1
00:00:00,800 --> 00:00:04,040
Speaker 1: Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney alongside

2
00:00:04,040 --> 00:00:06,920
Speaker 1: my co host Matt Miller. Every business day we bring

3
00:00:06,960 --> 00:00:11,520
Speaker 1: you interviews from CEOs, market pros, and Bloomberg experts, along

4
00:00:11,520 --> 00:00:15,560
Speaker 1: with essential market moving news. Find the Bloomberg Markets podcast

5
00:00:15,560 --> 00:00:18,400
Speaker 1: called Apple Podcasts or wherever you listen to podcasts, and

6
00:00:18,480 --> 00:00:21,680
Speaker 1: at Bloomberg dot com slash podcast. Shallie Bastick joins in

7
00:00:21,840 --> 00:00:24,520
Speaker 1: your studio, Shanalie. We were just talking about how you

8
00:00:24,560 --> 00:00:26,920
Speaker 1: cook me food sometimes and we use lots of tupperware.

9
00:00:26,960 --> 00:00:28,720
Speaker 1: I have so much of Shanelie's tupperware in my cover

10
00:00:28,840 --> 00:00:32,199
Speaker 1: that I've never returned or like takeout containers, but I

11
00:00:32,240 --> 00:00:36,720
Speaker 1: mean whatever. She doesn't even know the difference. Yeah. Alison

12
00:00:36,720 --> 00:00:39,480
Speaker 1: Williams walking in studio as well of Bloomberg Intelligence also

13
00:00:39,520 --> 00:00:42,240
Speaker 1: at shock at our lack of tupperware use. Anyways, you

14
00:00:42,280 --> 00:00:43,680
Speaker 1: guys don't want to hear about tupper Where you want

15
00:00:43,680 --> 00:00:45,280
Speaker 1: to hear about bankstocks. And that's where I want to

16
00:00:45,280 --> 00:00:48,400
Speaker 1: go next. JP Morgan shares hire by get this six

17
00:00:48,560 --> 00:00:51,080
Speaker 1: point nine percent in the pre markets. Shall Let's start

18
00:00:51,080 --> 00:00:53,520
Speaker 1: off with you here. What's the highlight with JP Morgan?

19
00:00:53,560 --> 00:00:55,480
Speaker 1: They just dumped a lot of information on us. I'm

20
00:00:55,480 --> 00:00:57,520
Speaker 1: writing my newsletter right now, and I'm like the cherry

21
00:00:57,520 --> 00:00:59,320
Speaker 1: on top of the cherry, on top of the cherry,

22
00:00:59,360 --> 00:01:01,720
Speaker 1: on top of the cherry. I mean, JP Morgan with

23
00:01:01,840 --> 00:01:05,080
Speaker 1: twenty three percent returns on tangible common equity, blowing that

24
00:01:05,120 --> 00:01:08,240
Speaker 1: out of the water. Also increasing their expectations from that

25
00:01:08,400 --> 00:01:11,880
Speaker 1: interest income this year. We have not seen that yet

26
00:01:11,920 --> 00:01:15,280
Speaker 1: among the other banks. They're expecting or at least warning

27
00:01:15,319 --> 00:01:17,959
Speaker 1: that rates could be higher for longer. They said, it

28
00:01:17,959 --> 00:01:20,920
Speaker 1: doesn't necessarily need to be the case, but in for

29
00:01:21,000 --> 00:01:23,520
Speaker 1: bank like JP Morgan, they would benefit more from something

30
00:01:23,560 --> 00:01:25,880
Speaker 1: like that. We have seen what higher interest rates have

31
00:01:26,000 --> 00:01:29,080
Speaker 1: meant for the rest of the banking system, So this

32
00:01:29,120 --> 00:01:33,640
Speaker 1: could be a messy year ahead. That's Aliston william Senior

33
00:01:33,680 --> 00:01:37,560
Speaker 1: Global Banks and Asset Manager analyst with Bloomberg Intelligence, And

34
00:01:37,600 --> 00:01:40,440
Speaker 1: I wanted to get your perspective, since you cover this

35
00:01:40,560 --> 00:01:43,360
Speaker 1: so closely more broadly, what's your kind of big takeaway

36
00:01:43,360 --> 00:01:45,520
Speaker 1: now that we've heard from some of these big banks

37
00:01:45,520 --> 00:01:48,880
Speaker 1: this morning. So the net interest income is really the

38
00:01:48,960 --> 00:01:52,840
Speaker 1: positive story and most positive at JP Morgan, as Shinale

39
00:01:52,880 --> 00:01:57,920
Speaker 1: pointed out, I mean, those returns are really impressive and

40
00:01:58,120 --> 00:02:02,920
Speaker 1: you know, the net interest income. We looked like it

41
00:02:02,960 --> 00:02:04,840
Speaker 1: was peaking in the fourth quarter, but it got even

42
00:02:04,880 --> 00:02:07,200
Speaker 1: better this quarter, and that was across the banks. The

43
00:02:07,320 --> 00:02:09,639
Speaker 1: delta at JP Morgan is so much stronger, and really

44
00:02:09,680 --> 00:02:12,919
Speaker 1: what we're seeing is it's the asset yields, so that

45
00:02:13,040 --> 00:02:16,200
Speaker 1: actually the cost of deposits, which is something we've been

46
00:02:16,200 --> 00:02:19,600
Speaker 1: talking about, especially accelerating in the in the you know,

47
00:02:19,680 --> 00:02:22,840
Speaker 1: with the bank turmoil. Those costs actually did come in

48
00:02:22,919 --> 00:02:26,240
Speaker 1: higher than expected, but the yields are even better. I

49
00:02:26,280 --> 00:02:29,359
Speaker 1: think for both JP Morgan and City they're benefiting actually

50
00:02:29,440 --> 00:02:33,160
Speaker 1: from card that's really the area of loan growth, that

51
00:02:33,360 --> 00:02:37,560
Speaker 1: is the class of loans with the highest yield. But

52
00:02:37,600 --> 00:02:40,839
Speaker 1: they're also all of these banks executing on costs as well.

53
00:02:40,919 --> 00:02:45,000
Speaker 1: That was a positive story in the quarter, helping profitability. Lastly,

54
00:02:45,040 --> 00:02:48,639
Speaker 1: I'll just point out reserves. Reserves are coming in higher

55
00:02:48,680 --> 00:02:52,079
Speaker 1: than expected, charge offs still better, so it's still good

56
00:02:52,080 --> 00:02:54,959
Speaker 1: credit quality, but that's the negative in terms of the

57
00:02:55,000 --> 00:02:57,040
Speaker 1: look ahead. Speaking of the look ahead, you know you

58
00:02:57,120 --> 00:03:00,640
Speaker 1: mentioned that credit cards that's where the highest yield for

59
00:03:00,720 --> 00:03:03,320
Speaker 1: the banks. That means for the consumer, it's the highest

60
00:03:03,360 --> 00:03:06,800
Speaker 1: price you're paying for debt. There's a sense that consumers

61
00:03:06,800 --> 00:03:09,400
Speaker 1: are not too stretched right now according to JP Morgan,

62
00:03:09,440 --> 00:03:11,520
Speaker 1: but they've also said the consumers will hit a cliff

63
00:03:11,720 --> 00:03:15,520
Speaker 1: at the end of the year. Realistically, can banks keep

64
00:03:15,560 --> 00:03:18,640
Speaker 1: on making more and more money from credit card loans?

65
00:03:19,680 --> 00:03:23,160
Speaker 1: I think this cycle is so different, right, so we

66
00:03:23,200 --> 00:03:27,360
Speaker 1: know it's so different. It's the pandemic was something unprecedented.

67
00:03:27,680 --> 00:03:30,040
Speaker 1: And keep in mind that what we saw right for

68
00:03:30,160 --> 00:03:33,200
Speaker 1: JP Morgan and City Group, one of the big disappointments

69
00:03:33,280 --> 00:03:36,000
Speaker 1: in twenty twenty and twenty twenty one was that those

70
00:03:36,040 --> 00:03:39,240
Speaker 1: card balances were paying down, the consumer was getting healthy,

71
00:03:39,360 --> 00:03:44,400
Speaker 1: and so the consumer came into this or recession, which

72
00:03:44,440 --> 00:03:46,640
Speaker 1: I get is still coming, but we're already I think

73
00:03:46,920 --> 00:03:49,200
Speaker 1: thinking about it as if it's here, but came in

74
00:03:49,200 --> 00:03:52,520
Speaker 1: in such better shape. So I think at the margin

75
00:03:52,640 --> 00:03:56,080
Speaker 1: that that's a little bit different this time. But to

76
00:03:56,120 --> 00:03:59,080
Speaker 1: your point, it is something to watch in terms of

77
00:04:00,480 --> 00:04:03,960
Speaker 1: the consumer getting some better yield, finally getting more than

78
00:04:04,080 --> 00:04:06,800
Speaker 1: zero on those deposits, but those who are borrowing are

79
00:04:06,880 --> 00:04:09,000
Speaker 1: going to be paying a higher price. Whenever the c

80
00:04:09,240 --> 00:04:11,840
Speaker 1: suite executives, especially for the banks, come out, I always

81
00:04:11,880 --> 00:04:13,720
Speaker 1: think of like last summer, right when we got the

82
00:04:13,840 --> 00:04:16,719
Speaker 1: sort of weather forecasting. Always think of the hurricane comments

83
00:04:17,320 --> 00:04:21,560
Speaker 1: from JP Oregan, but I was curious if what specifically

84
00:04:21,600 --> 00:04:24,159
Speaker 1: stood out on some of these earnings calls to you

85
00:04:24,240 --> 00:04:26,520
Speaker 1: as far as the rhetoric moving forward. When it comes

86
00:04:26,520 --> 00:04:28,839
Speaker 1: to these chief executives and what they're expecting for the

87
00:04:28,880 --> 00:04:32,680
Speaker 1: trajectory of the economy moving forward, they're still talking a

88
00:04:32,720 --> 00:04:36,080
Speaker 1: lot about uncertainty. And that's why, you know, if you

89
00:04:36,240 --> 00:04:40,320
Speaker 1: looked at the numbers, you know, JP Morgan did increase

90
00:04:40,360 --> 00:04:42,839
Speaker 1: their guidance, but it still looks like it could be

91
00:04:42,920 --> 00:04:46,880
Speaker 1: conservative City Group and Whiles far Ago despite better numbers,

92
00:04:47,080 --> 00:04:49,600
Speaker 1: not changing their guidance, and I think because they are

93
00:04:49,680 --> 00:04:53,280
Speaker 1: being conservative because we really don't know. And part of

94
00:04:53,600 --> 00:04:57,800
Speaker 1: the upside this quarter was, you know, rates, the rates

95
00:04:58,360 --> 00:05:03,320
Speaker 1: coming in higher that expected, at least on the short

96
00:05:03,440 --> 00:05:07,200
Speaker 1: end of things. As we know longer term yields are

97
00:05:07,240 --> 00:05:09,840
Speaker 1: coming down, and there still is a lot of uncertainty.

98
00:05:10,160 --> 00:05:14,840
Speaker 1: That brings me to another business, fixed income trading surprising

99
00:05:14,839 --> 00:05:17,360
Speaker 1: in the quarter. We think that people aren't going to

100
00:05:17,440 --> 00:05:19,599
Speaker 1: extrapolate that to the rest of the year, but we

101
00:05:19,720 --> 00:05:22,200
Speaker 1: really think that that can continue to surprise to the

102
00:05:22,240 --> 00:05:27,240
Speaker 1: upside because of the uncertainty, because of this unprecedented environment,

103
00:05:27,279 --> 00:05:29,800
Speaker 1: which brings me to Shanali exactly what you actually point

104
00:05:29,800 --> 00:05:31,320
Speaker 1: out to me this morning, which comes to what Jamie

105
00:05:31,360 --> 00:05:33,400
Speaker 1: Diamond said about rates. It is blowing my mind that

106
00:05:33,520 --> 00:05:35,840
Speaker 1: he can actually say six percent potentially on the front

107
00:05:35,920 --> 00:05:40,360
Speaker 1: end of the curve, when we're barely sustaining above four percent.

108
00:05:40,400 --> 00:05:43,960
Speaker 1: I mean, except for the earnings from today, we weren't

109
00:05:44,000 --> 00:05:45,960
Speaker 1: even crossing four percent for I want to say at

110
00:05:46,040 --> 00:05:48,520
Speaker 1: least a couple weeks time, and really since the banking crisis.

111
00:05:48,640 --> 00:05:50,040
Speaker 1: Now we're looking at four a weight on the two

112
00:05:50,080 --> 00:05:52,800
Speaker 1: year yield. To me, also, then you have to kind

113
00:05:52,839 --> 00:05:55,440
Speaker 1: of square that with the deposit flows, because even though

114
00:05:55,440 --> 00:05:57,720
Speaker 1: you saw that major intake, I think you pointed out

115
00:05:57,760 --> 00:05:59,720
Speaker 1: that he's still saying that by the end of the

116
00:05:59,760 --> 00:06:02,359
Speaker 1: year this is all going to reverse. He's even saying

117
00:06:02,400 --> 00:06:04,360
Speaker 1: that the deposits that they took in in the wake

118
00:06:04,400 --> 00:06:07,560
Speaker 1: of kind of this quote unquote banking crisis. Now everyone

119
00:06:07,640 --> 00:06:09,760
Speaker 1: is disputing the term again. Right three weeks ago, it

120
00:06:09,760 --> 00:06:14,960
Speaker 1: was a full blown crisis. Now I'm over yeah, whatever,

121
00:06:15,040 --> 00:06:17,840
Speaker 1: But anyways, what he is saying is even those deposits

122
00:06:17,839 --> 00:06:21,080
Speaker 1: for JP Morgan are flighty and so yeah, I mean

123
00:06:21,240 --> 00:06:22,960
Speaker 1: but that's just on the deposit story. I think on

124
00:06:23,080 --> 00:06:25,320
Speaker 1: the loans story, it's very important also because he's saying,

125
00:06:25,320 --> 00:06:28,360
Speaker 1: don't call this a credit crunch, and they're not aggressively

126
00:06:28,400 --> 00:06:31,360
Speaker 1: tightening standards. You know, I look at that super closely.

127
00:06:31,680 --> 00:06:34,400
Speaker 1: I want to say, their loans or total loans are

128
00:06:34,440 --> 00:06:37,520
Speaker 1: slightly down, But on the other hand, I look at

129
00:06:37,520 --> 00:06:39,479
Speaker 1: their institutional checking book and how much risk they're taking

130
00:06:39,480 --> 00:06:42,080
Speaker 1: on their value at risk is also down, and so

131
00:06:42,560 --> 00:06:45,719
Speaker 1: I you know, again, these are not huge things, but

132
00:06:45,800 --> 00:06:49,479
Speaker 1: they are the biggest ship at sea here, and so

133
00:06:49,680 --> 00:06:53,520
Speaker 1: if there's any signs of contraction here from JP Morgan,

134
00:06:53,839 --> 00:06:56,520
Speaker 1: you have to expect that to be multiplied by many

135
00:06:56,560 --> 00:07:00,600
Speaker 1: margins at all the other firms. And also we're specifically

136
00:07:00,680 --> 00:07:03,120
Speaker 1: are you watching because William about a minute left, but

137
00:07:03,440 --> 00:07:07,200
Speaker 1: we're potentially other cracks could begin to emerge as far

138
00:07:07,200 --> 00:07:09,920
Speaker 1: as particular indicators you're watching when it comes to these banks.

139
00:07:10,640 --> 00:07:13,600
Speaker 1: So I think that, you know, commercial real estate, I

140
00:07:13,640 --> 00:07:16,520
Speaker 1: think is the longer thing that we're watching, and it

141
00:07:16,640 --> 00:07:19,080
Speaker 1: is good. We're getting some added disclosures today, but we're

142
00:07:19,200 --> 00:07:21,360
Speaker 1: very very early in that cycle. But I think that's

143
00:07:21,360 --> 00:07:24,440
Speaker 1: what we're gonna continue to be watching for the year.

144
00:07:24,840 --> 00:07:27,120
Speaker 1: I do think, you know, after you know, we're gonna

145
00:07:27,160 --> 00:07:28,880
Speaker 1: want to hear from the banks next week, But we're

146
00:07:28,920 --> 00:07:31,400
Speaker 1: hearing from the big banks, right so I want to

147
00:07:31,440 --> 00:07:34,440
Speaker 1: hear next week what's happening at these smaller banks. JP

148
00:07:34,560 --> 00:07:38,480
Speaker 1: Morgan did gain in deposits? Is how much of that

149
00:07:38,560 --> 00:07:41,120
Speaker 1: was at the expense of smaller institutions? And will those

150
00:07:41,160 --> 00:07:44,680
Speaker 1: smaller institutions be pulling back? Yeah, and that's the of course,

151
00:07:44,760 --> 00:07:47,080
Speaker 1: going to factor into what we hear. I believe able

152
00:07:47,120 --> 00:07:49,560
Speaker 1: twentieth is the day that you see a lot of

153
00:07:49,560 --> 00:07:53,240
Speaker 1: the smaller banks report, key Corps, etc. A lot to

154
00:07:53,240 --> 00:07:56,040
Speaker 1: watch right there. JP Morgan shares still climbing. Folks higher

155
00:07:56,080 --> 00:07:58,840
Speaker 1: by seven and a half percent right now in about

156
00:07:58,880 --> 00:08:01,280
Speaker 1: less than an hour of regular trading. Alson Williams of

157
00:08:01,320 --> 00:08:04,920
Speaker 1: Bloomberg's chief equity strategist covering all those banks. We thank

158
00:08:04,960 --> 00:08:08,120
Speaker 1: you as always, along Susion Alibastic, our chief Wall Street correspondent.

159
00:08:09,400 --> 00:08:13,280
Speaker 1: You're listening to the team ken'shur Live program Bloomberg Markets

160
00:08:13,320 --> 00:08:16,400
Speaker 1: weekdays at ten, Amy's Daring on Bloomberg dot Com, the

161
00:08:16,480 --> 00:08:19,200
Speaker 1: I Heard Radio app, and the Bloomberg Business app. We're

162
00:08:19,240 --> 00:08:24,760
Speaker 1: listening on demand wherever you get your podcast. Marie Sure,

163
00:08:25,360 --> 00:08:27,800
Speaker 1: she joins us talk about the retail story. Senior equity

164
00:08:27,800 --> 00:08:31,520
Speaker 1: analysts over at Columbia thread Needle Investments. Marie, do you

165
00:08:31,600 --> 00:08:34,120
Speaker 1: share the same view as Justice sources this is something

166
00:08:34,120 --> 00:08:36,439
Speaker 1: to kind of rush off. I think it is something

167
00:08:36,480 --> 00:08:40,120
Speaker 1: to brush off. The results today from March retail sales.

168
00:08:40,200 --> 00:08:44,480
Speaker 1: We're really not surprising. We know that the March period

169
00:08:44,640 --> 00:08:49,360
Speaker 1: was impacted by lower tax refunds, lower snap benefits, and

170
00:08:49,480 --> 00:08:54,120
Speaker 1: also unfavorable weather. But as we look forward and we

171
00:08:54,280 --> 00:08:59,160
Speaker 1: see the weather turn and fewer headwinds from some of

172
00:08:59,160 --> 00:09:02,720
Speaker 1: those trims a factors that I just cited, I think

173
00:09:02,720 --> 00:09:05,559
Speaker 1: that there is reason to believe retail sales get a

174
00:09:05,600 --> 00:09:08,080
Speaker 1: little bit better. On the other hand, I would say

175
00:09:08,160 --> 00:09:12,800
Speaker 1: we continue to see the mix shift towards services away

176
00:09:12,840 --> 00:09:18,000
Speaker 1: from goods, and within goods towards needs over wants, and

177
00:09:18,080 --> 00:09:22,120
Speaker 1: I think that that trend will continue breakdown. More specifically,

178
00:09:22,200 --> 00:09:24,440
Speaker 1: where we began to see a bit more of the

179
00:09:24,480 --> 00:09:28,440
Speaker 1: weakness within retail sales, whereas we still continued to see

180
00:09:28,480 --> 00:09:31,000
Speaker 1: strength there. Because obviously, like you were just mentioning the

181
00:09:31,040 --> 00:09:34,760
Speaker 1: whole when we're debating about goods versus services, still clearly

182
00:09:34,800 --> 00:09:37,800
Speaker 1: we're seeing that theme among whether it's these retail sales

183
00:09:37,800 --> 00:09:42,560
Speaker 1: reports and also these inflation reports too. Yes, absolutely, and

184
00:09:42,720 --> 00:09:45,360
Speaker 1: you're absolutely right. We saw it in the CPI data

185
00:09:45,400 --> 00:09:48,120
Speaker 1: earlier this week, sawed in the retail sales print today.

186
00:09:48,800 --> 00:09:52,360
Speaker 1: The greatest weakness that we're seeing is in the bigger

187
00:09:52,440 --> 00:09:57,840
Speaker 1: ticket durable goods categories like consumer electronics and appliances, and

188
00:09:57,960 --> 00:10:00,440
Speaker 1: of course those were some of the categories that we're

189
00:10:00,520 --> 00:10:05,520
Speaker 1: strongest during the pandemic. We're also seeing a slowdown in

190
00:10:05,600 --> 00:10:09,800
Speaker 1: categories like apparel in home, although not as weak as

191
00:10:09,800 --> 00:10:12,439
Speaker 1: what we're seeing in some of those bigger ticket durable

192
00:10:12,480 --> 00:10:16,720
Speaker 1: goods categories, and still seeing relative strength in food and

193
00:10:16,800 --> 00:10:22,520
Speaker 1: the consumer continues to absorb the inflation that the companies

194
00:10:22,559 --> 00:10:26,520
Speaker 1: continue to pass through in the food category. Marie, how

195
00:10:26,559 --> 00:10:29,840
Speaker 1: do you then square that with margins? Because we had

196
00:10:29,880 --> 00:10:33,199
Speaker 1: a Steeplesberry Banister, the chief equity strategist there joined Bloomberg

197
00:10:33,200 --> 00:10:35,280
Speaker 1: Television last week and he said, look, profit margins have

198
00:10:35,520 --> 00:10:38,560
Speaker 1: peaked for the entire decade, and yet this is a

199
00:10:38,600 --> 00:10:42,000
Speaker 1: stock market that is trading on those margins. What happens

200
00:10:42,040 --> 00:10:45,840
Speaker 1: then if you do continue to see this deceleration in

201
00:10:45,840 --> 00:10:49,920
Speaker 1: the retail consumer. How much real upside is there if

202
00:10:49,920 --> 00:10:53,240
Speaker 1: you follow that train of thought, I think you will

203
00:10:53,280 --> 00:10:57,360
Speaker 1: continue to see pressure in margin. As I look across

204
00:10:57,559 --> 00:11:01,720
Speaker 1: my coverage group, a lot of companies have comparisons relative

205
00:11:01,760 --> 00:11:05,760
Speaker 1: to twenty twenty two, but over a three year period

206
00:11:05,840 --> 00:11:08,440
Speaker 1: when you think, when you think about the strength that

207
00:11:08,520 --> 00:11:14,280
Speaker 1: they saw margins during the pandemic when demand far exceeded supply,

208
00:11:14,880 --> 00:11:18,520
Speaker 1: the multi year comparisons remain very difficult. And we know

209
00:11:18,600 --> 00:11:22,280
Speaker 1: that they will recapture some of the benefits from freight,

210
00:11:22,640 --> 00:11:26,000
Speaker 1: but I think they will continue to face pressure from

211
00:11:26,160 --> 00:11:31,520
Speaker 1: higher promotions, higher markdowns, especially if demand continues to weaken.

212
00:11:31,920 --> 00:11:35,280
Speaker 1: And for these companies, it's really all about the supply

213
00:11:35,559 --> 00:11:40,800
Speaker 1: demand balance of inventory. And again during the pandemic, they

214
00:11:40,840 --> 00:11:44,360
Speaker 1: were in a very good place where demand far exceeded supply.

215
00:11:45,120 --> 00:11:49,199
Speaker 1: But stepping back looking at these companies historically, they've always

216
00:11:49,240 --> 00:11:53,360
Speaker 1: struggled to find the right balance between demand and supply,

217
00:11:53,920 --> 00:11:57,760
Speaker 1: and so that should result in I believe, continued margin

218
00:11:57,840 --> 00:12:00,960
Speaker 1: pressure for years to come. And we have a little

219
00:12:01,040 --> 00:12:03,600
Speaker 1: less in a minute left. But was there anything surprising

220
00:12:03,679 --> 00:12:06,520
Speaker 1: to you into this report that a trend you haven't

221
00:12:06,520 --> 00:12:09,000
Speaker 1: seen emerged, that it was a little bit different than

222
00:12:09,040 --> 00:12:11,920
Speaker 1: maybe what we would have seen the past couple of months. No,

223
00:12:12,240 --> 00:12:16,000
Speaker 1: I think everything was relatively in line with expectations. I

224
00:12:16,000 --> 00:12:19,000
Speaker 1: would say the noticeable strength that we saw was in

225
00:12:19,040 --> 00:12:22,800
Speaker 1: the non store retail category, and of course that was

226
00:12:23,520 --> 00:12:26,319
Speaker 1: a category that suffered last We are just from very

227
00:12:26,360 --> 00:12:30,720
Speaker 1: difficult comparisons, but it seems like for most companies, and

228
00:12:30,760 --> 00:12:34,120
Speaker 1: of course Amazon in particular, they've really started to see

229
00:12:34,160 --> 00:12:37,480
Speaker 1: the e commerce part of their business stabilize, and I

230
00:12:37,480 --> 00:12:41,400
Speaker 1: think from here it's poised to grow at a more

231
00:12:41,559 --> 00:12:45,400
Speaker 1: normal rate in the high single digit to low double

232
00:12:45,440 --> 00:12:48,120
Speaker 1: digit range. Yeah, certainly something we're going to be keeping

233
00:12:48,120 --> 00:12:50,440
Speaker 1: an eye on. Murray Shore, Senior equity analyst over at

234
00:12:50,440 --> 00:12:53,000
Speaker 1: Columbia Threadneedle Investments, we thank you as always for the

235
00:12:53,040 --> 00:12:56,720
Speaker 1: insight on it decelerating retail sales report. You're listening to

236
00:12:56,800 --> 00:13:00,400
Speaker 1: the Take Cans Are Live program Bloomberg Markets is at

237
00:13:00,400 --> 00:13:03,960
Speaker 1: ten am Eastern on Bloomberg Radio, the tuning app, Bloomberg

238
00:13:04,080 --> 00:13:06,640
Speaker 1: dot Com, and the Bloomberg Business App. You can also

239
00:13:06,720 --> 00:13:10,280
Speaker 1: listen live on Amazon Alexa from our flagship New York station,

240
00:13:10,440 --> 00:13:15,560
Speaker 1: Jose Say Alexa play Bloomberg eleven thirty. I just find

241
00:13:15,600 --> 00:13:17,720
Speaker 1: it crazy that we're talking about of a vix at

242
00:13:17,720 --> 00:13:22,600
Speaker 1: seventeen as a low volatility gauge, which is weird because

243
00:13:23,240 --> 00:13:25,240
Speaker 1: a vix at seventeen is not supposed to be low volatility.

244
00:13:25,240 --> 00:13:28,520
Speaker 1: It's actually still very high volatility relative to historic norms.

245
00:13:28,520 --> 00:13:30,520
Speaker 1: And then you have to factor in the bond volatility

246
00:13:30,640 --> 00:13:33,199
Speaker 1: with factors into the currency volatility. And it's the dollar

247
00:13:33,360 --> 00:13:35,880
Speaker 1: here that I think you pointed out to me. Yes,

248
00:13:36,040 --> 00:13:39,320
Speaker 1: I was looking at the d x Y in the terminals,

249
00:13:39,320 --> 00:13:42,360
Speaker 1: So the Dollar Spot index, when you're looking at that

250
00:13:42,600 --> 00:13:46,120
Speaker 1: hovering around a one year low, CREATY a one year low,

251
00:13:46,280 --> 00:13:47,839
Speaker 1: it's wild. I've actually been looking at the dollar the

252
00:13:47,920 --> 00:13:50,520
Speaker 1: last few days and the biggest contributors outside of the

253
00:13:50,559 --> 00:13:53,280
Speaker 1: Easter holiday with which the biggest contributor to that drop

254
00:13:53,320 --> 00:13:55,680
Speaker 1: was the Mexican PACEA, which told you was very low volume.

255
00:13:55,920 --> 00:13:58,160
Speaker 1: But since then it's really just been the euro strength

256
00:13:58,160 --> 00:13:59,920
Speaker 1: in the euro, which I think is interesting. We're looking

257
00:13:59,920 --> 00:14:01,920
Speaker 1: a one ten handle and I want to say, like

258
00:14:01,960 --> 00:14:04,000
Speaker 1: two or three months ago we time about parently on

259
00:14:04,040 --> 00:14:06,520
Speaker 1: your own dollars. So that's kind of a wild story.

260
00:14:06,720 --> 00:14:09,400
Speaker 1: Who better to talk about the fax space than Jane Folly,

261
00:14:09,440 --> 00:14:12,559
Speaker 1: A true expert at All Thinks Facts. She's managing director

262
00:14:12,559 --> 00:14:15,960
Speaker 1: and head f FX strategy over at Rabobank. Jane, A

263
00:14:15,960 --> 00:14:17,480
Speaker 1: pleasure to have you on the show. Thank you for

264
00:14:17,559 --> 00:14:21,040
Speaker 1: joining our All Gals cast. We appreciate that as always

265
00:14:21,200 --> 00:14:24,560
Speaker 1: your take on the bearcase for the dollar, well, thank

266
00:14:24,600 --> 00:14:26,880
Speaker 1: you for having me. And actually, as we've been looking

267
00:14:26,920 --> 00:14:28,840
Speaker 1: at these screens in the last couple of hours, we

268
00:14:28,920 --> 00:14:31,240
Speaker 1: see the pulling back a little bit of ground. So yes,

269
00:14:31,280 --> 00:14:33,600
Speaker 1: it has been on the back foot in the last

270
00:14:33,640 --> 00:14:36,480
Speaker 1: few days and certainly I think it's a market over

271
00:14:36,480 --> 00:14:39,120
Speaker 1: the last couple of weeks has put distance between itself

272
00:14:39,480 --> 00:14:42,640
Speaker 1: and the banking jitters of last month. We saw this

273
00:14:43,040 --> 00:14:45,800
Speaker 1: movement back into the risk appetite. We've seen stocks doing

274
00:14:45,840 --> 00:14:48,920
Speaker 1: well and the dollar performing poorly. But of course this

275
00:14:49,040 --> 00:14:52,680
Speaker 1: afternoon we've had these new questions. It's about, oh, actually

276
00:14:52,800 --> 00:14:55,520
Speaker 1: is going to be touching interest rates before the end

277
00:14:55,560 --> 00:14:58,200
Speaker 1: of the year. The comments coming from Wallace for instance,

278
00:14:58,240 --> 00:15:01,840
Speaker 1: and that something his view is certainly something that rhymes

279
00:15:01,880 --> 00:15:05,120
Speaker 1: with our of you, that sticky inflation is going to

280
00:15:05,200 --> 00:15:06,880
Speaker 1: be persistent due to the end of the year, to

281
00:15:06,960 --> 00:15:08,920
Speaker 1: seg may not be able to cut into foots. And

282
00:15:08,920 --> 00:15:12,240
Speaker 1: if that's the case, and actually the toller may get

283
00:15:12,320 --> 00:15:14,640
Speaker 1: back some ground, and I think we've seen a little

284
00:15:14,720 --> 00:15:18,120
Speaker 1: bit of position adjustment this afternoon as the market feeds

285
00:15:18,160 --> 00:15:21,360
Speaker 1: back into the Oh, actually maybe the FED is going

286
00:15:21,400 --> 00:15:24,280
Speaker 1: to be a little bit more hawkish for longer, and

287
00:15:24,360 --> 00:15:26,520
Speaker 1: that is something which I think the markets reacting to

288
00:15:26,600 --> 00:15:29,160
Speaker 1: this afternoon. What do you think the risks are to

289
00:15:29,320 --> 00:15:31,440
Speaker 1: your call? Is it just the obvious of what you

290
00:15:31,440 --> 00:15:33,480
Speaker 1: were just talking about where it comes to the Fed

291
00:15:33,520 --> 00:15:35,480
Speaker 1: and the big question mark of whether or not that

292
00:15:35,520 --> 00:15:40,680
Speaker 1: pause could potentially be coming in early May. Well, you know,

293
00:15:40,840 --> 00:15:43,480
Speaker 1: I think there are various risks to this view, and

294
00:15:43,920 --> 00:15:47,800
Speaker 1: the biggest one is the one which the IMF alluded

295
00:15:47,840 --> 00:15:50,760
Speaker 1: to early on this week, and actually there is different

296
00:15:50,760 --> 00:15:55,000
Speaker 1: analysts and commentators have alluded to. And this is really

297
00:15:55,640 --> 00:15:58,600
Speaker 1: ever we've scene last month with it with the banking jitters,

298
00:15:58,640 --> 00:16:01,640
Speaker 1: as we perhaps saw in the GILST markets in the

299
00:16:01,720 --> 00:16:05,280
Speaker 1: UK LUB but after the mini budget, the markets having

300
00:16:05,360 --> 00:16:08,400
Speaker 1: cheeping problems. It's getting used to this environment of a

301
00:16:08,600 --> 00:16:10,960
Speaker 1: much higher interest rates of environment where you do not

302
00:16:11,040 --> 00:16:13,680
Speaker 1: have quantity vision, where you do not have very very

303
00:16:13,760 --> 00:16:20,240
Speaker 1: cheap money, and the items talked about a plausible alternative

304
00:16:20,840 --> 00:16:24,440
Speaker 1: view and that is one where growthest dragged lower by

305
00:16:24,640 --> 00:16:29,520
Speaker 1: weeks adia economies and one way the markets are looking

306
00:16:29,560 --> 00:16:32,480
Speaker 1: for the next weakest link. Where is that going to be?

307
00:16:32,560 --> 00:16:34,200
Speaker 1: Is it going to be an autoloader, It's going to

308
00:16:34,240 --> 00:16:37,960
Speaker 1: be somewhere else. And if that is based you can

309
00:16:38,120 --> 00:16:41,480
Speaker 1: visit your scenario. Well, yeah, the US, the FED may

310
00:16:41,480 --> 00:16:45,080
Speaker 1: be cutting interest rates, that wouldn't be for very good reasons.

311
00:16:45,080 --> 00:16:47,240
Speaker 1: And if the US off the feed were cut in

312
00:16:47,320 --> 00:16:50,480
Speaker 1: interest rates because there was some sort of stress in

313
00:16:50,600 --> 00:16:53,800
Speaker 1: the market, that is not an environment whereby the dollar

314
00:16:53,800 --> 00:16:56,480
Speaker 1: would necessarily be weakening. That is environment where you can

315
00:16:56,520 --> 00:16:59,480
Speaker 1: see money coming in from whisky assets such as emerging

316
00:16:59,520 --> 00:17:02,640
Speaker 1: markets back into the dollar. And so from that point

317
00:17:02,640 --> 00:17:04,800
Speaker 1: of view, that is a risk to our central view

318
00:17:05,520 --> 00:17:09,120
Speaker 1: certainly with respective said policy, but not necessarily a risk

319
00:17:09,200 --> 00:17:12,000
Speaker 1: to the view that the dollar could pick up further

320
00:17:12,119 --> 00:17:14,800
Speaker 1: ground later on this year. Yeah, when the world's in

321
00:17:14,880 --> 00:17:18,040
Speaker 1: crisis by America and seems to be the mantra that's

322
00:17:18,040 --> 00:17:21,640
Speaker 1: been in play for decades on decades Jane walk us through.

323
00:17:21,680 --> 00:17:24,280
Speaker 1: Then the other side of the equation. I think when

324
00:17:24,280 --> 00:17:28,439
Speaker 1: I look at something like European currencies, for example, the

325
00:17:28,480 --> 00:17:31,840
Speaker 1: euro of the Norwegian crona, the pound. Even it feels

326
00:17:31,840 --> 00:17:34,760
Speaker 1: like we've seen iterations of this recessionary call, where in

327
00:17:34,920 --> 00:17:39,840
Speaker 1: a recessionary downturn it starts off obviously in the United States,

328
00:17:40,040 --> 00:17:42,919
Speaker 1: but kind of lingers in Europe a little bit. This time,

329
00:17:43,119 --> 00:17:45,720
Speaker 1: I want to say, could be different in that the

330
00:17:45,760 --> 00:17:51,119
Speaker 1: recovery in Europe could be a bigger kind of jump

331
00:17:51,200 --> 00:17:54,160
Speaker 1: than we've seen in past post recessionary period simply because

332
00:17:54,160 --> 00:17:56,280
Speaker 1: of the carnage we've seen from the war Ukraine and

333
00:17:56,320 --> 00:18:00,240
Speaker 1: the recovery in commodity prices and arguably the sustainable alady

334
00:18:00,280 --> 00:18:02,840
Speaker 1: of the consumer there. Since, what does that then mean

335
00:18:03,119 --> 00:18:05,960
Speaker 1: for a currency like the euro or like the pound.

336
00:18:06,160 --> 00:18:09,520
Speaker 1: Is one ten a ceiling or a floor for the euro?

337
00:18:12,440 --> 00:18:15,280
Speaker 1: You know, I think the market consensuses you a dollar

338
00:18:15,359 --> 00:18:18,080
Speaker 1: going up maybe twee twelve. I think that could be tough,

339
00:18:18,160 --> 00:18:23,240
Speaker 1: largely because of our dollar story, but also in terms

340
00:18:23,240 --> 00:18:25,560
Speaker 1: of the Euro, you have a little paramount of optimism.

341
00:18:25,640 --> 00:18:29,160
Speaker 1: They're particularly of course, with respective ability of the Central Bank,

342
00:18:29,200 --> 00:18:31,040
Speaker 1: or maybe the necessity of the Center about the U

343
00:18:31,080 --> 00:18:33,560
Speaker 1: to B to hike intrust rates. It has been very hawkish.

344
00:18:33,600 --> 00:18:36,520
Speaker 1: We have seen a lot of those hawkish views been reiterated,

345
00:18:36,600 --> 00:18:39,080
Speaker 1: and certainly the UTB you'd like to be able to

346
00:18:39,560 --> 00:18:43,199
Speaker 1: hike intrust rates further in order to push that inflationary pressure.

347
00:18:43,240 --> 00:18:45,679
Speaker 1: But there is still a number of unknown with respect

348
00:18:45,760 --> 00:18:49,359
Speaker 1: to Europe. Yes, energy prices, wholesale gas prices are much lower,

349
00:18:49,400 --> 00:18:51,840
Speaker 1: thank goodness, than they were at the start of the

350
00:18:52,280 --> 00:18:55,280
Speaker 1: war in Ukraine, but there's still a fair amount of

351
00:18:55,400 --> 00:18:59,440
Speaker 1: uncertainty going through next winter with respect to that, so

352
00:19:00,000 --> 00:19:03,560
Speaker 1: that certainly is not free from uncertainty. You know. With

353
00:19:03,760 --> 00:19:07,000
Speaker 1: respect to Sterling, and it was the best performing Kepen

354
00:19:07,040 --> 00:19:10,640
Speaker 1: currency in March. That however, was a reaction I think

355
00:19:10,800 --> 00:19:13,480
Speaker 1: to a slower better than expect to data, so the

356
00:19:13,560 --> 00:19:16,680
Speaker 1: markets repriced for that. The UK for instance, may be

357
00:19:16,760 --> 00:19:19,720
Speaker 1: able to avoid technical recession this year, but even though

358
00:19:19,720 --> 00:19:22,560
Speaker 1: the markets were priced to a better outlook, the outlook

359
00:19:22,680 --> 00:19:26,920
Speaker 1: is still not good. So it's less bad, but not good.

360
00:19:27,240 --> 00:19:30,399
Speaker 1: And I think Sterling, or that that position adjustment in Sterling,

361
00:19:30,520 --> 00:19:32,720
Speaker 1: it's probably more or less done now. I think Sterling

362
00:19:33,040 --> 00:19:37,240
Speaker 1: could struggle and probably will underperform the Euro we think

363
00:19:37,480 --> 00:19:41,000
Speaker 1: in the coming months. That's interesting, Creety, because with the

364
00:19:41,080 --> 00:19:44,080
Speaker 1: dynamic that could be risks to equities. The two things

365
00:19:44,119 --> 00:19:46,600
Speaker 1: that have come up is different extremes when it comes

366
00:19:46,720 --> 00:19:49,920
Speaker 1: to the dollar or also if there could obviously the

367
00:19:50,040 --> 00:19:52,439
Speaker 1: extremes of oil as well. So those are two key

368
00:19:52,480 --> 00:19:54,720
Speaker 1: factors that could affect up. Yeah, something we're keeping an

369
00:19:54,760 --> 00:19:56,920
Speaker 1: eye on. Jane Foley, Managing director and head of FX

370
00:19:56,960 --> 00:19:59,119
Speaker 1: Strategy at Rabble Bank. We thank you as always, folks,

371
00:19:59,320 --> 00:20:00,879
Speaker 1: keep an eye on the Do all are stronger today?

372
00:20:01,040 --> 00:20:05,080
Speaker 1: Will it stay there? You're listening to the Team Cancer

373
00:20:05,280 --> 00:20:08,840
Speaker 1: Line program, Bloomberg Markets weekdays at ten am, easting on

374
00:20:08,960 --> 00:20:11,560
Speaker 1: Bloomberg dot com, the I Heard radio app and the

375
00:20:11,640 --> 00:20:14,639
Speaker 1: Bloomberg Business app. We're listening on demand wherever you get

376
00:20:14,720 --> 00:20:19,280
Speaker 1: your podcast, folks. We're looking at markets here that are

377
00:20:19,320 --> 00:20:21,760
Speaker 1: a little bit risk off sort of. I mean the

378
00:20:21,880 --> 00:20:24,040
Speaker 1: SMP five hundred is lower by three tenths of one percent.

379
00:20:24,040 --> 00:20:26,040
Speaker 1: I wouldn't call about a major sell off, no, And

380
00:20:26,200 --> 00:20:28,920
Speaker 1: I wanted to point out if we're looking at regional banks,

381
00:20:28,960 --> 00:20:32,200
Speaker 1: so the k r X index for regional banking that's

382
00:20:32,280 --> 00:20:35,920
Speaker 1: down close to two percent, but obviously more regional focus.

383
00:20:36,000 --> 00:20:38,240
Speaker 1: But if you're looking at the KBW Bank Index, which

384
00:20:38,280 --> 00:20:41,119
Speaker 1: includes regionals but as well as these bigger banks like

385
00:20:41,320 --> 00:20:44,239
Speaker 1: GP Morgan that's up more than one percent, so you're

386
00:20:44,240 --> 00:20:45,960
Speaker 1: seeing a little bit of a divergence there on the

387
00:20:46,040 --> 00:20:48,560
Speaker 1: financials creating. Yeah, I love that you brought that up,

388
00:20:48,600 --> 00:20:50,959
Speaker 1: because the only sector that's in the green right now

389
00:20:51,000 --> 00:20:53,560
Speaker 1: on the SMP five hundred is the financial exactly, and

390
00:20:53,640 --> 00:20:56,000
Speaker 1: there's really thanks to just a handful of banks. But

391
00:20:56,080 --> 00:20:58,080
Speaker 1: the question here is what is the ripple effect to

392
00:20:58,119 --> 00:20:59,760
Speaker 1: the regionals, because at the end of the day, I

393
00:21:00,200 --> 00:21:02,399
Speaker 1: first Republic was supposed to be the first bank to

394
00:21:02,600 --> 00:21:04,600
Speaker 1: report it then pushed their earnings back to I want

395
00:21:04,600 --> 00:21:07,359
Speaker 1: to see the twenty fourth if I'm right, and now

396
00:21:07,440 --> 00:21:09,280
Speaker 1: it looks like the big banks are benefiting. The question

397
00:21:09,400 --> 00:21:11,880
Speaker 1: is for how long? Who better to ask than our

398
00:21:11,960 --> 00:21:15,200
Speaker 1: regional banks. Expert Herman Chan, senior analysts for US regional

399
00:21:15,240 --> 00:21:19,399
Speaker 1: banks and fintech over at Bloomberg Intelligence, joins us here. Herman,

400
00:21:19,760 --> 00:21:21,639
Speaker 1: your take on this as one of the kind of

401
00:21:22,000 --> 00:21:24,800
Speaker 1: pieces of the earnings report out of JP Morgan city

402
00:21:24,840 --> 00:21:27,920
Speaker 1: Will Spargo that really caught my eye was JP Morgan saying, look,

403
00:21:28,119 --> 00:21:30,440
Speaker 1: we're sitting on a lot of deposits. We knew that

404
00:21:30,480 --> 00:21:32,280
Speaker 1: this was coming, but by the end of the year

405
00:21:32,320 --> 00:21:34,240
Speaker 1: this is going to reverse. Is it going to reverse

406
00:21:34,320 --> 00:21:38,480
Speaker 1: into regional banks. It's gonna reverse from two aspects. So

407
00:21:39,000 --> 00:21:43,960
Speaker 1: we're seeing continue deposit inflow into money market funds, so

408
00:21:44,280 --> 00:21:47,600
Speaker 1: that that will absorb some of the deposits that JP

409
00:21:47,720 --> 00:21:50,879
Speaker 1: Morgan's probably seeing, and also some of those deposits can

410
00:21:50,960 --> 00:21:55,320
Speaker 1: revert back once we're already starting to see the industry stabilize.

411
00:21:57,080 --> 00:22:00,320
Speaker 1: The emergency lending measures from the Federal Reserve of those

412
00:22:00,440 --> 00:22:04,080
Speaker 1: actually declined again, and the liquidity the new liquidity measure

413
00:22:04,240 --> 00:22:08,080
Speaker 1: that the Fed unveiled after SBB that actually declined for

414
00:22:08,119 --> 00:22:11,879
Speaker 1: the first time since the inception of the bank term

415
00:22:11,920 --> 00:22:15,720
Speaker 1: funding program in early March. So all those things point

416
00:22:15,800 --> 00:22:19,240
Speaker 1: to some stability, and the hope is that for the

417
00:22:19,320 --> 00:22:22,159
Speaker 1: regionals that some of those the deposits that they that

418
00:22:22,359 --> 00:22:24,600
Speaker 1: left in the first quarter does come back. And I

419
00:22:24,720 --> 00:22:27,520
Speaker 1: just double checks so first Republic there was a results,

420
00:22:27,640 --> 00:22:29,840
Speaker 1: so they did get pushed back. It'll be Monday, April

421
00:22:29,920 --> 00:22:31,640
Speaker 1: twenty fourth is what they're going to So we still

422
00:22:31,680 --> 00:22:34,639
Speaker 1: have a little over a week obviously till we get them.

423
00:22:34,720 --> 00:22:37,560
Speaker 1: But when you're thinking about these regional banks from in

424
00:22:38,000 --> 00:22:40,159
Speaker 1: what are you expecting that we're going to get with

425
00:22:40,280 --> 00:22:42,639
Speaker 1: these results, which these are rolling in so we're going

426
00:22:42,800 --> 00:22:46,520
Speaker 1: to expect some a lot of commentary on deposits and

427
00:22:46,800 --> 00:22:49,320
Speaker 1: the stickiness of the deposits. P and C. The first

428
00:22:49,440 --> 00:22:53,440
Speaker 1: regional reported today and showed some stability in their deposits,

429
00:22:53,560 --> 00:22:57,520
Speaker 1: which was a great sign. And also more importantly probably

430
00:22:57,720 --> 00:23:01,240
Speaker 1: is the funding costs and how much do they have

431
00:23:01,320 --> 00:23:03,760
Speaker 1: to pay up for a deposit. So there's two issues there.

432
00:23:05,320 --> 00:23:08,560
Speaker 1: The deposits that there that some of these banks are

433
00:23:08,600 --> 00:23:11,680
Speaker 1: gaining are the form of higher cost CDs, so you

434
00:23:11,760 --> 00:23:13,800
Speaker 1: have to pay up more for ely CD balances. And

435
00:23:13,960 --> 00:23:19,440
Speaker 1: also um the zero cost deposits, those operating accounts, the

436
00:23:19,520 --> 00:23:22,040
Speaker 1: non interest sparing accounts, those continue to decline, so there's

437
00:23:22,080 --> 00:23:25,400
Speaker 1: been a mixshift happening. And also how much are banks

438
00:23:25,480 --> 00:23:28,960
Speaker 1: paying up for to retain these deposits. So that's one

439
00:23:29,040 --> 00:23:34,200
Speaker 1: of the factors that drove some negative guidance for a

440
00:23:34,280 --> 00:23:37,000
Speaker 1: p and C for for the four year coming ahead,

441
00:23:37,920 --> 00:23:41,159
Speaker 1: Well flu coming ahead. I got to ask about kind

442
00:23:41,200 --> 00:23:43,280
Speaker 1: of buybacks for a lot of these regional banks here.

443
00:23:43,280 --> 00:23:46,199
Speaker 1: I mean, look, if I was sitting on a healthy

444
00:23:46,320 --> 00:23:49,440
Speaker 1: flow of deposits, which a lot of these regional banks

445
00:23:49,480 --> 00:23:52,680
Speaker 1: are still saying, look everything is fine, We're okay um,

446
00:23:52,920 --> 00:23:55,280
Speaker 1: and yet the shares are selling off as much as

447
00:23:55,280 --> 00:23:57,680
Speaker 1: they are on sympathy, I would dive into the market

448
00:23:57,760 --> 00:23:59,280
Speaker 1: and buy back those shares. Is that something that we're

449
00:23:59,280 --> 00:24:01,920
Speaker 1: going to see from these visual banks. It'll be interesting

450
00:24:02,040 --> 00:24:05,840
Speaker 1: because there's still a lot of uncertainty. PNC actually just

451
00:24:05,960 --> 00:24:08,040
Speaker 1: came out and said they're going to dial back some

452
00:24:08,680 --> 00:24:12,359
Speaker 1: buybacks given the market incertaincy for at least the second quarter,

453
00:24:12,480 --> 00:24:15,520
Speaker 1: and they took celebrity to say that they might change

454
00:24:15,560 --> 00:24:18,919
Speaker 1: their stance going forward depending on how market conditions change.

455
00:24:20,040 --> 00:24:23,159
Speaker 1: But there are some banks that still are sitting on

456
00:24:23,320 --> 00:24:28,320
Speaker 1: really strong capital ratio, strong credit quality performance. So it's

457
00:24:28,359 --> 00:24:31,680
Speaker 1: going to be a bit of a choppiness going forward,

458
00:24:31,720 --> 00:24:35,320
Speaker 1: and we could see some aggressive buybacks, but overall, it's

459
00:24:35,359 --> 00:24:38,800
Speaker 1: going to be maybe some conservatism from some of the

460
00:24:38,920 --> 00:24:43,080
Speaker 1: larger ones until this uncertainty recedes. And we're specifically when

461
00:24:43,119 --> 00:24:45,680
Speaker 1: it comes to these regionals, are you keeping a close

462
00:24:45,760 --> 00:24:49,320
Speaker 1: eye to monitor where other cracks could potentially be emerging

463
00:24:49,440 --> 00:24:54,199
Speaker 1: for them in other quarters? Right? So the big focus

464
00:24:54,359 --> 00:24:57,200
Speaker 1: from a credit quality standpoint has been in office commercial

465
00:24:57,280 --> 00:25:00,760
Speaker 1: real estates. That's something that that PNC had talked about

466
00:25:00,800 --> 00:25:05,200
Speaker 1: and gave some new disclosures in a new extra emphasis

467
00:25:05,280 --> 00:25:08,879
Speaker 1: in their slide deck in the first quarter. We'd expect

468
00:25:09,000 --> 00:25:11,720
Speaker 1: more of that, just focusing. The market's been focused on it,

469
00:25:11,840 --> 00:25:13,920
Speaker 1: so we'd expect the banks to talk more about it

470
00:25:14,040 --> 00:25:19,080
Speaker 1: and what they expect from performance going forward, how much

471
00:25:19,520 --> 00:25:22,720
Speaker 1: is going to be needed to be refinance over the

472
00:25:22,800 --> 00:25:25,880
Speaker 1: next couple of years. Those sort of statistics will will

473
00:25:25,960 --> 00:25:30,120
Speaker 1: help alleviate or at least inform the market in terms

474
00:25:30,160 --> 00:25:33,520
Speaker 1: of what the exposure is. Herman, you mentioned the P

475
00:25:33,680 --> 00:25:36,080
Speaker 1: and C earning specifically. Can you put those into a

476
00:25:36,119 --> 00:25:38,800
Speaker 1: little bit of context? For US P ANDC in my

477
00:25:38,960 --> 00:25:40,480
Speaker 1: view at least is a little bit more well known,

478
00:25:40,480 --> 00:25:43,280
Speaker 1: a little bit more kind of protected than say your

479
00:25:43,320 --> 00:25:46,520
Speaker 1: first republics, etc. That's right. What is the broader read

480
00:25:46,560 --> 00:25:50,679
Speaker 1: through from the PANC earning? Sure, the stock is down today,

481
00:25:51,160 --> 00:25:53,440
Speaker 1: so it just seems like that there's a lot of

482
00:25:53,520 --> 00:25:58,200
Speaker 1: negativity towards the regionals despite a beat in the first

483
00:25:58,280 --> 00:26:05,240
Speaker 1: quarter numbers better performance from deposits, I would say, but

484
00:26:05,720 --> 00:26:09,800
Speaker 1: the guidance was a bit was a bit negative. I

485
00:26:09,840 --> 00:26:13,960
Speaker 1: would say that if we do see HEPNC, like the others,

486
00:26:14,359 --> 00:26:17,399
Speaker 1: show some deposits stability, that would be great but the

487
00:26:17,560 --> 00:26:20,080
Speaker 1: markets focused on what's ahead and in terms of how

488
00:26:20,160 --> 00:26:21,840
Speaker 1: much do you have to pay up for a deposits,

489
00:26:21,920 --> 00:26:26,440
Speaker 1: So it could spell some negative revisions going forward and

490
00:26:26,560 --> 00:26:30,119
Speaker 1: some net interest margin contraction for further regionals. Yeah, and

491
00:26:30,160 --> 00:26:32,600
Speaker 1: if you're looking at PNC stock this morning, that's ticker

492
00:26:32,640 --> 00:26:35,640
Speaker 1: symble pn seeds down more than two percent on piece boards,

493
00:26:35,680 --> 00:26:38,920
Speaker 1: worsty since March twenty second. But what about when it

494
00:26:39,000 --> 00:26:41,119
Speaker 1: comes to some of these other smaller banks, when you

495
00:26:41,119 --> 00:26:44,680
Speaker 1: were thinking of like Western Alliance, how much concern is

496
00:26:44,760 --> 00:26:47,840
Speaker 1: there still potentially lingering with these other banks and what

497
00:26:47,920 --> 00:26:51,440
Speaker 1: potential problems could be around the corner? Right, I would

498
00:26:51,480 --> 00:26:54,880
Speaker 1: say that overall the regional banks are are probably out

499
00:26:54,920 --> 00:26:59,000
Speaker 1: of the woods from a liquidity and funding risk standpoints.

500
00:26:59,359 --> 00:27:01,760
Speaker 1: There's a hand banks that we continue to monitor in

501
00:27:01,920 --> 00:27:03,840
Speaker 1: terms of how how are they going to protect their

502
00:27:03,840 --> 00:27:09,280
Speaker 1: at a positive base. Western Alliance comes to mind, Pack

503
00:27:09,400 --> 00:27:12,680
Speaker 1: West comes to mind, and also First Republic. The banks

504
00:27:12,720 --> 00:27:14,880
Speaker 1: that sort of operate on the West Coast and maybe

505
00:27:14,920 --> 00:27:19,359
Speaker 1: have some exposure to tech or start up deposit taking.

506
00:27:19,960 --> 00:27:22,000
Speaker 1: Those are the ones that seem to be more in

507
00:27:22,080 --> 00:27:25,239
Speaker 1: the crosshairs and still have some question marks about how

508
00:27:25,560 --> 00:27:28,840
Speaker 1: they're going to manage their balance sheet going forward and

509
00:27:29,200 --> 00:27:33,200
Speaker 1: how drastically their margins are going to suffer. So PNC

510
00:27:33,359 --> 00:27:35,680
Speaker 1: is already seeing a bit of margin pressure, but some

511
00:27:35,840 --> 00:27:38,639
Speaker 1: of these banks that are in the cross there's probably

512
00:27:38,760 --> 00:27:42,720
Speaker 1: have more, and there's some unanswered questions as to how

513
00:27:42,840 --> 00:27:45,040
Speaker 1: much and what they're going to do in terms of

514
00:27:45,359 --> 00:27:47,919
Speaker 1: shoring up their balance sheet. Well, herman, now let's talk

515
00:27:47,920 --> 00:27:49,679
Speaker 1: about kind of what some of these regional banks are

516
00:27:49,680 --> 00:27:53,159
Speaker 1: exposed to. Signature Bank, for example, very famously supposed to crypto,

517
00:27:53,320 --> 00:27:57,400
Speaker 1: and Barney Frank, the creator of the Frank Dodd Act

518
00:27:57,520 --> 00:28:00,040
Speaker 1: or one sponsors of it, at least very vocal on

519
00:28:00,080 --> 00:28:02,320
Speaker 1: the board Seaure Banging, very vocal saying, look, we were

520
00:28:02,440 --> 00:28:06,359
Speaker 1: targeted by regulators because of that crypto exposure. To what

521
00:28:06,520 --> 00:28:12,200
Speaker 1: extent is that true? Yeah? The New York State regulators

522
00:28:12,240 --> 00:28:16,920
Speaker 1: said that wasn't a factor and closing that bang down

523
00:28:17,000 --> 00:28:23,200
Speaker 1: over that weekend after Signatures SBBs failure. We've written about it.

524
00:28:23,520 --> 00:28:27,160
Speaker 1: We would say the crypto issues didn't help their cause, right,

525
00:28:27,280 --> 00:28:31,080
Speaker 1: because there was already some compliance matters that they had

526
00:28:31,119 --> 00:28:34,000
Speaker 1: to shore up in terms of knowing your customer and

527
00:28:34,119 --> 00:28:38,600
Speaker 1: what sort of folks were operating within the framework of

528
00:28:39,280 --> 00:28:44,160
Speaker 1: signatures balance sheet and the real time crypto payments network

529
00:28:44,240 --> 00:28:47,240
Speaker 1: that they operated. So I would say that it didn't

530
00:28:47,280 --> 00:28:49,880
Speaker 1: help matters at all. But really the crux of the

531
00:28:50,000 --> 00:28:53,440
Speaker 1: issue for Signature was that they were facing a lot

532
00:28:53,560 --> 00:28:59,400
Speaker 1: of deposit outflow given the concern related to what happened

533
00:28:59,440 --> 00:29:04,160
Speaker 1: with SVB and some of these larger, chunkier deposits, they

534
00:29:04,280 --> 00:29:07,880
Speaker 1: had the same thing and that ultimately is what created

535
00:29:08,040 --> 00:29:11,320
Speaker 1: the fallout and the closure from the regulators. Something that's

536
00:29:11,360 --> 00:29:13,560
Speaker 1: come up in a lot of my conversations is trying

537
00:29:13,600 --> 00:29:16,520
Speaker 1: to monitor specific data points like say the Senior Loan

538
00:29:16,600 --> 00:29:19,440
Speaker 1: Officer Survey, which actually won't come because this is quarterly, right,

539
00:29:19,760 --> 00:29:21,960
Speaker 1: won't come until May seventh, so that is after the

540
00:29:22,080 --> 00:29:25,520
Speaker 1: fed's two day meeting, which is on May second, me third.

541
00:29:26,080 --> 00:29:30,400
Speaker 1: But obviously that's going to gauge bank lending in credit conditions.

542
00:29:31,160 --> 00:29:33,240
Speaker 1: What do you think as far as if we're not

543
00:29:33,280 --> 00:29:35,320
Speaker 1: going to get that until after the next FED meeting,

544
00:29:35,440 --> 00:29:37,600
Speaker 1: what else are you watching to kind of monitor where

545
00:29:37,680 --> 00:29:40,480
Speaker 1: credit conditions stand. Yeah, it's going to be it's going

546
00:29:40,560 --> 00:29:43,080
Speaker 1: to be listening to the guidance from these banks that

547
00:29:43,160 --> 00:29:47,840
Speaker 1: are going to report starting today and next week, next

548
00:29:47,880 --> 00:29:50,760
Speaker 1: week is the bulk of the large cap regionals that report,

549
00:29:50,840 --> 00:29:53,800
Speaker 1: so Wednesday Thursday are the big days you should get

550
00:29:54,160 --> 00:29:56,920
Speaker 1: some really good takeaways from in terms of their appetite

551
00:29:56,960 --> 00:30:00,360
Speaker 1: for lending and whiles. Fargo actually said today that they

552
00:30:00,440 --> 00:30:04,080
Speaker 1: were starting to be a bit more conservative with their

553
00:30:04,160 --> 00:30:09,680
Speaker 1: underwriting credit underwriting criteria. JP Morgan said on their call

554
00:30:09,760 --> 00:30:13,000
Speaker 1: this morning, said it's not a credit crunch per se,

555
00:30:13,120 --> 00:30:15,400
Speaker 1: but it's more of a putting the thumb on the

556
00:30:15,480 --> 00:30:18,040
Speaker 1: scale and being maybe a bit more cautious, but not

557
00:30:19,040 --> 00:30:24,600
Speaker 1: overly cautious. So I think those types of antidotes anecdotes

558
00:30:24,640 --> 00:30:27,640
Speaker 1: will be something that will be monitoring, certainly something we're

559
00:30:27,720 --> 00:30:29,640
Speaker 1: keeping an eye on. I'm just going to be a

560
00:30:29,920 --> 00:30:32,720
Speaker 1: very intense next week for Herman Chan is what hits

561
00:30:32,760 --> 00:30:35,360
Speaker 1: super Bowl, I think, so we are very grateful to

562
00:30:35,400 --> 00:30:37,880
Speaker 1: have him around. Herman Chan senior analysts US regional banks

563
00:30:37,920 --> 00:30:41,160
Speaker 1: and fintech over at Bloomberg Intelligence, walking us through exactly

564
00:30:41,320 --> 00:30:46,280
Speaker 1: the ripple effects of this banking crisis turned turmoil turned hangover. Jess,

565
00:30:46,600 --> 00:30:49,640
Speaker 1: you're listening to the tape cancer our live program, Bloomberg

566
00:30:49,760 --> 00:30:53,240
Speaker 1: Markets weekdays at ten am Eastern on Bloomberg Radio. The

567
00:30:53,400 --> 00:30:56,600
Speaker 1: tuning app, Bloomberg dot Com, and the Bloomberg Business App.

568
00:30:56,680 --> 00:30:59,440
Speaker 1: You can also listen live on Amazon Alexa from our

569
00:30:59,480 --> 00:31:05,480
Speaker 1: flagship New York station, Jose Say Alexa play Bloomberg eleven thirty. So,

570
00:31:05,560 --> 00:31:07,360
Speaker 1: you know, it's an interesting markets day, but it feels

571
00:31:07,400 --> 00:31:10,160
Speaker 1: like all the action was in the morning. But then

572
00:31:10,200 --> 00:31:11,800
Speaker 1: you look at some of the other stock movers. Here,

573
00:31:11,880 --> 00:31:14,600
Speaker 1: just Boeing catching our eye. It is looking at that.

574
00:31:14,680 --> 00:31:17,880
Speaker 1: Take your simple BA down now about five point four

575
00:31:17,960 --> 00:31:21,200
Speaker 1: percent on pay sports worst Staceince October twenty six, that

576
00:31:21,320 --> 00:31:24,400
Speaker 1: data had dropped close to nine percent. So seeing a

577
00:31:24,440 --> 00:31:27,400
Speaker 1: bit of pressure still there on Boeing. Yeah, certainly something

578
00:31:27,400 --> 00:31:29,800
Speaker 1: to keep in mind. And look, Boeing has had its troubles,

579
00:31:29,840 --> 00:31:32,680
Speaker 1: it's also had the successes, and none of that has

580
00:31:32,720 --> 00:31:35,520
Speaker 1: to do with why it's moving today. To explain the story,

581
00:31:35,680 --> 00:31:38,680
Speaker 1: we bring in Bloomberg's Simone Foxman, she is all over it.

582
00:31:38,800 --> 00:31:40,600
Speaker 1: I've rather been covering the airline's head to toe for

583
00:31:40,680 --> 00:31:43,480
Speaker 1: us on Bloomberg Television and Radio all week. Simone, let

584
00:31:43,560 --> 00:31:46,000
Speaker 1: me have you walk us through what's going on with Boeing. Yeah,

585
00:31:46,040 --> 00:31:48,160
Speaker 1: I seem to be an aviation reporter this week, but

586
00:31:48,240 --> 00:31:51,760
Speaker 1: this is a really Boeing specific story. So there's a

587
00:31:51,800 --> 00:31:54,720
Speaker 1: production issue on the rear end of its aircraft, has

588
00:31:54,760 --> 00:31:58,560
Speaker 1: to do with non conforming brackets tied to the fuselage.

589
00:31:59,240 --> 00:32:01,280
Speaker 1: They're non conform arming. But this doesn't seem to be

590
00:32:01,400 --> 00:32:04,680
Speaker 1: a major safety issue, or else the FA would be

591
00:32:04,800 --> 00:32:09,040
Speaker 1: grounding these planes. So the concern here is how long

592
00:32:09,160 --> 00:32:11,920
Speaker 1: it takes to bring aircraft in from the field to

593
00:32:12,000 --> 00:32:15,240
Speaker 1: kind of address these nonconformity concerns. And there's really a

594
00:32:15,320 --> 00:32:17,640
Speaker 1: wide window of what it could be because earlier this year,

595
00:32:17,880 --> 00:32:21,120
Speaker 1: late February, we saw a nonconformity issue with the seven

596
00:32:21,240 --> 00:32:25,400
Speaker 1: eighty seven that was solved in fifteen days, but previous

597
00:32:25,440 --> 00:32:28,640
Speaker 1: issues took a year to resolve. Jeffreys, for one, believes

598
00:32:28,720 --> 00:32:31,480
Speaker 1: that Bowing will cut about twenty percent of its deliveries

599
00:32:31,560 --> 00:32:35,720
Speaker 1: this year, and then that ties into how much airlines

600
00:32:35,880 --> 00:32:39,880
Speaker 1: are affected. Southwest and United specifically have a lot of

601
00:32:40,320 --> 00:32:43,840
Speaker 1: Bowing orders they're expecting to receive overall. You know, if

602
00:32:43,880 --> 00:32:45,640
Speaker 1: that twenty percent cut is what we see, then we

603
00:32:45,760 --> 00:32:48,440
Speaker 1: see eighty planes not delivered out of the four hundred

604
00:32:48,480 --> 00:32:51,280
Speaker 1: and twenty that Boeing is expected to deliver this year.

605
00:32:51,600 --> 00:32:54,520
Speaker 1: Anytime we see moves in these types of names, especially

606
00:32:54,560 --> 00:32:56,320
Speaker 1: when you have Bowing, I obviously will think of its

607
00:32:56,480 --> 00:33:01,760
Speaker 1: rival Airbus, and it comes to these aircraft manufacturers, I mean,

608
00:33:01,800 --> 00:33:03,560
Speaker 1: there's only so many of them, right, It's right. You

609
00:33:03,600 --> 00:33:05,560
Speaker 1: see a pullback like this a lot of times. When

610
00:33:05,600 --> 00:33:08,120
Speaker 1: it's longer term investors that I'm speaking with, they'll use

611
00:33:08,200 --> 00:33:10,440
Speaker 1: that as a buying opportunity. Do you think there's a

612
00:33:10,520 --> 00:33:13,360
Speaker 1: situation here? I mean, just looking at where if you

613
00:33:13,520 --> 00:33:15,960
Speaker 1: use the comp function in the terminal for the stock

614
00:33:16,080 --> 00:33:18,720
Speaker 1: year to date, looking at Boeing ticker SMaL BA, it's

615
00:33:18,760 --> 00:33:22,200
Speaker 1: up about six percent. But looking at its rival, when

616
00:33:22,240 --> 00:33:23,960
Speaker 1: you're looking at what's happening with Airbus, this is the

617
00:33:24,080 --> 00:33:26,920
Speaker 1: US ad R. It's EA d s Y it's about

618
00:33:26,960 --> 00:33:30,400
Speaker 1: seventeen percents. Move well. I mean Airbus has just won

619
00:33:30,520 --> 00:33:33,480
Speaker 1: the reputational game. Yeah, and it resolved some of its

620
00:33:33,560 --> 00:33:36,400
Speaker 1: issues with its own buyers. You think clutter airways for one.

621
00:33:37,640 --> 00:33:41,520
Speaker 1: But frankly, this is going to add to concerns that

622
00:33:41,640 --> 00:33:44,600
Speaker 1: Bowing doesn't have its supply chain under control. You know

623
00:33:44,800 --> 00:33:48,240
Speaker 1: that said you believe in the air travel rebound that

624
00:33:48,320 --> 00:33:51,560
Speaker 1: we're seeing post pandemic, especially with China coming back online.

625
00:33:51,880 --> 00:33:54,600
Speaker 1: If you think that Bowing can kind of engineer a turnaround,

626
00:33:54,760 --> 00:33:58,000
Speaker 1: then perhaps this is a buying opportunity. Sure, so what

627
00:33:58,160 --> 00:34:01,120
Speaker 1: are more of the nearer terms here when it comes

628
00:34:01,160 --> 00:34:04,880
Speaker 1: to investors as far as kind of what is happening next? Well,

629
00:34:04,880 --> 00:34:07,880
Speaker 1: I think a lot of the attention well, look Bowing Airbus,

630
00:34:08,040 --> 00:34:11,040
Speaker 1: these are sort of long term plays where you want

631
00:34:11,040 --> 00:34:13,040
Speaker 1: to know about the future of the market. Will they,

632
00:34:13,200 --> 00:34:16,160
Speaker 1: you know, will airlines you know, continue buying the sort

633
00:34:16,200 --> 00:34:18,760
Speaker 1: of narrow body that are more flexible to fly around

634
00:34:18,840 --> 00:34:21,680
Speaker 1: the world. I think near term when you think about aviation, though,

635
00:34:21,760 --> 00:34:25,320
Speaker 1: it's all about what happens this summer. Cret and I

636
00:34:25,440 --> 00:34:28,800
Speaker 1: in particular have been talking about American Airlines Delta a

637
00:34:28,880 --> 00:34:32,719
Speaker 1: lot on TV this week, and really what happens with

638
00:34:32,800 --> 00:34:36,839
Speaker 1: the consumer near term? Do they see themselves as being

639
00:34:36,880 --> 00:34:40,000
Speaker 1: confident and having enough money to continue flying as much

640
00:34:40,080 --> 00:34:42,919
Speaker 1: as you know, Delta in fact is hanging its hat

641
00:34:43,000 --> 00:34:45,440
Speaker 1: on you know, that's the near term concern when you're

642
00:34:45,480 --> 00:34:49,600
Speaker 1: thinking about the trading in the next couple of days, weeks, months. Well,

643
00:34:49,600 --> 00:34:52,280
Speaker 1: when we talk about just some of the broader moves

644
00:34:52,360 --> 00:34:56,160
Speaker 1: in the space, aerospace and defense specifically, I'm obsessed with

645
00:34:56,200 --> 00:34:59,279
Speaker 1: airlines I think they're very cool. But we're talking about Bowing.

646
00:34:59,320 --> 00:35:01,640
Speaker 1: But another stock with moving off these spirit aerosystems, that

647
00:35:01,840 --> 00:35:06,160
Speaker 1: makes that faulty part spr I believe down far far more.

648
00:35:06,560 --> 00:35:09,359
Speaker 1: Someone talk to us a little bit about that stock. Yeah.

649
00:35:09,440 --> 00:35:11,880
Speaker 1: I mean, I think if you get find yourself in

650
00:35:11,920 --> 00:35:16,080
Speaker 1: a situation where you have made a faulty part and

651
00:35:16,320 --> 00:35:19,279
Speaker 1: that's very that you're very reliant on that you're that

652
00:35:19,480 --> 00:35:23,719
Speaker 1: that kind of complicates the relationship with you know, the buyer. UM.

653
00:35:24,080 --> 00:35:26,480
Speaker 1: But you know, I think for all these stocks, and

654
00:35:26,680 --> 00:35:29,400
Speaker 1: that's one that you know, this part specifically very important

655
00:35:29,800 --> 00:35:33,160
Speaker 1: UM for that company. But UM, you know, obviously that's

656
00:35:33,160 --> 00:35:35,839
Speaker 1: a reputational damage as well. I think the idea from

657
00:35:36,400 --> 00:35:39,600
Speaker 1: from a Boeing perspective is certainly that you can move

658
00:35:39,640 --> 00:35:42,640
Speaker 1: past this a little bit easier, they can find another supplier,

659
00:35:42,719 --> 00:35:46,759
Speaker 1: they can potentially um that it's not as much of

660
00:35:46,840 --> 00:35:49,640
Speaker 1: a hit to their business model. UM. But certainly if

661
00:35:49,680 --> 00:35:52,520
Speaker 1: this is a part that someone's relying on you for

662
00:35:52,640 --> 00:35:55,200
Speaker 1: you on you on UM, then that's more problematic. I

663
00:35:55,280 --> 00:35:58,400
Speaker 1: think you were talking about obviously the airliners. So we

664
00:35:58,520 --> 00:36:01,640
Speaker 1: did hear from Delta early this week and obviously they

665
00:36:01,760 --> 00:36:04,440
Speaker 1: still saw strong demand for the second quarter, so you

666
00:36:04,480 --> 00:36:06,719
Speaker 1: would think that obviously could be a key gauge for

667
00:36:06,800 --> 00:36:08,279
Speaker 1: the consumer. But then on the other side of that,

668
00:36:08,360 --> 00:36:11,200
Speaker 1: we did hear from American Airlines and unfortunately it profits

669
00:36:11,280 --> 00:36:14,279
Speaker 1: forecast was disappointing. Where do you see things kind of

670
00:36:14,320 --> 00:36:17,640
Speaker 1: headed when we're thinking more geared toward these airliners as

671
00:36:17,680 --> 00:36:20,120
Speaker 1: far as obviously as things continue to reopen from the

672
00:36:20,200 --> 00:36:23,000
Speaker 1: pandemic and people are traveling, but inflation is still a

673
00:36:23,120 --> 00:36:26,040
Speaker 1: big key issue right when it comes to those prices, right,

674
00:36:26,120 --> 00:36:29,560
Speaker 1: I mean, the airline play at this moment is all

675
00:36:29,640 --> 00:36:33,279
Speaker 1: about deleveraging, pulling down the amount of debt you have

676
00:36:33,719 --> 00:36:38,040
Speaker 1: so that in the long term you can pay lower

677
00:36:38,120 --> 00:36:42,359
Speaker 1: interest rates. Particularly we're an interest rate rising environment that's

678
00:36:42,400 --> 00:36:44,960
Speaker 1: going to last for a little while. But you see

679
00:36:45,040 --> 00:36:46,960
Speaker 1: things on their bound that they're going to have to

680
00:36:47,040 --> 00:36:51,239
Speaker 1: work against, like higher labor costs. That was something that

681
00:36:51,440 --> 00:36:54,760
Speaker 1: was flagged both in higher non oil costs, was flagged

682
00:36:54,840 --> 00:36:58,200
Speaker 1: in Delta yesterday American Airlines. We were looking at higher

683
00:36:58,239 --> 00:37:01,200
Speaker 1: non oil costs, United saying, and it's higher labor costs

684
00:37:01,320 --> 00:37:04,200
Speaker 1: last month are specifically going to lead to the reason

685
00:37:04,280 --> 00:37:07,640
Speaker 1: that it may report a loss though that's a problem

686
00:37:07,719 --> 00:37:10,480
Speaker 1: for the airlines, and then you know, play that against

687
00:37:10,480 --> 00:37:13,480
Speaker 1: the consumer that I was mentioning earlier. Is the consumer

688
00:37:13,600 --> 00:37:18,000
Speaker 1: enough to offset some of the weakness if prices continue

689
00:37:18,040 --> 00:37:21,400
Speaker 1: to rise? Yeah, Simone Foxman covering everything from the consumer

690
00:37:21,480 --> 00:37:24,600
Speaker 1: to airlines, to Boeing to engineering. I think somewhere thrown

691
00:37:24,640 --> 00:37:28,479
Speaker 1: in there. We thank you. You're listening to the Team

692
00:37:28,800 --> 00:37:32,640
Speaker 1: cancer Line program Bloomberg Markets weekdays at ten am Eastering

693
00:37:32,800 --> 00:37:35,440
Speaker 1: on Bloomberg dot com, the I Heard Radio app and

694
00:37:35,560 --> 00:37:38,440
Speaker 1: the Bloomberg Business App. We're listening on demand wherever you

695
00:37:38,520 --> 00:37:42,239
Speaker 1: get your podcast. Jess, We're going to kind of go

696
00:37:42,360 --> 00:37:44,919
Speaker 1: full circle here because we started off this program talking

697
00:37:44,960 --> 00:37:47,600
Speaker 1: about banking stocks. We started talking about what the read

698
00:37:47,680 --> 00:37:50,839
Speaker 1: through is into the economy. And look, we're looking at

699
00:37:50,960 --> 00:37:53,280
Speaker 1: SB five hundreds down about six tenths of one percent

700
00:37:54,200 --> 00:37:57,000
Speaker 1: in the green. Though, is those financials and obviously the

701
00:37:57,080 --> 00:37:59,960
Speaker 1: key question is still being deposit flights, paying up for funding,

702
00:38:00,120 --> 00:38:02,600
Speaker 1: looking at tightening financial conditions. But so far, when we're

703
00:38:02,640 --> 00:38:06,000
Speaker 1: looking at especially these bigger banks, it looks like things

704
00:38:06,120 --> 00:38:08,920
Speaker 1: have been holding up a lot better than what people

705
00:38:08,960 --> 00:38:11,880
Speaker 1: were expecting. Obviously for the first quarter. Yeah, and remember

706
00:38:11,920 --> 00:38:14,040
Speaker 1: one of the big concerns here is to what extent

707
00:38:14,120 --> 00:38:16,239
Speaker 1: do we see that credit crunch? Jamie Diamond came out

708
00:38:16,239 --> 00:38:18,720
Speaker 1: and said, look, we might not be seeing that credit.

709
00:38:18,760 --> 00:38:21,800
Speaker 1: It would be a credit crunch necessarily tightening lending standards.

710
00:38:21,800 --> 00:38:23,880
Speaker 1: Sure does that even read through into the consumer? We

711
00:38:24,040 --> 00:38:26,560
Speaker 1: still don't know. So a lot of the panic perhaps

712
00:38:27,040 --> 00:38:30,359
Speaker 1: a little overdone there. Let's get some true expertise here.

713
00:38:30,440 --> 00:38:33,759
Speaker 1: Hugh van Stinas joins us from Oliver our Wyman. He's

714
00:38:33,760 --> 00:38:37,000
Speaker 1: a vice chair and partner, but he's also spent tons

715
00:38:37,080 --> 00:38:39,440
Speaker 1: and tons of time really digging into the banks. He

716
00:38:39,520 --> 00:38:41,400
Speaker 1: was a senior advisor from Mark Carney over at the

717
00:38:41,440 --> 00:38:45,719
Speaker 1: Bank of England. He's worked over at UBS as well. Hugh,

718
00:38:45,880 --> 00:38:48,719
Speaker 1: A pleasure to have you on the show as always.

719
00:38:48,840 --> 00:38:52,120
Speaker 1: Yesterday you came on to Blomber Television and talked about

720
00:38:52,480 --> 00:38:55,840
Speaker 1: just kind of what the equivalent rate hike would be

721
00:38:56,160 --> 00:38:58,000
Speaker 1: to accumulate all of the bank stress. I think you

722
00:38:58,040 --> 00:39:01,040
Speaker 1: said anywhere from one to one hundred and fifty basis

723
00:39:01,200 --> 00:39:02,879
Speaker 1: excuse me, a one hundred to one hundred fifty basis

724
00:39:02,920 --> 00:39:05,279
Speaker 1: points excuse me, worth of a raid heights. That's how

725
00:39:05,360 --> 00:39:09,320
Speaker 1: much the financial stress is showing. What is your takeaway

726
00:39:09,600 --> 00:39:12,839
Speaker 1: from the bank earnings we got this morning, we'll look

727
00:39:12,880 --> 00:39:15,480
Speaker 1: pretty Thanks for having me back on a a terrific

728
00:39:15,520 --> 00:39:19,120
Speaker 1: panel with Tom earlier. Look, I think it's one of

729
00:39:19,160 --> 00:39:22,399
Speaker 1: the early signals. So I mean, first, as Gesture said,

730
00:39:22,560 --> 00:39:26,040
Speaker 1: I think that they're the super legal banks is pulling away.

731
00:39:26,800 --> 00:39:29,520
Speaker 1: They seem at least my hypothesis is that they're benefiting

732
00:39:29,680 --> 00:39:31,920
Speaker 1: from not only not having to pay up as much

733
00:39:31,920 --> 00:39:34,120
Speaker 1: for deposits. I mean, the deposit beaters came through a

734
00:39:34,200 --> 00:39:37,520
Speaker 1: little bit better today, but also the deposits they're benefiting

735
00:39:37,560 --> 00:39:40,480
Speaker 1: from sort of shifted deposits from some of the MidCap banks.

736
00:39:40,880 --> 00:39:42,719
Speaker 1: And obviously the key question has just said it like

737
00:39:42,800 --> 00:39:45,799
Speaker 1: how long this continues. I still fear that there will

738
00:39:45,840 --> 00:39:49,080
Speaker 1: continue to be a bleed from the MidCat banks because

739
00:39:49,320 --> 00:39:51,560
Speaker 1: the opportunities switched from a couple of basis points to

740
00:39:51,760 --> 00:39:53,960
Speaker 1: four point eight percent, and the money market fund, as

741
00:39:54,000 --> 00:39:56,800
Speaker 1: you heard with Black Proper to day, is just so appealing.

742
00:39:57,280 --> 00:39:59,720
Speaker 1: But I think that that means that for the larger banks,

743
00:40:00,040 --> 00:40:01,800
Speaker 1: I think that they're in a much more stable position.

744
00:40:01,880 --> 00:40:05,120
Speaker 1: But obviously, just looking around the corner, all eyes on credit,

745
00:40:05,280 --> 00:40:08,360
Speaker 1: all eyes on the stickiness of that funding structure, you,

746
00:40:08,520 --> 00:40:11,600
Speaker 1: I know you were also tuning in to this great

747
00:40:11,800 --> 00:40:14,759
Speaker 1: panel that Tom Keene was hosting. What was your sort

748
00:40:14,760 --> 00:40:17,239
Speaker 1: of big takeaway from what you had heard so far

749
00:40:17,360 --> 00:40:20,759
Speaker 1: on that? Well, look, it's such a rich panel. I

750
00:40:20,800 --> 00:40:22,520
Speaker 1: don't want to There are a lot of good points,

751
00:40:22,560 --> 00:40:25,160
Speaker 1: but I mean, first, you know, I think there's two

752
00:40:25,160 --> 00:40:26,719
Speaker 1: things here. One is, you know, what does this mean

753
00:40:26,840 --> 00:40:29,760
Speaker 1: for the FED call to these tightly the financial conditions

754
00:40:30,360 --> 00:40:33,600
Speaker 1: really lean against them? Or have we seen the final

755
00:40:33,760 --> 00:40:35,359
Speaker 1: rate hike? Or is there is there any one more

756
00:40:35,400 --> 00:40:37,960
Speaker 1: to come? Or they carry on batting for more? And

757
00:40:38,040 --> 00:40:40,000
Speaker 1: I think that's that that is the big tough call.

758
00:40:40,120 --> 00:40:42,080
Speaker 1: And you know, yesterday Christie and I were chatting about,

759
00:40:42,080 --> 00:40:44,759
Speaker 1: you know, the parallel with Volca where after he had

760
00:40:45,040 --> 00:40:47,319
Speaker 1: the largest bank failure in history at at that time,

761
00:40:47,360 --> 00:40:50,080
Speaker 1: at eighty four, you know they did, they paused, They

762
00:40:50,120 --> 00:40:52,279
Speaker 1: then put up rates a bit more. Within six months

763
00:40:52,280 --> 00:40:54,520
Speaker 1: they were cutting rates. And I think that that rate

764
00:40:54,640 --> 00:40:57,320
Speaker 1: that call, I think is really important. I think the

765
00:40:57,360 --> 00:40:59,680
Speaker 1: second thing came out as Muhammad was saying, was what

766
00:40:59,800 --> 00:41:04,520
Speaker 1: this means for the kind of reshaping of the financial infrastructure.

767
00:41:04,760 --> 00:41:07,280
Speaker 1: You know, how will the system deal with less liquidity

768
00:41:07,680 --> 00:41:10,879
Speaker 1: with higher rates, with quite frankly, a very uncomfortable shape

769
00:41:10,920 --> 00:41:13,719
Speaker 1: of the yieldker for a bank to enjoy earnings. And

770
00:41:13,800 --> 00:41:16,040
Speaker 1: I think that reshaping is something which we've only just

771
00:41:16,080 --> 00:41:18,200
Speaker 1: started seeing today in the numbers. But I think is

772
00:41:18,280 --> 00:41:20,920
Speaker 1: that's the real tension that as I engage with banks,

773
00:41:21,160 --> 00:41:23,920
Speaker 1: it's that focus about how sticky is this liquidity and

774
00:41:24,000 --> 00:41:26,080
Speaker 1: how they're going to adjust. And then the third thing,

775
00:41:26,120 --> 00:41:27,720
Speaker 1: which the thing which didn't come out of the panel

776
00:41:27,719 --> 00:41:29,400
Speaker 1: at least so far, and obviously it was such a

777
00:41:29,480 --> 00:41:30,719
Speaker 1: rich panel. I don't want to pick on them for

778
00:41:30,800 --> 00:41:33,080
Speaker 1: not mentioning it, but is what does this mean for

779
00:41:33,160 --> 00:41:35,759
Speaker 1: the kind of liquidity schemes the central banks offer? You know,

780
00:41:35,840 --> 00:41:38,680
Speaker 1: Christie and I were chatting about how the feds overnight

781
00:41:38,840 --> 00:41:44,880
Speaker 1: repo facility is de facto subsidizing money market funds. I mean,

782
00:41:45,000 --> 00:41:47,080
Speaker 1: forty percent of all money market funds are now being

783
00:41:47,160 --> 00:41:50,200
Speaker 1: parked at the FED overnight, giving them a huge advantage

784
00:41:50,640 --> 00:41:52,600
Speaker 1: over the banks. And I think that's one area where

785
00:41:52,760 --> 00:41:54,960
Speaker 1: I think it would be prudent for the maybe less

786
00:41:55,000 --> 00:41:57,200
Speaker 1: the monetary policy guys, but the financial plumbers at the

787
00:41:57,280 --> 00:41:59,640
Speaker 1: FED to really reassess. I love that you brought up

788
00:42:00,160 --> 00:42:03,080
Speaker 1: the repo and yes, folks, I do chat and nerd

789
00:42:03,120 --> 00:42:05,400
Speaker 1: out with Hugh and see us on the repo facility

790
00:42:05,760 --> 00:42:07,560
Speaker 1: over at the Fellow Reserve. That's what we do in

791
00:42:07,640 --> 00:42:10,279
Speaker 1: our spare time. Hugh talk to us a little bit

792
00:42:10,360 --> 00:42:13,600
Speaker 1: about kind of the comments that Jamie Diamond made this morning. Again,

793
00:42:13,760 --> 00:42:15,200
Speaker 1: I'm going to kind of harp on what he says,

794
00:42:15,200 --> 00:42:17,200
Speaker 1: because so much of the market hangs on his every word.

795
00:42:17,840 --> 00:42:20,080
Speaker 1: He specifically said that when you're looking at deposits, we

796
00:42:20,160 --> 00:42:23,080
Speaker 1: of course saw this major inflow into the deposits when

797
00:42:23,120 --> 00:42:24,680
Speaker 1: you look at the larger banks. But he said, look,

798
00:42:24,719 --> 00:42:26,160
Speaker 1: this is not going to last. This is going to

799
00:42:26,640 --> 00:42:29,400
Speaker 1: kind of you're going to end up seeing deposit outflows

800
00:42:29,560 --> 00:42:32,040
Speaker 1: by the end of the year. Where does that money go?

801
00:42:32,320 --> 00:42:34,400
Speaker 1: Does it go back into the regional banks, does that

802
00:42:34,640 --> 00:42:37,040
Speaker 1: you start to see some sort of re emergence of

803
00:42:37,120 --> 00:42:40,800
Speaker 1: confidence in that sector of the economy. Or does it

804
00:42:40,880 --> 00:42:43,040
Speaker 1: go into the money markets and then straight into the

805
00:42:43,120 --> 00:42:45,600
Speaker 1: repo facility like you just mentioned. Where does that money go?

806
00:42:46,480 --> 00:42:48,279
Speaker 1: Oh well, I think it's a great question. I think

807
00:42:48,320 --> 00:42:50,160
Speaker 1: I look up with humility. I don't think there's an

808
00:42:50,200 --> 00:42:54,960
Speaker 1: easy answer this. So look, I think first the continued

809
00:42:55,200 --> 00:42:59,200
Speaker 1: bleed from deposits into money market funds. I think it's

810
00:42:59,280 --> 00:43:02,319
Speaker 1: highly lightly and obviously heard Larry pick Up, think pick

811
00:43:02,360 --> 00:43:04,200
Speaker 1: up on that today as well. If you take it

812
00:43:04,600 --> 00:43:08,120
Speaker 1: the banks have lost nine hundred billion from the peak

813
00:43:08,360 --> 00:43:12,040
Speaker 1: and the deposit roughly half of that loss was in March,

814
00:43:12,560 --> 00:43:15,240
Speaker 1: and that the money market funds took in two thirds

815
00:43:15,360 --> 00:43:17,560
Speaker 1: of what they lost, so that that probably is still

816
00:43:17,920 --> 00:43:20,959
Speaker 1: the dominant trend. And the difference between two basis points

817
00:43:21,000 --> 00:43:23,239
Speaker 1: and four point eight is so get big. It will

818
00:43:23,320 --> 00:43:26,000
Speaker 1: tempt some companies more for yield pick up because they're

819
00:43:26,040 --> 00:43:28,239
Speaker 1: panicking about what's in the system. And I think that's

820
00:43:28,280 --> 00:43:30,440
Speaker 1: consistent with what you know Jamie was saying on his

821
00:43:30,840 --> 00:43:33,479
Speaker 1: call today. I think in terms of the MidCap banks,

822
00:43:33,880 --> 00:43:35,239
Speaker 1: I think it's a tough call because I think it

823
00:43:35,280 --> 00:43:38,160
Speaker 1: comes down to, you know, how they respond. Will there

824
00:43:38,239 --> 00:43:42,200
Speaker 1: be you know, mergers, will there be the stress test

825
00:43:42,280 --> 00:43:46,440
Speaker 1: that the Dinant administrations proposing help, How will the FED

826
00:43:46,520 --> 00:43:49,839
Speaker 1: facilities ease? And I think there's a complex run there,

827
00:43:50,320 --> 00:43:52,759
Speaker 1: but I think it's going to you know, whenever you

828
00:43:52,840 --> 00:43:55,279
Speaker 1: have a shock like this, it typically takes quite some

829
00:43:55,400 --> 00:43:58,239
Speaker 1: time to work through. So I think the banks, treasurers

830
00:43:58,320 --> 00:44:01,239
Speaker 1: and CFOs are going to be planning that this is

831
00:44:01,280 --> 00:44:03,800
Speaker 1: easy come, easygo, and therefore they will be more cautious

832
00:44:04,040 --> 00:44:06,960
Speaker 1: about giving it granting loans. And that's why, at a minimum,

833
00:44:07,040 --> 00:44:08,800
Speaker 1: I think as we go into the full we have

834
00:44:08,840 --> 00:44:10,880
Speaker 1: a credit squeeze. And the key call is it is

835
00:44:10,920 --> 00:44:12,719
Speaker 1: that is it a really big squeeze or is it

836
00:44:12,760 --> 00:44:16,040
Speaker 1: a crunch? Yeah, Hugh Off the retail sales data this morning,

837
00:44:16,320 --> 00:44:19,480
Speaker 1: we were looking at a two year yield that has

838
00:44:19,560 --> 00:44:22,560
Speaker 1: crossed significantly above four percent. We're looking at four about

839
00:44:22,560 --> 00:44:24,160
Speaker 1: four eleven, we'll call it on the two year ye old,

840
00:44:24,200 --> 00:44:27,080
Speaker 1: thet front end of the curve. One of the arguments

841
00:44:27,160 --> 00:44:29,320
Speaker 1: you made in your peace in the Economists, and I

842
00:44:29,400 --> 00:44:31,480
Speaker 1: want to say in the Financial Times as well, was

843
00:44:31,560 --> 00:44:35,160
Speaker 1: simply that there needs to be more stress tests that

844
00:44:35,239 --> 00:44:39,600
Speaker 1: take interest rate shock into account, and even that might

845
00:44:39,680 --> 00:44:42,719
Speaker 1: not be enough. Jimmie Diamond, again we're going to quote him,

846
00:44:43,000 --> 00:44:46,399
Speaker 1: said there might be a scenario where the two year

847
00:44:46,440 --> 00:44:48,520
Speaker 1: old could reach his high six percent, that higher rates

848
00:44:48,560 --> 00:44:52,560
Speaker 1: for longer could keep yields along treasury curve significantly higher

849
00:44:52,600 --> 00:44:55,239
Speaker 1: than what we're seeing right now. Are the banks ready

850
00:44:55,520 --> 00:45:00,440
Speaker 1: for that kind of move to the upside? I think so.

851
00:45:00,560 --> 00:45:03,080
Speaker 1: I think so first, I think it depends which banks,

852
00:45:03,600 --> 00:45:05,160
Speaker 1: and I think what you're seeing here is that the

853
00:45:05,280 --> 00:45:08,080
Speaker 1: larger of super league banks have you know, might be

854
00:45:08,239 --> 00:45:13,160
Speaker 1: bleeding some deposits because uh, you know, corporate treasurers, you know,

855
00:45:13,280 --> 00:45:15,480
Speaker 1: individuals are trying to just get chasing a bit of

856
00:45:15,560 --> 00:45:17,719
Speaker 1: yield quite you know, quite rightly. And I think what

857
00:45:17,880 --> 00:45:20,879
Speaker 1: was interesting to me is that that yield chasing really

858
00:45:20,920 --> 00:45:24,279
Speaker 1: accelerated when FED funds had about four percent lost ball.

859
00:45:24,680 --> 00:45:27,160
Speaker 1: And so if we do head towards six critie, then

860
00:45:27,239 --> 00:45:30,879
Speaker 1: I'm sure that would accelerate in you know, people looking

861
00:45:30,960 --> 00:45:35,200
Speaker 1: for a better alternative. But of course, you know, now

862
00:45:35,360 --> 00:45:37,160
Speaker 1: that the banks have had this big shock to the system,

863
00:45:37,560 --> 00:45:39,600
Speaker 1: they will be redoing their models. They will be think

864
00:45:39,640 --> 00:45:42,000
Speaker 1: even before any regulator comes to their door, they're going

865
00:45:42,040 --> 00:45:45,120
Speaker 1: to be rethinking their own internal stresses, and quite frankly,

866
00:45:45,200 --> 00:45:46,560
Speaker 1: many of them have been doing that in the last

867
00:45:46,560 --> 00:45:49,120
Speaker 1: two to three weeks. So I think already that's why

868
00:45:49,320 --> 00:45:51,399
Speaker 1: there's going to be less lending. I think the really

869
00:45:51,440 --> 00:45:53,399
Speaker 1: interesting question, which you should you know, which I'm sure

870
00:45:53,440 --> 00:45:56,160
Speaker 1: you're you you've picked up already, but with other guests

871
00:45:56,239 --> 00:45:58,759
Speaker 1: will be you know, will the private credit market in

872
00:45:58,920 --> 00:46:01,320
Speaker 1: fill some of the gaps where the mid market banks

873
00:46:01,360 --> 00:46:03,320
Speaker 1: aren't going to be lending, and I think at particularly

874
00:46:03,320 --> 00:46:07,160
Speaker 1: around commercial real estate, there's gonna be some really interesting opportunities,

875
00:46:07,960 --> 00:46:10,320
Speaker 1: you know, from this dislocation. I think some of the

876
00:46:10,360 --> 00:46:12,960
Speaker 1: private market players will also be able to pick up opportunities.

877
00:46:13,239 --> 00:46:15,440
Speaker 1: But I do think for the banks that they will

878
00:46:15,440 --> 00:46:18,600
Speaker 1: be plenty more cautious going and obviously we'll need to

879
00:46:18,640 --> 00:46:22,080
Speaker 1: stress themselves for a range of painful scenarios. Hugh. And

880
00:46:22,120 --> 00:46:24,759
Speaker 1: as you were just talking about mentioning commercial real estate,

881
00:46:24,760 --> 00:46:26,759
Speaker 1: that comes up in so many of my conversations as oh,

882
00:46:26,840 --> 00:46:29,120
Speaker 1: this could potentially be the next shoe to drop. What

883
00:46:29,360 --> 00:46:32,360
Speaker 1: are you watching regards to that? And also even beyond

884
00:46:32,520 --> 00:46:35,200
Speaker 1: that and other corners of the system that you feel

885
00:46:35,239 --> 00:46:40,000
Speaker 1: like are showing some signs of potential weakness at this point. Look, Jess,

886
00:46:40,040 --> 00:46:42,759
Speaker 1: it's a it's a great question, and like you, a

887
00:46:42,840 --> 00:46:46,360
Speaker 1: lot of my conversations around trying to segment this market.

888
00:46:46,640 --> 00:46:48,560
Speaker 1: It's a huge asset class and it will be foolish

889
00:46:48,560 --> 00:46:50,360
Speaker 1: for us to say it's all going to be impacted

890
00:46:50,960 --> 00:46:52,640
Speaker 1: if you slice and dice it. I mean, I'm coming

891
00:46:52,640 --> 00:46:56,279
Speaker 1: across asset managers and private credit managers and privacty firms

892
00:46:56,360 --> 00:46:59,160
Speaker 1: who are really interested in refinancing or taking advantage of

893
00:46:59,440 --> 00:47:02,560
Speaker 1: some dislocate. But you know, there are two buts. I mean,

894
00:47:02,640 --> 00:47:05,520
Speaker 1: one is the cost of capital has significantly increased and

895
00:47:05,640 --> 00:47:08,280
Speaker 1: the terms of leverage may have deteriorated, so that actual,

896
00:47:08,440 --> 00:47:11,760
Speaker 1: you know, the clearing value can be impacted. But secondly,

897
00:47:11,880 --> 00:47:13,880
Speaker 1: I think what we're all trying to I mean, effectively

898
00:47:14,040 --> 00:47:15,759
Speaker 1: from sly beyond ward, we're all trying to sift for

899
00:47:15,960 --> 00:47:19,520
Speaker 1: is where are the some carry trades which have gone wrong?

900
00:47:19,920 --> 00:47:21,720
Speaker 1: Or where are there some carried trades with weak hands?

901
00:47:22,120 --> 00:47:24,759
Speaker 1: And I think particularly some of the office parts of

902
00:47:24,960 --> 00:47:27,680
Speaker 1: CRI are an area which I'm sure U jess and

903
00:47:28,120 --> 00:47:31,040
Speaker 1: we are having conversations about where are the weaknesses? Has

904
00:47:31,080 --> 00:47:34,480
Speaker 1: that vary by city by location, but it's but that's

905
00:47:34,560 --> 00:47:38,040
Speaker 1: that's one of the hot potatoes, and obviously snarias around

906
00:47:38,640 --> 00:47:40,160
Speaker 1: some of them. There are more recently some of the

907
00:47:40,239 --> 00:47:43,000
Speaker 1: vintages of private equity deals as well where they need

908
00:47:43,040 --> 00:47:45,160
Speaker 1: to be some refinancing. But as ever, you need to

909
00:47:45,200 --> 00:47:47,719
Speaker 1: sift for the week hands and the weak trades rather

910
00:47:47,760 --> 00:47:50,400
Speaker 1: than think about the whole market. So the conversation about

911
00:47:50,480 --> 00:47:54,840
Speaker 1: commercial real estate specifically. You know, it's one that several

912
00:47:54,960 --> 00:47:59,240
Speaker 1: people have brought up. We had the deputy chief econists

913
00:47:59,239 --> 00:48:01,839
Speaker 1: over at Kushment or way Field, a massive real estate

914
00:48:01,920 --> 00:48:04,120
Speaker 1: firm here in New York and of who has of

915
00:48:04,200 --> 00:48:07,080
Speaker 1: course a presence across the country as well. And look,

916
00:48:07,160 --> 00:48:10,000
Speaker 1: she said, yes, the commercial real estate piece of the

917
00:48:10,080 --> 00:48:13,200
Speaker 1: equation could come under pressure, but it already kind of

918
00:48:13,239 --> 00:48:15,120
Speaker 1: has for the last nine months. And a lot of

919
00:48:15,200 --> 00:48:18,200
Speaker 1: that has to do with the extreme tightening you're seeing

920
00:48:18,239 --> 00:48:20,360
Speaker 1: from the Federal Reserve. A point that Muhammad al Arian

921
00:48:20,680 --> 00:48:22,480
Speaker 1: made in that panel at the IMF with our very

922
00:48:22,520 --> 00:48:24,800
Speaker 1: own time team as well, that because the Federal Reserve

923
00:48:24,920 --> 00:48:28,840
Speaker 1: started so late, the moves were far more dramatic. To

924
00:48:28,960 --> 00:48:31,160
Speaker 1: the upside something that has already been kind of caught

925
00:48:31,400 --> 00:48:34,359
Speaker 1: in the commercial real estate space. How much more pain

926
00:48:35,640 --> 00:48:39,800
Speaker 1: is there really due in that part of the economy.

927
00:48:40,600 --> 00:48:42,880
Speaker 1: What we'll look So I don't want to profess to

928
00:48:42,920 --> 00:48:45,200
Speaker 1: be your commercial estate experts. I mean I'm thinking about

929
00:48:45,200 --> 00:48:46,600
Speaker 1: it from the point view of the banks and how

930
00:48:46,640 --> 00:48:50,400
Speaker 1: they think about the lending. Certainly as I engage with

931
00:48:50,480 --> 00:48:53,920
Speaker 1: the larger banks's and also talk about it, some of

932
00:48:53,960 --> 00:48:57,920
Speaker 1: the given the very high inflation in the area there

933
00:48:58,040 --> 00:49:01,800
Speaker 1: are there's good coverage, there's you know, strong covenance. But

934
00:49:02,239 --> 00:49:04,120
Speaker 1: you know the cost of capital has gone up plenty

935
00:49:04,160 --> 00:49:07,759
Speaker 1: some as Mohammad said, it's the fastest increase in rates

936
00:49:08,480 --> 00:49:12,000
Speaker 1: in history, and so that took a few people offside.

937
00:49:12,239 --> 00:49:14,200
Speaker 1: So I think it's more looking for the weak hands

938
00:49:14,239 --> 00:49:16,560
Speaker 1: and the weak properties rather than the whole market. But

939
00:49:16,719 --> 00:49:19,479
Speaker 1: you know, given the shifting cost of capital, it would

940
00:49:19,480 --> 00:49:21,640
Speaker 1: be amazing if there aren't going to be some areas

941
00:49:21,680 --> 00:49:23,800
Speaker 1: of weakness. And you saw that as well, with some

942
00:49:23,880 --> 00:49:26,799
Speaker 1: of the banks today taking slightly higher charges, not yet

943
00:49:26,920 --> 00:49:30,279
Speaker 1: seeing major source of pain, but anticipating that there will be. Hugh,

944
00:49:30,480 --> 00:49:33,640
Speaker 1: we've talked about commercial real estate in the cracks that

945
00:49:33,680 --> 00:49:36,959
Speaker 1: are there. We were talking about this potential more deposit flight.

946
00:49:37,440 --> 00:49:40,480
Speaker 1: So the big question how does this end up affecting

947
00:49:40,800 --> 00:49:46,160
Speaker 1: FED policy? Look, I think this is so we've we've

948
00:49:46,200 --> 00:49:49,480
Speaker 1: already seen a very sharp move down as as you saw,

949
00:49:49,520 --> 00:49:51,759
Speaker 1: and obviously a little bit of retracing as Krittie just

950
00:49:51,840 --> 00:49:54,720
Speaker 1: mentioned in a two year you know that that weekend

951
00:49:54,719 --> 00:49:56,640
Speaker 1: around SDB where we moved you know, we moved over

952
00:49:56,680 --> 00:50:00,839
Speaker 1: a point three sessions. So think there's as a huge

953
00:50:00,920 --> 00:50:02,839
Speaker 1: move Um, I think this is one of these things

954
00:50:02,920 --> 00:50:06,960
Speaker 1: where you know, there's no good historical parallel, but if

955
00:50:06,960 --> 00:50:09,080
Speaker 1: it rhymes with anything, it rhymes mostly with the nineteen

956
00:50:09,080 --> 00:50:11,680
Speaker 1: eighties where we've got a very big increasing interest rates,

957
00:50:12,040 --> 00:50:13,719
Speaker 1: where the banks were the wrong way round. You know,

958
00:50:13,760 --> 00:50:17,759
Speaker 1: their funding costs were very you know, super complicated with

959
00:50:17,800 --> 00:50:20,160
Speaker 1: where there the eels and the assets were. And again

960
00:50:20,239 --> 00:50:22,040
Speaker 1: many of the banks were squeezed in the same way

961
00:50:22,239 --> 00:50:24,440
Speaker 1: and you saw runs. So look, you know, if I

962
00:50:24,520 --> 00:50:26,960
Speaker 1: go back to that parallel, I'm not suggesting history repeats,

963
00:50:27,040 --> 00:50:30,400
Speaker 1: but there, you know, within six months of the shock

964
00:50:30,560 --> 00:50:32,880
Speaker 1: to the bank failure, which that was sort of the

965
00:50:32,880 --> 00:50:35,719
Speaker 1: bank rescue. I'm sorry, you know, rates were coming down,

966
00:50:35,960 --> 00:50:38,600
Speaker 1: credit was tighter. But you know, the other thing I

967
00:50:38,640 --> 00:50:40,719
Speaker 1: think we learned from there is that once the really

968
00:50:40,800 --> 00:50:43,240
Speaker 1: big bank had been saved, even though there was another

969
00:50:43,680 --> 00:50:47,479
Speaker 1: nine hundred thirty odd regional banks who sadly did fail,

970
00:50:47,560 --> 00:50:50,320
Speaker 1: over the following seven years, you still had the Roaring eighties.

971
00:50:50,560 --> 00:50:52,920
Speaker 1: So I think, you know, we shouldn't be completely dooming gloom.

972
00:50:53,000 --> 00:50:55,840
Speaker 1: I personally think there will be significant tightness and credit standards,

973
00:50:56,080 --> 00:50:57,920
Speaker 1: there will be a credit squeeze. I think of the

974
00:50:57,960 --> 00:51:01,480
Speaker 1: fall it will be quite highly to be much much tougher.

975
00:51:02,400 --> 00:51:05,279
Speaker 1: But but the larger banks navigating this means we just

976
00:51:05,320 --> 00:51:08,000
Speaker 1: need to make sure who's who's filling the gap that

977
00:51:08,040 --> 00:51:10,480
Speaker 1: the MidCap banks are providing. I think the really interesting

978
00:51:10,560 --> 00:51:12,000
Speaker 1: question here for me is is that going to be

979
00:51:12,080 --> 00:51:13,960
Speaker 1: some of the private credit players or some of the

980
00:51:14,000 --> 00:51:15,520
Speaker 1: other banks, or would they just be a lack of

981
00:51:15,520 --> 00:51:19,520
Speaker 1: a vtibility of credit? Huvan Stina's everybody making a reference

982
00:51:19,520 --> 00:51:22,080
Speaker 1: to the eighties, which if Paulsweenia Matt Miller here would

983
00:51:22,200 --> 00:51:24,680
Speaker 1: make some obsture comment about like warmers or something like that.

984
00:51:25,160 --> 00:51:27,719
Speaker 1: But I gotta say I love that he's talking about

985
00:51:27,719 --> 00:51:30,800
Speaker 1: the eighties here, because Jess, if you remember, well, you

986
00:51:30,880 --> 00:51:33,920
Speaker 1: weren't around in the year I was born, but it

987
00:51:34,040 --> 00:51:36,919
Speaker 1: was around perhaps not monitoring the banks in the federal

988
00:51:36,960 --> 00:51:41,239
Speaker 1: reserve at the time. It's certainly a really important piece

989
00:51:41,280 --> 00:51:44,799
Speaker 1: of the equation has been that in the eighties, even

990
00:51:44,840 --> 00:51:47,840
Speaker 1: though you had this extreme tightness from the federal reserves,

991
00:51:48,000 --> 00:51:50,240
Speaker 1: as you just pointed out, you also had extreme spending

992
00:51:50,360 --> 00:51:52,239
Speaker 1: from the fiscal side as well, think Reagan and the

993
00:51:52,320 --> 00:51:54,879
Speaker 1: defense budget. Yeah, so there's there's a lot of things

994
00:51:54,920 --> 00:51:57,000
Speaker 1: to consider their human Stina as the Vice churm partner

995
00:51:57,080 --> 00:51:59,600
Speaker 1: over at Oliver Wyman, of course, the former senior advisor

996
00:52:00,040 --> 00:52:02,400
Speaker 1: the CEO EUBS, as well as the Governor of the

997
00:52:02,480 --> 00:52:05,120
Speaker 1: Bank of England, Mark Carney. We think you as always.

998
00:52:05,160 --> 00:52:07,160
Speaker 1: You can check out his work over at The Economist

999
00:52:07,200 --> 00:52:09,560
Speaker 1: at the Financial Times, and he's a very active Twitter

1000
00:52:09,640 --> 00:52:11,480
Speaker 1: feed as well, which I find it very interesting, so

1001
00:52:11,640 --> 00:52:16,000
Speaker 1: definitely check that out. Just as we talk about again

1002
00:52:16,120 --> 00:52:19,080
Speaker 1: the eighties, I wonder how much of the parallel really

1003
00:52:19,160 --> 00:52:22,080
Speaker 1: is there, because look, it is a completely different economy

1004
00:52:22,160 --> 00:52:24,160
Speaker 1: it is. It also makes me think of whenever Join

1005
00:52:24,280 --> 00:52:26,080
Speaker 1: tried to compare last year with everything going on with

1006
00:52:26,160 --> 00:52:29,279
Speaker 1: inflation to the seventies. Right, it's not Apple's apples. Yeah, yeah,

1007
00:52:29,280 --> 00:52:32,600
Speaker 1: a little bit of a hangover. Thanks for listening to

1008
00:52:32,640 --> 00:52:36,160
Speaker 1: the Bloomberg Markets podcast. You can subscribe and listen to

1009
00:52:36,239 --> 00:52:40,359
Speaker 1: interviews at Apple Podcasts or whatever podcast platform you prefer.

1010
00:52:40,760 --> 00:52:44,040
Speaker 1: I'm Matt Miller. I'm on Twitter at Matt Miller nineteen

1011
00:52:44,160 --> 00:52:46,799
Speaker 1: seventy three and on false Sweeney I'm on Twitter at

1012
00:52:46,880 --> 00:52:49,719
Speaker 1: pt Sweeney. Before the podcast, you can always catch us

1013
00:52:49,760 --> 00:52:51,160
Speaker 1: worldwide at Bloomberg Radio