WEBVTT - SVB Collapse Continues to Have an Impact 0:00:01.280 --> 0:00:05.640 This is Bloomberg business Week Inside from the reporters and 0:00:05.840 --> 0:00:09.400 editors who bring you America's most trusted business magazine, plus 0:00:09.480 --> 0:00:13.640 global business finance and tech news. The Bloomberg Business Week 0:00:13.680 --> 0:00:18.560 Podcast with Carol Masser and Tim Stenebec from Bloomberg Radio. 0:00:19.720 --> 0:00:22.239 Here in the house, we knew we wanted him to 0:00:22.239 --> 0:00:25.160 weigh in on this week's flurry of activity and calamity, 0:00:25.520 --> 0:00:28.800 So let's get to it. Matt is Bloomberg opinion columnists 0:00:28.840 --> 0:00:32.080 covering finance, former editor deal Breaker, an investment banker, Goldman 0:00:32.120 --> 0:00:34.640 Saxon more. He is here with Katie and myself in 0:00:34.640 --> 0:00:39.520 our Bloomberg Interactive Broker studio. So what's the most important 0:00:39.960 --> 0:00:43.320 conversation to be having right now? Gosh, I don't know. 0:00:43.400 --> 0:00:47.280 I mean, obviously, the worry that people have is how 0:00:47.320 --> 0:00:49.519 far this conpasion will go right. I mean, we've seen 0:00:49.560 --> 0:00:52.239 a couple of bank failures, and obviously there's a lot 0:00:52.280 --> 0:00:54.720 of action and a lot of other bank stocks that 0:00:54.800 --> 0:00:57.360 make it seem like people are not fully convinced throughout 0:00:57.360 --> 0:00:59.680 of the woods. Are we I don't know. I would 0:00:59.720 --> 0:01:02.920 have had on Sunday night that it looked pretty convincing 0:01:02.960 --> 0:01:05.240 that the Fed was kind of step in to kind 0:01:05.240 --> 0:01:08.880 of prevent bank runs or deposit or losses. But I 0:01:08.880 --> 0:01:11.320 think people are still worried about capital at a lot 0:01:11.360 --> 0:01:13.440 of these banks. I think that a lot of them, 0:01:13.440 --> 0:01:16.720 it seems like, are probably under capitalized on a Marketer 0:01:16.800 --> 0:01:18.679 market basis. I might have to raise money and like 0:01:18.760 --> 0:01:21.880 that's spooking shareholders. So on Sunday night, I was thinking, 0:01:21.959 --> 0:01:24.120 who do I want to talk to? Who's the one 0:01:24.240 --> 0:01:26.240 person in the world that I want to talk to 0:01:26.440 --> 0:01:29.320 the most about this? And after Janet Yellen, and then 0:01:29.360 --> 0:01:33.000 after a Jerome Pal, I'd landed on Matt Levison. You 0:01:33.040 --> 0:01:36.280 were third, But I mean, that's that's my triple crown 0:01:36.360 --> 0:01:38.440 right there. Can I just tell you some of the 0:01:38.520 --> 0:01:40.759 narratives that I've heard about this and maybe you can 0:01:40.840 --> 0:01:46.360 mythbus for me. The first one is that basically this 0:01:46.600 --> 0:01:48.720 was the fact that SPB had a lot of long 0:01:48.840 --> 0:01:51.720 dated treasuries that when they got hit with all of 0:01:51.720 --> 0:01:55.480 these you know, withdrawal requests from their depositor base, which 0:01:55.480 --> 0:01:59.760 I understand was mostly you know, private equity backed startups, 0:02:00.080 --> 0:02:03.360 tech bros, etc. That's another narrative that I've heard thrown around. 0:02:03.440 --> 0:02:06.240 Then when they went to sell these that duration risk 0:02:06.360 --> 0:02:08.480 really came back to bite them. Is that the whole 0:02:08.480 --> 0:02:10.880 picture or is that missing some nuance? Oh? I think 0:02:10.919 --> 0:02:12.360 that's most of it. Yeah, I mean I think they 0:02:12.400 --> 0:02:15.560 had a lot of duration risk in in a way 0:02:15.600 --> 0:02:17.960 that was not accounted for market and market day to 0:02:18.000 --> 0:02:20.520 day and their balance sheet. So they looked you know, 0:02:20.560 --> 0:02:22.440 if you just looked at their financial statements, they looked 0:02:22.480 --> 0:02:25.320 pretty solvent. But if you drilled down into the unrealized 0:02:25.320 --> 0:02:28.000 losses on their whole to maturity treasuries, they looked a 0:02:28.000 --> 0:02:31.440 lot less solvent. Someone noticed. Basically, it seems like the 0:02:31.639 --> 0:02:37.560 you know, the tech bro crowd kind of noticed that. 0:02:35.840 --> 0:02:39.760 And it works, right. One person noticed and then they 0:02:39.800 --> 0:02:42.240 go to the slack and you know, they all get 0:02:42.240 --> 0:02:44.000 their money out. So are they on slack? Is that 0:02:44.080 --> 0:02:46.000 like the cool place to be? I don't I'm not 0:02:46.080 --> 0:02:48.360 in the cool slacks, But my understanding is there might 0:02:48.360 --> 0:02:52.680 have been some some slacks. I'm on ib personally. Okay. 0:02:52.720 --> 0:02:55.040 That leads me to my next question, though, why didn't 0:02:55.080 --> 0:02:58.320 they hedge against this risk? Isn't this I don't know. 0:02:58.360 --> 0:03:00.680 I would think that if you run a rank went 0:03:00.720 --> 0:03:03.000 a one part yeah, right, like it was there any 0:03:03.000 --> 0:03:06.240 way to hedge against this at all. Well, they need 0:03:06.280 --> 0:03:08.919 to make money, right. I Mean, the thing that I 0:03:08.960 --> 0:03:10.839 think happened with the Lilicon Valley Bank is they got 0:03:10.840 --> 0:03:13.440 a ton of deposits in very short order over the 0:03:13.480 --> 0:03:15.959 last couple of years because all of their clients were 0:03:16.000 --> 0:03:19.120 just getting you know, huge they say in their financial 0:03:19.639 --> 0:03:22.519 liquidity events. They were doing spacks, they were doing fundraisings, 0:03:22.639 --> 0:03:24.160 they're making it. They're bringing in a lot of money, 0:03:24.200 --> 0:03:27.400 and they're depositing it at SVB. SVB like kind of 0:03:27.400 --> 0:03:28.960 didn't have a place to put it, right, Like, you 0:03:29.000 --> 0:03:31.280 need to take some risk with your money to make 0:03:31.320 --> 0:03:33.680 money to like, you know, continue running your business as 0:03:33.720 --> 0:03:37.480 a bank. Traditionally you take some credit risk. They you know, 0:03:37.520 --> 0:03:39.640 all their clients were flush with cash and didn't really 0:03:39.680 --> 0:03:41.360 need credit, so they ended up taking a lot of 0:03:41.440 --> 0:03:44.360 duration risk. You can't really hedge that in a way 0:03:44.400 --> 0:03:47.200 that you know, they could have been just buying short 0:03:47.240 --> 0:03:48.960 term assets, but then they wouldn't have made any money, 0:03:49.040 --> 0:03:50.920 or they wouldn't have made enough money. Obviously they were 0:03:51.160 --> 0:03:53.640 getting a little rudy and reaching for a little extra money. 0:03:53.680 --> 0:03:56.920 But they took into a straight risk because it's the 0:03:56.960 --> 0:03:58.520 risk they could take. So mat is there a lesson 0:03:58.520 --> 0:04:01.720 already we're thinking that we need either increased oversight that 0:04:01.840 --> 0:04:05.640 beyond the systemically important banks, or is this just a 0:04:05.680 --> 0:04:08.440 case of a bank that was poorly run. Well. I 0:04:08.440 --> 0:04:11.200 think we definitely are going to see calls for increased 0:04:11.240 --> 0:04:14.880 oversight over these non systemically important banks, and I think, like, 0:04:14.960 --> 0:04:17.600 obviously it's because they're systemically important, right, I mean, like 0:04:17.720 --> 0:04:19.479 if you look at their action to SVB, it was 0:04:19.760 --> 0:04:23.680 if we don't, you know, rescue SVBS depositors, there's going 0:04:23.720 --> 0:04:26.640 to be a cascading run on other banks. That threat 0:04:26.720 --> 0:04:29.839 like seems to have been kind of, you know, reasonable, 0:04:29.880 --> 0:04:31.360 Like I mean, seems to be true that there's a 0:04:31.400 --> 0:04:34.640 lot of worries about other banks. And you know, if 0:04:34.640 --> 0:04:36.800 you believe that threat, then the first thing you do 0:04:36.920 --> 0:04:39.160 is you rescue the depositors. And the second thing you 0:04:39.200 --> 0:04:42.240 do is you start applying the same regulation we applied 0:04:42.240 --> 0:04:44.800 to systemically important banks to banks like SVB that have 0:04:44.839 --> 0:04:47.240 always said they're not systemically important but turn out to be. 0:04:47.720 --> 0:04:49.960 I think it's really interesting that even though you did 0:04:50.040 --> 0:04:53.680 have regulators step in with this backstop pretty much what 0:04:53.800 --> 0:04:56.800 everyone expected them to on Sunday night, and yet you 0:04:56.920 --> 0:04:59.760 look across the market right now. I mean, banks are 0:04:59.760 --> 0:05:03.120 being sold off like crazy, especially some of these smaller 0:05:03.600 --> 0:05:05.680 regional banks. I don't know. It seems to me it 0:05:05.760 --> 0:05:08.880 kind of marries with what you were saying about. You know, 0:05:08.960 --> 0:05:11.200 you had all these tech bros in their slack chat 0:05:11.279 --> 0:05:14.320 and it sort of led to group think this like 0:05:14.400 --> 0:05:16.680 herd mindset they all pulled out. It feels like that's 0:05:16.720 --> 0:05:19.360 still happening with some of these regional banks, even though 0:05:19.440 --> 0:05:24.840 theoretically the depositors would be safe. Yeah. Look, I don't know. 0:05:24.960 --> 0:05:29.240 I think that Um, I don't know that there are 0:05:29.320 --> 0:05:31.200 runs on these banks, but we know their stocks have 0:05:31.279 --> 0:05:33.440 gone down, right, And like there are a number of 0:05:33.480 --> 0:05:36.479 possible reasons for that. One is that this is a 0:05:36.560 --> 0:05:39.239 problem that people were not focused on a week ago, 0:05:39.600 --> 0:05:42.680 and now the drama of this weekend has sort of 0:05:42.920 --> 0:05:45.760 brought focus to this problem, and so people who are 0:05:45.960 --> 0:05:47.600 maybe a little behind are saying, I'm going to sell 0:05:47.640 --> 0:05:52.240 my bank stocks. I do think also, like there could 0:05:52.279 --> 0:05:54.960 be ways this goes poorly for equity holders, even if 0:05:54.960 --> 0:05:58.960 the depositors are totally fine, with one obvious one being 0:05:59.000 --> 0:06:01.240 that if these banks are kind of less solvent than 0:06:01.279 --> 0:06:03.960 they look, and if regulation is coming to basically make 0:06:04.000 --> 0:06:06.000 them be more solvent, and that's going to mean a 0:06:06.040 --> 0:06:08.400 lot of equity raising and a lot of dilution for 0:06:08.440 --> 0:06:14.240 existing shareholders. So that's one possibility. But I agree, I'm 0:06:14.279 --> 0:06:16.920 a little perplexed by the price action because, like I would, 0:06:16.960 --> 0:06:19.520 I would not have expected big runs on all these 0:06:19.560 --> 0:06:22.359 banks after a weekend of the FED saying kind of 0:06:22.360 --> 0:06:23.880 we're going to do everything it takes to make sure 0:06:23.880 --> 0:06:26.520 that these deposits are fun. But without that online chatter, 0:06:26.600 --> 0:06:28.200 you do wonder, and there's been a lot written about 0:06:28.200 --> 0:06:30.920 this that if without that, would we be in this situation. 0:06:31.080 --> 0:06:34.120 Because SVB sold rights and assets, they did what they 0:06:34.160 --> 0:06:36.000 needed to do to kind of shore up art. You 0:06:36.000 --> 0:06:39.800 don't buy that, well, I kind of do. I mean 0:06:39.800 --> 0:06:41.240 it's a bank run, right, I mean, like the problem 0:06:41.279 --> 0:06:43.160 with a bank run is you have all these assets 0:06:43.200 --> 0:06:45.680 that will eventually pay off and you have to sell 0:06:45.720 --> 0:06:47.159 them now, and you don't have enough money if you 0:06:47.200 --> 0:06:48.760 sell them now, right, I mean, if if there had 0:06:48.800 --> 0:06:51.440 not been a run, you know, they were they were 0:06:51.480 --> 0:06:54.440 sort of generally aware of this problem. They were rolling 0:06:54.480 --> 0:06:58.640 off these long duration securities. They were like reinvesting it 0:06:58.680 --> 0:07:00.200 like they were you know, they would have been fine 0:07:00.240 --> 0:07:02.760 if they hadn't lost forty billion dollars of deposits in 0:07:02.800 --> 0:07:05.080 a day. Um, I mean maybe right, I mean, like 0:07:05.640 --> 0:07:08.240 it's not it's not great to be balance sheet in 0:07:08.240 --> 0:07:11.120 solvent as a bank, but it's something that's happened before 0:07:11.360 --> 0:07:13.320 and the banks survived. But when you notice it, when 0:07:13.320 --> 0:07:16.600 there's a when there's a big fast run, then like 0:07:17.360 --> 0:07:19.040 there's not a lot you can do about it. So 0:07:19.080 --> 0:07:21.960 if I were in charge of a regional bank right now, 0:07:22.000 --> 0:07:26.120 if I were managing a portfolio and say, I don't know, 0:07:26.160 --> 0:07:29.640 I had a lot of duration risk, what should I do? Like, 0:07:29.720 --> 0:07:33.400 how should I go about managing that risk? Is that change? Now? 0:07:33.480 --> 0:07:35.560 Would the answer be different than it was a week ago. 0:07:36.600 --> 0:07:41.120 A week ago, a week ago, I would have said, 0:07:41.160 --> 0:07:43.800 raised a lot of equity, okay for sure, Now that 0:07:43.920 --> 0:07:46.200 seems look, I don't know. I mean my answer to 0:07:46.240 --> 0:07:48.720 your question is I might sit very very very still. 0:07:48.840 --> 0:07:50.880 I don't no one notices me, because there's a lot 0:07:50.880 --> 0:07:52.760 of ton you could do, right, I mean, like the 0:07:53.080 --> 0:07:54.800 problems that a lot of these banks that they're health 0:07:54.800 --> 0:07:58.880 in healthy maturity accounting, where if you sell it like 0:07:58.920 --> 0:08:01.760 you trigger, like the losses become more visible, right, they'll 0:08:01.760 --> 0:08:04.480 get to account for the losses. So you don't exactly 0:08:04.520 --> 0:08:08.040 want to do that right now. You probably could use 0:08:08.080 --> 0:08:09.680 more equity, but you don't want to go out and 0:08:09.760 --> 0:08:12.200 raise equity right now because like arguably that's what triggered 0:08:12.200 --> 0:08:15.040 the run an SVB is doing a you know, attempting 0:08:15.040 --> 0:08:19.240 an equity raise. So I mean your best bet is 0:08:19.280 --> 0:08:21.120 probably what you're already trying to do, which is to 0:08:21.200 --> 0:08:25.200 like let that duration risk roll down and reinvest the 0:08:25.240 --> 0:08:28.120 money elsewhere and try not to do it again. But 0:08:29.760 --> 0:08:32.680 you know, like if someone notices either could be a problem, 0:08:32.920 --> 0:08:35.760 I'm glad that I only hypothetically run a regional bank 0:08:35.880 --> 0:08:38.960 I had TVD given a few years. The other thing 0:08:38.960 --> 0:08:40.840 I would do is like, you know, call up the 0:08:40.880 --> 0:08:43.160 FED and make sure all of like the you know, 0:08:43.600 --> 0:08:45.599 make sure I understand the program and be ready to 0:08:45.679 --> 0:08:48.280 borrow from the FED. You know, like, you know, being 0:08:48.320 --> 0:08:50.160 able to show up your liquidity with all these new 0:08:50.240 --> 0:08:54.960 liquidity you know provisions is probably that seems helpful. Roth 0:08:55.000 --> 0:08:57.600 Slowstone have ever Core was on TV earlier and he 0:08:57.640 --> 0:09:00.280 reminded us of worn buffets. One of his famous it's 0:09:00.280 --> 0:09:01.880 only when the tide goes out to you learn who 0:09:01.880 --> 0:09:06.120 has been swimming naked, and we're increasingly learning that are 0:09:06.120 --> 0:09:08.920 we likely because of this unusual low rate environment that 0:09:08.920 --> 0:09:10.400 we've been in for so long, there's going to be 0:09:10.440 --> 0:09:15.960 more that more exposure of some problems. Yeah, I guess. 0:09:16.000 --> 0:09:17.920 I mean, like, like all all you know, there are 0:09:18.240 --> 0:09:21.160 a lot of banks who are in roughly similar situations. 0:09:21.280 --> 0:09:23.640 I also think that, like it feels like this is 0:09:23.640 --> 0:09:25.880 a one time transition from that low rate environment to 0:09:25.880 --> 0:09:28.080 a normal environment, like when rates go from like zero 0:09:28.160 --> 0:09:31.640 to to like four percent, like this gets exposed the 0:09:31.800 --> 0:09:33.720 next move. I think you're going to see less of 0:09:33.720 --> 0:09:35.400 this because like this, the problem is you had to 0:09:35.440 --> 0:09:38.200 really reach for a lot of duration risk when like 0:09:38.880 --> 0:09:41.800 you know, treasury bills are paying zero and your deposits 0:09:41.800 --> 0:09:43.800 were paying zero. But now if treasury bills are paying 0:09:43.800 --> 0:09:45.960 like four percent and your deposits are paying one percent, 0:09:46.040 --> 0:09:47.520 there's a lot more ways to make money as a 0:09:47.559 --> 0:09:50.280 bank without reaching for duration risk. Just got thirty seconds. 0:09:50.280 --> 0:09:53.200 What about like commercial real estate exposure? Is that could 0:09:53.200 --> 0:09:56.360 be that another shoe, Thanks could always lose money on credit. 0:09:56.400 --> 0:09:59.120 I don't know. I mean, it doesn't doesn't have the 0:09:59.160 --> 0:10:01.200 same sort of like it doesn't feel to me like 0:10:01.240 --> 0:10:04.199 being is sort of like hidden and surprising to people 0:10:04.240 --> 0:10:08.719 as this as the durationists that these ranks about. This 0:10:08.840 --> 0:10:11.319 was great. This was the best eight minutes of my 0:10:11.400 --> 0:10:14.720 day so far. See. I mean, it's been a bad day, 0:10:14.920 --> 0:10:21.080 but this is definitely the highlight. Imagine if Jellen this 0:10:21.120 --> 0:10:23.400 is pretty though. This is a pretty good third place. 0:10:23.480 --> 0:10:25.360 I gotta say it's not too bad to be in 0:10:25.400 --> 0:10:27.800 those top three. Um, Matt Levine, thank you so much, 0:10:27.920 --> 0:10:31.400 really appreciate it. Columnist with Bloomberg Opinion. Check him out 0:10:31.480 --> 0:10:34.440 on the Bloomberg terminal. Of course, at Bloomberg dot com, 0:10:34.760 --> 0:10:38.280 you're listening to the Bloomberg Business Week podcast. Catch us 0:10:38.360 --> 0:10:41.760 live weekday afternoons from three to six Eastern Listen on 0:10:41.800 --> 0:10:45.080 Bloomberg dot com, the Ion Radio app, and the Bloomberg 0:10:45.160 --> 0:10:50.000 Business App, or watch us live on YouTube. Well. Our 0:10:50.000 --> 0:10:54.000 coverage and focus on banking continues and where and how 0:10:54.000 --> 0:10:56.640 we might find additional problems spots. Our in house analyst 0:10:56.679 --> 0:10:59.679 on regional banks back with us, Herman Chan. He is 0:10:59.720 --> 0:11:02.000 seen your alas for US regional banks with our Bloomberg 0:11:02.040 --> 0:11:04.800 Intelligence team. He joins Katie and myself here in our 0:11:04.840 --> 0:11:08.400 Bloomberg Interactor Broker's studio and then on Zoom in Chicago 0:11:08.559 --> 0:11:12.079 and a Koy Partner national financial services leader at whip Fly. 0:11:12.240 --> 0:11:15.439 It's a global accounting, tax and consulting firm that's been 0:11:15.440 --> 0:11:18.320 around for nearly a century. So curious to see what 0:11:18.679 --> 0:11:20.920 if any of our banking clients are saying. But let's 0:11:20.920 --> 0:11:24.800 start with Herman, Herman, where are we? What's the latest here? 0:11:24.840 --> 0:11:26.160 What do you think it needs to be top of 0:11:26.200 --> 0:11:29.200 mind for our investor audience? Sure? So where are we? 0:11:29.400 --> 0:11:33.480 We are in a market that is very dubious about 0:11:33.600 --> 0:11:39.280 regional banks. When we first chatted last week, our view 0:11:39.360 --> 0:11:42.599 was that the SVB situation would be a bit contained 0:11:43.120 --> 0:11:47.920 because SVB is a very unique atlier type bank that 0:11:48.000 --> 0:11:50.640 took a lot of interest rate risk in their investment 0:11:50.679 --> 0:11:55.240 securities portfolio and was also seeing some deposit outflow from 0:11:55.320 --> 0:11:59.560 their startup clients. There's no other bank of size in 0:11:59.600 --> 0:12:02.040 the United States that does that kind of business, that 0:12:02.280 --> 0:12:04.960 structured their balance sheet in that way. We know that, 0:12:05.080 --> 0:12:09.319 we know that for effect, But the market is extrapolating 0:12:09.440 --> 0:12:13.800 from what happened with SVB and taking a very dim 0:12:13.920 --> 0:12:20.480 view of banks that operated either tangentially or had the 0:12:20.559 --> 0:12:27.600 same sort of geographic focus or product focus, and so 0:12:28.000 --> 0:12:33.120 banks like Signature have been felled by this. Banks like 0:12:33.640 --> 0:12:37.880 First Republic and Western Alliance today are being pressured because 0:12:37.920 --> 0:12:42.800 they operate in similar markets and customers. Well that's the thing. 0:12:42.800 --> 0:12:45.760 When I was reading my email last night, I mean 0:12:45.800 --> 0:12:48.080 I read it all day, it was kind of a 0:12:48.120 --> 0:12:51.120 double whammy. First, we got a headline that said the 0:12:51.240 --> 0:12:55.600 US as SPB depositors will have access to all money Monday. 0:12:55.679 --> 0:12:58.440 That's good. The next headline that I read was that 0:12:58.600 --> 0:13:02.760 USS Signature bank closed today by state authority. So, I 0:13:02.800 --> 0:13:04.680 mean it makes sense that even though to your point, 0:13:04.679 --> 0:13:07.560 I mean we sort of had an isolated case here, 0:13:07.800 --> 0:13:11.679 it does feel like there is this concern over who's 0:13:11.679 --> 0:13:13.400 going to be the next Signature, What's going to be 0:13:13.400 --> 0:13:17.800 the next surprising headline? You mentioned First Republic. I mean, 0:13:18.440 --> 0:13:21.360 nothing has been announced about them, But is that a 0:13:21.440 --> 0:13:23.720 name that we should be keeping an eye on the 0:13:23.760 --> 0:13:25.960 market's telling you it's a name we have to keep 0:13:26.000 --> 0:13:27.920 an eye on for a better or for worse. I 0:13:27.920 --> 0:13:31.600 think it's a bit unfounded. The bank itself is a 0:13:31.760 --> 0:13:36.680 very conservative institution that caters to high networth clients, doesn't 0:13:36.760 --> 0:13:42.200 down fifty trading. That's amazing. I mean, and it has 0:13:42.320 --> 0:13:45.720 had the best one of the best credit quality type 0:13:45.720 --> 0:13:49.680 stories over the history of the company. Wow, And I 0:13:49.679 --> 0:13:52.120 want to bring you into the conversation. You know, remind 0:13:52.400 --> 0:13:55.120 all of us, you know, what you guys do and 0:13:55.520 --> 0:13:57.319 in terms of the types of clients you have and 0:13:57.440 --> 0:14:00.000 what you're seeing in connection with this. I don't know 0:14:00.040 --> 0:14:04.120 whether to call it crisis, but certainly concern and worry 0:14:04.120 --> 0:14:07.960 in the banking site sector. Yeah, absolutely so. Whipfully is 0:14:08.000 --> 0:14:13.160 a top twenty financial um works with top twenty accounting 0:14:13.160 --> 0:14:16.760 firms that works with financial institutions anywhere is up to 0:14:16.880 --> 0:14:21.160 about fifteen billion dollars, so your regional size financial institutions, 0:14:21.680 --> 0:14:25.479 and you know we help them from compliance and regulatory 0:14:25.640 --> 0:14:30.360 as well as you know, consulting around digital and other ways. 0:14:30.440 --> 0:14:33.680 So how are those clients. What's the conversation you guys 0:14:33.680 --> 0:14:36.200 are all having with those types of clients. You know, 0:14:36.520 --> 0:14:40.760 it's it's been around liquidity since the fall, and right 0:14:40.800 --> 0:14:43.760 now it's it's risk. What's on their balance sheet? How 0:14:43.760 --> 0:14:46.240 do they manage the risk and how do they not 0:14:46.360 --> 0:14:50.520 be the tansgential um ones that go down like you 0:14:50.560 --> 0:14:54.360 saw with the signature or the discussions are our first Republic. 0:14:54.560 --> 0:14:58.720 Well Herman way in on that thought managing liquidity risk. 0:14:59.160 --> 0:15:02.280 We were just talking with Leaving about managing duration risk. 0:15:02.360 --> 0:15:04.960 If you run one of these regional banks, how do 0:15:05.040 --> 0:15:09.600 you do that? Well, the new FED facility helped you 0:15:09.880 --> 0:15:13.960 manage liquidity is the whole issue in my view is 0:15:13.960 --> 0:15:19.080 that the announcements last night with the regulators backstopping the 0:15:19.120 --> 0:15:24.080 deposit tours of both SVB and Signature and also coming 0:15:24.120 --> 0:15:28.720 out with this new liquidity facility should give the market 0:15:29.240 --> 0:15:32.640 confidence that the banking sector can manage this liquidity risk 0:15:32.680 --> 0:15:37.120 because the banks can use their existing assets and pledge 0:15:37.120 --> 0:15:40.800 it to the FED and then get get liquidity out 0:15:41.400 --> 0:15:44.720 to help support their their depositors if they want to 0:15:44.760 --> 0:15:47.000 take their deposits out of the bank. That's the whole 0:15:47.000 --> 0:15:49.480 point of this. It seems like it's fallen on deaf 0:15:49.520 --> 0:15:53.000 ears that the market doesn't feel like the liquidity risk 0:15:53.040 --> 0:15:54.760 issue has been taken off to take Yeah, I do 0:15:54.760 --> 0:15:56.840 feel like officials I mean at a command back, I 0:15:56.880 --> 0:15:59.800 mean doesn't do those banking clients that you guys have 0:16:00.040 --> 0:16:03.560 and customers feel like the government is going to be 0:16:03.640 --> 0:16:07.760 there to backstop whatever they need. Yeah, I think the 0:16:07.840 --> 0:16:10.520 banks feel that way. I think the risk that we're 0:16:10.520 --> 0:16:13.240 seeing is a risk that maybe many didn't have top 0:16:13.280 --> 0:16:16.840 of mind before now. And that's social media risk. I mean, 0:16:16.920 --> 0:16:21.440 it's going around like like wildfire, whether it's Twitter, Facebook, Instagram, 0:16:21.600 --> 0:16:24.400 you name it, and so how do you manage against that, 0:16:24.480 --> 0:16:27.560 even though it's a very conservative bank that they're talking about. 0:16:27.760 --> 0:16:30.120 That's the thing. I feel like I've seen so many 0:16:30.160 --> 0:16:34.320 tiktoks even on this, which is not necessarily a social 0:16:34.360 --> 0:16:38.720 media channel, that you would expect this to be penetrating. 0:16:38.720 --> 0:16:40.760 But I mean, anna to that point, I know that 0:16:40.760 --> 0:16:43.960 this is impossible to quantify. It's sort of a thought exercise, 0:16:44.040 --> 0:16:47.680 but how much did this sort of heard think that 0:16:47.720 --> 0:16:50.360 we've heard around what happened at SPB. How much was 0:16:50.440 --> 0:16:53.320 social media do you think actually a contributing factor here? 0:16:54.280 --> 0:16:57.440 I think it was significant, and I think we're seeing 0:16:57.440 --> 0:17:00.880 it still with First Republic. Seems to be top of 0:17:00.920 --> 0:17:03.360 mind and at the tip of everyone's tongues right now, 0:17:03.800 --> 0:17:06.400 whether it's founded or not. Well, and this is where 0:17:06.520 --> 0:17:08.480 going back to you, Herman. You know, you guys have 0:17:08.520 --> 0:17:12.320 to do the fundamental and critical research, look at the 0:17:12.359 --> 0:17:15.600 balance sheets and understand it. So is there is there? 0:17:15.640 --> 0:17:18.600 From what you are seeing a true disconnect between the 0:17:18.720 --> 0:17:22.600 social conversations and the social narrative versus what the reality 0:17:22.760 --> 0:17:25.600 is on a lot of these regional banks balance sheets. Right, 0:17:26.800 --> 0:17:30.280 I want to pull it back to what Matt had 0:17:30.359 --> 0:17:33.320 talked about in his prior segment with you guys. Yeah, 0:17:33.359 --> 0:17:35.960 and he mentioned the duration risk of the securities book 0:17:36.040 --> 0:17:42.680 at at SBB signature, and to a much greater extent. 0:17:42.720 --> 0:17:46.719 First Republic has duration risk and its loan portfolio because 0:17:46.760 --> 0:17:51.920 they are mostly loan to high net worth customers and 0:17:52.800 --> 0:17:57.359 residential mortgages or home equity of type loans, so the 0:17:57.440 --> 0:18:01.879 duration of those loans are about ten years, and so 0:18:01.960 --> 0:18:04.600 those books are going to sit on the bank's balance 0:18:04.640 --> 0:18:07.640 sheets at fairly low rates because a lot of the 0:18:07.680 --> 0:18:10.960 mortgage activity that happened, as you probably recall, happened during 0:18:10.960 --> 0:18:13.680 the pandemic period when rates were zero, and so when 0:18:14.320 --> 0:18:18.160 the bank did all these originations at that time, they 0:18:18.200 --> 0:18:20.280 were at very low levels. And so you have the 0:18:20.320 --> 0:18:23.200 same sort of duration risk, but in the loan book 0:18:23.200 --> 0:18:27.760 and not the securities book. I mean, Anna, my head 0:18:27.840 --> 0:18:29.439 is spinning a little bit. And right now I have 0:18:29.480 --> 0:18:32.000 to say, especially after being plugged in for like four 0:18:32.080 --> 0:18:35.400 days straight, what do you expect the next two weeks 0:18:35.920 --> 0:18:39.280 two months of conversations to look like with you in 0:18:39.320 --> 0:18:42.800 between the banking clients that you do work with. Yeah, 0:18:42.880 --> 0:18:44.439 I think you're going to see a lot of folks 0:18:44.480 --> 0:18:47.400 going back to the basics and really looking at risk 0:18:47.520 --> 0:18:51.560 on their balance sheet, better understanding, you know, where they 0:18:51.640 --> 0:18:57.160 have current risks and truly trying to manage what that's 0:18:57.200 --> 0:18:59.239 going to look like in the future. And so a 0:18:59.240 --> 0:19:02.760 lot of talk around not just liquidity but overall enterprise 0:19:02.880 --> 0:19:06.080 risk management and you know, truly getting back to the 0:19:06.080 --> 0:19:08.800 basics of what they were as a financial institution. Hey, 0:19:08.840 --> 0:19:10.720 Herman just got about thirty forty seconds to we even 0:19:10.840 --> 0:19:13.879 understanding of kind of maybe a window and time frame, 0:19:14.520 --> 0:19:17.880 like to understand when all the fallout should happen as 0:19:17.880 --> 0:19:20.920 a result of this. Wow, that's that's a tough one 0:19:20.960 --> 0:19:23.680 to answer. Um, I think we're Yeah, you'd be living 0:19:23.680 --> 0:19:25.360 on an island in the Caribbean. I get it if 0:19:25.359 --> 0:19:28.960 you knew that, if I did. Yes, I think hopefully 0:19:29.240 --> 0:19:32.800 the market is being very forceful with what they're trying 0:19:32.800 --> 0:19:35.160 to tell tell the story in terms of First Republic 0:19:35.520 --> 0:19:42.320 and some banks like Western Alliance pack West, Um, they say, hey, 0:19:42.359 --> 0:19:45.640 here's the reality of it. We're okay or there's something 0:19:45.960 --> 0:19:48.359 is going to have to happen. So either way, I 0:19:48.359 --> 0:19:50.680 would expect it to something to happen in a very 0:19:50.680 --> 0:19:53.359 short order. All Right, it's gonna be fun, I know. 0:19:53.640 --> 0:19:56.520 Strip yourself in. Everybody, get ready for the ride. Herman, 0:19:56.560 --> 0:19:58.680 thank you so much. Herman Chan, he's senior analysts for 0:19:58.760 --> 0:20:02.040 US regional banks at Bloomer Intelligence. Not getting any sleep 0:20:02.119 --> 0:20:03.760 right now because there's so much going on here in 0:20:03.760 --> 0:20:07.159 our interactive broker studio. And Anna Choi, thank you so much. Partner, 0:20:07.440 --> 0:20:10.840 a national financial services leader at whip Fly. Joining us 0:20:10.920 --> 0:20:15.639 via zoom from Chicago, you're listening to the Bloomberg Business 0:20:15.680 --> 0:20:19.320 Week podcast. Catch us live weekday afternoons from three to 0:20:19.359 --> 0:20:23.640 six Eastern on Bloomberg Radio, the Bloomberg Business App, and YouTube. 0:20:23.840 --> 0:20:26.679 You can also listen live on Amazon Alexa from our 0:20:26.720 --> 0:20:32.480 flagship New York station, Jo Say Alexa play Bloomberg eleven thirty. 0:20:33.800 --> 0:20:37.959 All right, everybody, as you know, Saint Patti's day coming up. 0:20:38.320 --> 0:20:40.399 I've heard that on Friday. We can all use a 0:20:40.440 --> 0:20:43.600 stiff drink. Right, there's a lot going on right now. 0:20:44.040 --> 0:20:46.679 We also do know that we are front and center 0:20:47.240 --> 0:20:49.679 on what's going on with banks here in the United States. 0:20:49.720 --> 0:20:53.840 We did see though exposure and activity overnight European equities 0:20:53.880 --> 0:20:57.360 they tumble the most in mid December. They extended Friday's decline. 0:20:57.400 --> 0:21:00.679 Concerns from the banking center lingering to bite measures by 0:21:00.680 --> 0:21:03.840 regulators to limit the fallout from Silicon Valley banks collapse. 0:21:03.880 --> 0:21:07.719 The world once again, Katie, looking at the global banking system, 0:21:07.760 --> 0:21:10.040 so we have a lot to talk about with a 0:21:10.040 --> 0:21:13.000