got us
Speaker 1: to where we are right now. Full disclosure, we're taping
Speaker 1: this program on Friday, so it's decidedly a look back,
Speaker 1: not a view of what's to come. But stay tuned
Speaker 1: to our news updates every thirty minutes throughout the weekend
Speaker 1: for the latest developments. On Wednesday, at top shareholder ruled
Speaker 1: out adding to its stake in Credit Suite, deepening the
Speaker 1: crisis at the Swiss bank and leaving its leaders uggling
Speaker 1: to shore up confidence in mid market chaos that spread
Speaker 1: from Europe to the US. The chairman of Saudi National Bank,
Speaker 1: which became Credit Sweet's biggest shareholder late last year, said
Speaker 1: that the bank would not boost its share in the
Speaker 1: lender past the current level of just under ten percent.
Speaker 1: Amar El Kudari spoke exclusively to Bloomberg's use of Kamal
Speaker 1: l Dean in terms of your expectations for the FED,
Speaker 1: You've seen what happened with SVB and the sort of
Speaker 1: the fallout from that. You think the FED is done
Speaker 1: for the year. Or you think they're going to continue
Speaker 1: to high altitly, that's gonna channel back into the Saudi
Speaker 1: obsolute obsolute. It's a little bit top off my pay grade.
Speaker 1: But if my personal opinion is they're not dumb, the
Speaker 1: the inflation situation is proving to be more sticky than
Speaker 1: than they had originally hoped for, and they're gonna have
Speaker 1: to you know, um, they might delay it a little
Speaker 1: bit so that they make sure the ecosystem does not
Speaker 1: create another SVB, but but they will have to continue
Speaker 1: the journey to make sure to suppress inflation. We're coming
Speaker 1: off the bank of a strong set of earnings that
Speaker 1: beat expectations from animists. You kind of take that momentum
Speaker 1: into the remainder of the year. What are your expectations
Speaker 1: for credit growth? How are you going to manage the
Speaker 1: difficult rates environment globally? You know, it's unfortunate that the
Speaker 1: globe has to move to some degree in unison when
Speaker 1: it comes to interest rates, because it's money is fungible
Speaker 1: and it is an open economy. US has an inflation
Speaker 1: problem to deal with, and these increases in interest rates
Speaker 1: for sure causes a drag on your ability to grow faster.
Speaker 1: So this is a you know, high speed, high growth economy.
Speaker 1: Would we have grown faster had interest rates been two
Speaker 1: percent instead of five percent? The answer is, of course.
Speaker 1: But I think even with five or six percent intertit
Speaker 1: environment that we now see or predict will still continue
Speaker 1: to grow. There are pockets where affordability it becomes an issue.
Speaker 1: We see a decline in some of the mortgage business
Speaker 1: for obvious reasons, but in general, I think, yeah, we could.
Speaker 1: We could have done probably one or two percent more
Speaker 1: growth in the economy, saying, you know, because of higher
Speaker 1: interest rates, that drags you down, but we're still going
Speaker 1: to be seeing some great economic growth. I'm very excited
Speaker 1: about this year. I want to get to some of
Speaker 1: your big bets abroad, and let's start off with credit suites,
Speaker 1: because that went the other direction quite a bit negative
Speaker 1: over the last few weeks. A lot of questions being asked.
Speaker 1: I'm wondering whether you would be open to assisting further
Speaker 1: if there was another call for additional liquidity from credit suites.
Speaker 1: The answer is absolutely not, for many reasons outside the
Speaker 1: simplest reason, which is regulatory and statutory. We now own
Speaker 1: um nine point eight percent of the bank. If we
Speaker 1: go above ten percent, all kinds of new rules kick in,
Speaker 1: whether it be by our regulator or the European regulator
Speaker 1: or this was regulator. And we're not inclined to get
Speaker 1: into a new regulatory regime. So I can cite five
Speaker 1: six other reasons, but one reason, which is, you know,
Speaker 1: there is a glass ceiling and we do not intend
Speaker 1: to entertain going beyond it. And we're there now. I'm
Speaker 1: wondering whether any conversations have taken place about other turnaround options.
Speaker 1: Maybe some new radical ideas are needed to help revive
Speaker 1: confidence in credit suites. What are you what is your
Speaker 1: thinking there? That's uh, you're better off asking credit suite.
Speaker 1: We're you know, we don't have a board seat. We're
Speaker 1: an investor, um, and so we don't engage with them
Speaker 1: and discussions that um, you know that kind of cross
Speaker 1: fences us. UM. So the franchise credit Suites First Boston,
Speaker 1: that's also not an option, not not something you would
Speaker 1: invest We're looking at it Forday, Yeah, no, we're not
Speaker 1: looking at that. Saudi National Bank chairman Amar El Kaderi,
Speaker 1: speaking exclusively to Bloomberg on Wednesday, those remarks helping spark
Speaker 1: the biggest ever slump in Credit Sueices stock on Wednesday,
Speaker 1: prompting the Swiss authorities to issue a show of support
Speaker 1: and a credit line of up to fifty four billion dollars.
Speaker 1: After becoming engulfed in the turbulence set off by Silicon
Speaker 1: Valley banks collapse, Credit Sueices stock embarked on its initial
Speaker 1: plunge just as the European Central Banks Governing Council convened
Speaker 1: for its two day gathering, raising concerns about the health
Speaker 1: of the wider banking industry. Asked whether the latest uproar
Speaker 1: could bring a repeat of the last global financial crisis,
Speaker 1: ECB president Christine Lagarde said, I was a run in
Speaker 1: two thousand and eight, so I'll have clear recollection of
Speaker 1: what happened and what we had to do. We did
Speaker 1: reform the framework, we did agree on Buzzle three. We
Speaker 1: did increase the capital ratio, we did increase the financial
Speaker 1: coverage ratio as well, and I think that the banking
Speaker 1: sector is currently in a much much stronger position than
Speaker 1: where it was back in two thousand and eight. Despite
Speaker 1: the market turmoil, the ECB went ahead with a planned
Speaker 1: half point increase in interest rates, but offered few clues
Speaker 1: on what may follow a mid market turmoil that royaled
Speaker 1: credit suites. For more on the ECB's decision and the
Speaker 1: challenges it's facing. Former ECB Chief economist Peter Prett joined
Speaker 1: Bloomberg's Guy Johnson and Alex Steele. But so difficult is
Speaker 1: that you have the liquidity issue of solving the issue,
Speaker 1: and then the confidence issue. And in many ways it
Speaker 1: feels like what's happening in the financial system that they're
Speaker 1: here in the US or in Europe is very much
Speaker 1: a confidence issue. Hadn't the ECB deal with that? Well,
Speaker 1: that's that's a little bit their job, ECB and also
Speaker 1: as a supervisor. I think what we have today is
Speaker 1: big concerns about the in the markets belt you know,
Speaker 1: who took positions you know, in interest rate risk. So
Speaker 1: they look at the portfolio of bonds you know, in
Speaker 1: banks or is it funding funded in all the From
Speaker 1: what we know from from European banks is that the
Speaker 1: risk of you know, interest rate positions is relatively small.
Speaker 1: And this was repeated by the Ghindows, the vice president
Speaker 1: today And I'm not so much concerned, you know about
Speaker 1: interest rate risk in the banking book of the banks,
Speaker 1: you know. I also think you know that most banks
Speaker 1: are hedged, and the counterparties of the hedges are basically
Speaker 1: pension funds and insurance companies. So I think this risk
Speaker 1: is relatively under control. You never know, of course, but
Speaker 1: I think it's not the main issue. The main issue
Speaker 1: is a credit book for the tending that credit book
Speaker 1: looks good, but banks get into trouble when the credit book,
Speaker 1: you know, start to deteriorate, and I think this is
Speaker 1: the risk we have to monitor in the future. It's
Speaker 1: not so much the interest rate risk, but it's really
Speaker 1: what happens in the credit book, and for that the
Speaker 1: economy is absolutely key. For a central bank to provide
Speaker 1: liquidity when you have good collateral is not an issue.
Speaker 1: And basically that's the signal that the Swiss Central Bank
Speaker 1: is is giving, basically saying, okay, I'm ready to provide
Speaker 1: a lot of collaptional of liquidity because you have good
Speaker 1: collapsual So I think that's not the main issue for
Speaker 1: the time being. I know that the markets are concerned.
Speaker 1: Markets have still the trauma of two thousand and eight,
Speaker 1: but we live in a very different world today. I
Speaker 1: was in two thousand in the eleven in the ECB
Speaker 1: when we had, you know, the sovereign debt crisis, and
Speaker 1: the information we got, you know, from the banking system
Speaker 1: was absolutely scattered, you know, because supervision was still at
Speaker 1: the national level. Now we have concentrated information, and so
Speaker 1: that's a very big, very big difference, you know, compared
Speaker 1: to two thousand and eight. They knew what's going on.
Speaker 1: That's former ECB Chief Economist Peter Prett coming up from
Speaker 1: Europe to Washington. We hear from top lawmakers on congressional
Speaker 1: banking committees. You're listening to a special edition of Bloomberg
Speaker 1: day Break Weekend. It's a look back at the historic
Speaker 1: week in the markets and crisis in the banking sector.
Speaker 1: This program was recorded on Friday. If you're looking for
Speaker 1: the latest developments on this story, make sure to stay
Speaker 1: tuned to our news updates twice an hour all weekend
Speaker 1: long on Bloomberg Radio. This is Bloomberg Daybreak Weekend. I'm
Speaker 1: Tom Busby. This week a special edition of the show.
Speaker 1: It's been an historic week in financial markets, marked by
Speaker 1: crisis in the banking industry. The meltdown of Silicon Valley
Speaker 1: Bank spread across the sector, touching signature bank, First Republic
Speaker 1: and eventually credit suis It's a story that played out
Speaker 1: right here on Bloomberg in exclusive interviews that move shares
Speaker 1: of credit suits throughout the week. On this show, we
Speaker 1: usually look forward, but today we're looking back, covering the
Speaker 1: timeline of events that got us to where we are
Speaker 1: right now. Full disclosure, we're taping this program on Friday,
Speaker 1: so it's decidedly a look back, not a view of
Speaker 1: what's to come. But stay tuned to our news updates
Speaker 1: every thirty minutes throughout the weekend for the latest developments.
Speaker 1: On Monday, President Biden came out before the markets opened
Speaker 1: to try to calm a worried nation. All customers who
Speaker 1: had deposits in these banks can rest assured. I want
Speaker 1: to rest assured they'll be protected and they'll have access
Speaker 1: to their money as of today, that includes small businesses
Speaker 1: across the country that bank there and need to make payroll,
Speaker 1: pay their bills, and stay open for business. The President
Speaker 1: adding that he's going to ask Congress and regulators to
Speaker 1: strengthen the rules for banks. On Thursday, Treasury Secretary Janet
Speaker 1: Yellen said that her department is monitoring for a potential
Speaker 1: contraction in credit in the US following the collapse of
Speaker 1: Silicon Valley Bank would spark the danger of contagion across
Speaker 1: the banking system. I can reassure the members of the
Speaker 1: Committee that our banking system is sound and that Americans
Speaker 1: can feel confident that their deposits will be there when
Speaker 1: they need them. Speaking at a Senate Finance Committee hearing,
Speaker 1: Yellen told lawmakers that she had first heard of problems
Speaker 1: with SVB just one day before it was put into
Speaker 1: Federal Deposit Insurance Corps receivership last Friday. Noting the bank's
Speaker 1: high reliance on uninsured deposits for funding, she said, we
Speaker 1: worked with the Federal Reserve and FDIC to protect all
Speaker 1: depositors of the two field banks. On Monday morning, customers
Speaker 1: were able to access all of the money in their
Speaker 1: deposit accounts so they could make payroll and pay the bills.
Speaker 1: The hearing comes amid market worries over financial stability and
Speaker 1: the rapid fire collapse of three regional US banks and
Speaker 1: troubles at credit suites. The Treasury backing a new Federal
Speaker 1: Reserve facility to offer troubled banks liquidity in return for
Speaker 1: high quality assets, aiming to halt any further runs on deposits.
Speaker 1: As to what US regulators can and can't do when
Speaker 1: it comes to banks, Bloomberg spoke with lawmakers on both
Speaker 1: sides of the aisle to get their take first up,
Speaker 1: Democratic Senator Shared Brown of Ohio. He's the chairman of
Speaker 1: the Senate Banking Committee, and he spoke with Bloomberg's Joe
Speaker 1: Matthew and Anne Marie Hordern on Tuesday. Brown wants regulators
Speaker 1: to conduct a comprehensive review of the failures, urging them
Speaker 1: to identify and act on any broader vulnerabilities in the
Speaker 1: banking system. Well, I think we look at everything and
Speaker 1: we're going to investigate through the Banking Housing Committee that
Speaker 1: I share, we're following what the regulators are doing with
Speaker 1: oversight to make sure they investigate. I don't think we
Speaker 1: know yet, but what we do know is every time
Speaker 1: the Silicon Valley bank and the bankers so often come
Speaker 1: to Congress to weaken rules, too often, Congress goes along.
Speaker 1: And whatever we do here, we're going to strengthen oversight rules.
Speaker 1: We're going to make sure that the banks can't can't
Speaker 1: play with risk the way they do and always make
Speaker 1: working families in Ohio pay when when I first when
Speaker 1: the story broke with what had happened in California, and
Speaker 1: I knew that the CEO in California and lobbied Congress
Speaker 1: and lobbied as friends and the regulators for weaker rules.
Speaker 1: First thing I thought about was what happened in East Palestine,
Speaker 1: Ohio with the railroads. The railroads had lobbied Congress, had
Speaker 1: lobby the Trump administration. I'd used their pr campaign to
Speaker 1: weaken safety rules and to hurt the communities. And who
Speaker 1: always pays, whether it's customers at banks pay, or whether
Speaker 1: it's customer or whether it's people in places like Ke's Ballastine.
Speaker 1: So I think it's all about corporate power in the end,
Speaker 1: and as we look at deposit insurance and so many
Speaker 1: other things, we have to keep that in mind. I
Speaker 1: thought you're going to say that it brought you back
Speaker 1: to twenty eighteen when portions of Dodd Frank were rolled back.
Speaker 1: I know you didn't love that idea then. And as
Speaker 1: the President asks to strengthen regulations now, Senator, I wonder
Speaker 1: what it is specifically that your committee can do to
Speaker 1: prevent another SVB. Well, I hope my committee can do
Speaker 1: it because we have so many people in this committee
Speaker 1: that are at the beck and call of the banking lobby,
Speaker 1: the financial services in particularly Wall Street, and particularly the
Speaker 1: most powerful banks. But I know what this committee did
Speaker 1: wrong a few years ago in passing this, and then
Speaker 1: President Trump made it worse by weakening the standards even further.
Speaker 1: But we clearly need stronger capital standards, We clearly need
Speaker 1: stronger liquidity standards. We clearly need to do the strengthen
Speaker 1: the stress tests. I am pushing the Federal Reserve to
Speaker 1: do that. Now I'm going to push Congress to do that.
Speaker 1: I'm less hopeful that Congress will do that because I've
Speaker 1: seen the influence of the bank lobby in Wall Street
Speaker 1: and in the end, again, Ohio workers always pay for
Speaker 1: this when they get their way. That Senator Shared Brown,
Speaker 1: Democrat from Ohio, for a view from the other side.
Speaker 1: On Thursday, Bloomberg, Joe Matthew, and Anne Marie Horder and
Speaker 1: spoke with Representative Patrick McHenry of North Carolina. He's the
Speaker 1: chairman of the House Financial Services Committee. Mckenry said people
Speaker 1: should hold off on a signing blame while Congress and
Speaker 1: watch dogs investigate the cause of the bank's failure. Everybody's
Speaker 1: preaching their book and so, but that's not my responsibility.
Speaker 1: My responsibilities to get to the bottom of what happened
Speaker 1: and why, and that's my obligation as a committee chair
Speaker 1: and to look into this matter and understand what we
Speaker 1: know at this point is you have a couple of
Speaker 1: theories of the case. One mismanagement. Obviously the firm failed
Speaker 1: to supervision right, whether or not those that were tasked
Speaker 1: with overseeing the bank in the regulatory sphere did the
Speaker 1: right thing. Third regulation, fourth law, and then fifth is
Speaker 1: this macro question about the economy, the fiscal house that
Speaker 1: inflamed inflation, and then the FED response to it in
Speaker 1: the rapid rising rates. So you have five buckets of
Speaker 1: theories at this point, and everyone has jumped to their
Speaker 1: natural conclusion to give the answer. Here, we have to
Speaker 1: first figure out why this happened and determine in a
Speaker 1: really quantitative and qualitative way what happened. So you can't
Speaker 1: tell us now if the bill paston twenty eighteen in
Speaker 1: fact was partly to blame, or maybe a better way
Speaker 1: to say is the original Dodd Frank would not have
Speaker 1: prevented this from happening. Well, the original Dodd Frank, and
Speaker 1: then the updates twenty one fifty five, the pie Parson
Speaker 1: Bill that passed in twenty eighteen. The theory is among
Speaker 1: some is that that changed in such a substantial way
Speaker 1: Dodd Frank that they could have seen it under the
Speaker 1: original law but didn't see it because of the the regulatory change.
Speaker 1: The first studies of this, and the indication from bank
Speaker 1: analysts is that that's not the case. The liquidity cover
Speaker 1: ratio this bank would have passed if it had been
Speaker 1: applied to them, and so the key provisions that change
Speaker 1: would not have affected the supervision of this bank nor
Speaker 1: their performance in this moment of stress in this bank run. So,
Speaker 1: but that's the initial review of it. We want to
Speaker 1: understand that that's in fact true in the case when
Speaker 1: you look at the supervision, does this fall into the
Speaker 1: her view of the FED in Washington or is this
Speaker 1: the supervisors in San Francisco who was potentially asleep at
Speaker 1: the wheel. To get to the bottom of that as well,
Speaker 1: the way the FED is organized those through regional banks,
Speaker 1: and the regional banks have their regional bank supervision and
Speaker 1: examination process, we want to understand what happened in the
Speaker 1: San Francisco Field Office and those that were in the bank.
Speaker 1: So I have to get to the bottom of that
Speaker 1: as well. Is this a Washington FED problem? Is that
Speaker 1: San Francisco FED problem? Is that a failure of a
Speaker 1: regulator or not? And at this stage of the game,
Speaker 1: when you want to cast blame, it is natural. The
Speaker 1: first order of business in any business failure is to
Speaker 1: blame the management, because obviously the business failed. The second
Speaker 1: is those that oversee the bank. But when people jump
Speaker 1: to these conclusions at this stage of the game, a
Speaker 1: week end on this really stressed moment for our banking system,
Speaker 1: I think it's unhelpful and quite politically hackish to jump
Speaker 1: to this political conclusion when we don't actually have the
Speaker 1: full set of facts yet. But should the FED be
Speaker 1: investigating themselves? This is almost the third scandal under the FED.
Speaker 1: There's a trading, there's a Kansas City the rare master's
Speaker 1: account for the fintech firm, and now there's this and
Speaker 1: the Vice Chair Supervision, Michael Barr, will be investigating his
Speaker 1: own FED. Why not have an outside probe? Well, Congress
Speaker 1: will look into this as we should. We created the
Speaker 1: Federal Reserve, we created you be in favor of that,
Speaker 1: Like what Elizabeth Warren says, like an outside investigator. Everyone
Speaker 1: in Washington wants to look around for an unbiased source
Speaker 1: of information. Right, good luck. Everybody has a perspective. We
Speaker 1: will certainly investigate this on Capitol Hill, and my committee
Speaker 1: will look into this. That's Republican Congressman Patrick mckenry of
Speaker 1: North Carolina. You're listening to a special edition of Bloomberg
Speaker 1: Daybreak Weekend. It's a look back at the historic week
Speaker 1: in the markets and crisis in the banking sector. Up next,
Speaker 1: we look back by looking ahead, and get a preview
Speaker 1: into what we can expect from the FED meeting this week.
Speaker 1: This program was recorded on Friday. If you're looking for
Speaker 1: the latest developments on this story, make sure to stay
Speaker 1: tuned to our news updates twice an hour all weekend
Speaker 1: long on Bloomberg Radio. This is Bloomberg Daybreak Weekend. I'm
Speaker 1: Tom Busby. This week a special edition of the show.
Speaker 1: It's been a historic week in financial markets, marked by
Speaker 1: crisis in the banking industry. The meltdown of Silicon Valley
Speaker 1: Bank spread across the sector, touching Signature Bank, First Republic,
Speaker 1: and eventually credit suits. It's a story that played out
Speaker 1: right here on Bloomberg in exclusive interviews that move shares
Speaker 1: of credit suites throughout the week. We've been looking back
Speaker 1: on the week all hour, but now it's time to
Speaker 1: look forward. Full disclosure, we're taping this program on Friday
Speaker 1: for the latest on the bank crisis. Stay tuned to
Speaker 1: our news updates every thirty minute. It's throughout the weekend
Speaker 1: for the latest developments. And most economists surveyed by Bloomberg
Speaker 1: News narrowly expect the Federal Reserve to hike rates next
Speaker 1: week and nudge its peak interest rate up slightly in
Speaker 1: a continuing response to high inflation, despite concerns that a
Speaker 1: banking crisis could have broader economic impact. Speaking with Bloomberg's
Speaker 1: David Weston, former Treasury Secretary Larry Summers said the Fed
Speaker 1: shouldn't be spooked into easing its campaign to contain inflation
Speaker 1: out of excessive concern about a credit crunch in the
Speaker 1: wake of the recent banking turmoil. I think we can
Speaker 1: use policy directed at standing behind depositors, separately from monetary policy,
Speaker 1: and I think it's appropriate at least on current facts,
Speaker 1: and they're changing very quickly these days, but on current
Speaker 1: facts to raise rates by twenty five basis points, so
Speaker 1: that's where I would be coming down. I do think
Speaker 1: that the FED should not allow financial dominance, but does
Speaker 1: of course need to recognize that slower credit is going
Speaker 1: to be the result of that. For what we can
Speaker 1: expect next week, we turned out of Bloomberg's Michael McKee,
Speaker 1: Bloomberg News International Economics and Policy correspondent, Michael, thanks for
Speaker 1: being here. I wish I could give you an idea
Speaker 1: of what's going to happen next week, but on a
Speaker 1: day to day basis, I don't know what's happening by
Speaker 1: the end of the day. We do know that on
Speaker 1: the calendar there's a FED meeting on Wednesday and that
Speaker 1: they have to make an interest rate decision. They'll also
Speaker 1: put out new summary of their economic forecasts, and we
Speaker 1: get the infamous dot plot update. So there is a
Speaker 1: lot of news coming. We just don't know what it's
Speaker 1: going to be. The general consensus on Wall Street after
Speaker 1: everything that has happened is, if we get to Wednesday
Speaker 1: and the banking sector has stabilized a little bit and
Speaker 1: we're not going hour by hour, will somebody survive or not?
Speaker 1: That the FED will raise interest rates by twenty five
Speaker 1: basis points. Japal had suggested two weeks ago that we
Speaker 1: might see them do fifty if the data were strong.
Speaker 1: Data weren't all that strong. They were still good, but
Speaker 1: they weren't all that strong, and with what's happened in
Speaker 1: the banking system, probably a precautionary kind of move from
Speaker 1: the FED, a risk management move of only twenty five
Speaker 1: basis points is the most likely thing. Now, let's go
Speaker 1: back to some of those data points that we saw,
Speaker 1: because some very encouraging. The jobs numbers surprising to the upside. Also,
Speaker 1: housing and housing very closely tied to the banking industry.
Speaker 1: Everybody's kind of wondering about that, and it is an
Speaker 1: unusual situation. Obviously, housing very influenced by mortgage rates, which
Speaker 1: are influenced by the fed's rates. And mortgage rates have
Speaker 1: gone way up, and we've seen housing sales drop a lot.
Speaker 1: What we haven't seen is a drop in new home construction.
Speaker 1: Some sales have fallen off, but we saw a big
Speaker 1: rise in new home construction new home starts this past month,
Speaker 1: and also building permits we're up thirteen point eight percent,
Speaker 1: suggesting there's confidence among builders. We know there's a short
Speaker 1: fall of housing. And we also have seen interest rates
Speaker 1: for mortgages come down a little bit in recent weeks
Speaker 1: because they're not just tied to the FED funds rate,
Speaker 1: they're tied to what's happening in the markets. And we've
Speaker 1: seen obviously interest rates fall across the Yeel curve over
Speaker 1: the past couple of weeks as people worry about what's
Speaker 1: going on in the world, and so that is maybe
Speaker 1: in scenting the builders to think that people might come
Speaker 1: back out and start buying again. Michael, thank you so much.
Speaker 1: Be sure to tune into Bloomberg on Wednesday at one
Speaker 1: thirty Wall Street time for our simulcast special The Fed Decides.
Speaker 1: And that's been a special edition of Bloomberg Daybreak. Weekend,
Speaker 1: our looked back at an historic week in the markets
Speaker 1: and crisis in the banking sector. I'm Tom Busby. This
Speaker 1: program was recorded on If you're looking for the latest
Speaker 1: developments on this story, make sure to stay tuned to
Speaker 1: our top stories and global headlines starting right now.