Speaker 1: From the Bloomberg interactor Burger Studios. This is Bloomberg day
Speaker 1: Break for Thursday May fourth.
Speaker 2: Coming up today, pack West is the latest regional bank
Speaker 2: to plunge. Is that consider strategic options.
Speaker 1: Big names on Wall Street say that FED deserves a
Speaker 1: blame for the current crisis.
Speaker 2: Jay Powell raises rates again, but leaves the door open
Speaker 2: for a pause.
Speaker 1: And Apple prepares to record earnings.
Speaker 3: This afternoon, the Manhattan DA rules the death of a
Speaker 3: subway rider who dined by a show called a homicide,
Speaker 3: whilst the suspected gunman in a deadly Atlantis shooting has
Speaker 3: been caught. I'm John Tucker, bore ahead, I'm John Stash.
Speaker 4: Aaron sports a walk off win for the Yankees, the
Speaker 4: Mets got swept.
Speaker 2: The Devil's lost Game one at Carolina.
Speaker 5: That's all straight Ahead on Bloomberg day Break, The business
Speaker 5: news you need to starn your day in just one
Speaker 5: fifteen minute podcast each morning on Apple, Spotify, The Bloomberg
Speaker 5: Business Appen everywhere you get your podcasts.
Speaker 2: Good morning, I'm Nathan Hager.
Speaker 1: And I'm Karen Moscow. Here are the stories we're following today.
Speaker 2: We begin this morning with continued turmoil in the banking industry.
Speaker 2: The regional lender PacWest Bank Corp. Has been weighing a
Speaker 2: range of strategic options, including a sale. We get the
Speaker 2: details from Bloomberg's Doug Prisner.
Speaker 6: Yes, Packwest is open to a sale, although the company
Speaker 6: hasn't started a formal auction process. We're also told the
Speaker 6: Beverly Hills Bank is considering a breakup or a capital raise.
Speaker 7: Now.
Speaker 6: An outright sale has been hindered because there aren't many
Speaker 6: potential buyers interested in the entire bank. Packwest compromises a
Speaker 6: community lender called Pacific Western Bank, as well as some
Speaker 6: commercial and consumer lending businesses. Also, a buyer would have
Speaker 6: to potentially book a big loss on marking down some
Speaker 6: of those loans in New York. I'm Doug Prisoner, Bloomberg.
Speaker 1: Daybreak, All right, Doug, thanks well. Shares of pack West
Speaker 1: originally fell sixty percent on the news, but just after
Speaker 1: midnight on the East Coast, the regional bank confirmed its
Speaker 1: in talks with several potential investors and said to posits
Speaker 1: have increased since March. Checking shares a pack West right now,
Speaker 1: they are down almost thirty seven percent in early trading.
Speaker 2: And reaction is pouring into this latest chapter in the
Speaker 2: banking crisis, Karen Pershing squares Bill Ackman says the US
Speaker 2: regional banking system is at risk. He goes on to
Speaker 2: say regulator failures to update and expand the insurance regime
Speaker 2: has quote hammered more nails in the coffin.
Speaker 1: And Nathan, the Federal Reserve deserves some of blame for
Speaker 1: the banking crisis. That's the view from former New York
Speaker 1: FED president and current Bloomberg opinion columnist Bill Dudley.
Speaker 8: I think the FED broadly missed the fact that this
Speaker 8: interest rate risk that they had created by being very
Speaker 8: late to tighten monitary policy, that they created by flooding
Speaker 8: the bank with deposits by doing quantitative easing, that they created,
Speaker 8: part of the stress on the banking system that rose
Speaker 8: when they had to tighten bi monetary policy by five
Speaker 8: percent in a little over a year.
Speaker 1: And former New York FED President Bill Dudley made the
Speaker 1: comments just after the Fed's latest rate decisions. Stay tuned
Speaker 1: for more of his inner with a Bloomberg coming up shortly.
Speaker 2: Fed schir Jay Powell also addressed the banking termoil during
Speaker 2: his news conference yesterday. Karen, that was before the latest
Speaker 2: news on Packwest. Palell says issues in the banking sector
Speaker 2: are not systemic.
Speaker 9: Conditions in that sector have broadly improved since early March,
Speaker 9: and the US banking system is sound and resilient. We
Speaker 9: will continue to monitor conditions in the sector. We're committed
Speaker 9: to learning the right lessons from this episode and will
Speaker 9: work to prevent events like these from happening again.
Speaker 10: Well.
Speaker 1: As far as monetary policy, powellan company did raise rates
Speaker 1: for a tenth straight time, but open the door to
Speaker 1: a June pause for rate hikes. We got this reaction
Speaker 1: from former Atlanta Fed president Dennis Lockhart.
Speaker 11: The focus is on inflation. They're trying very hard to
Speaker 11: separate financial stability concerns system banking system concerns from monetary policy.
Speaker 11: We'll see if conditions forced them to begin to combine
Speaker 11: financial stability concerns with monetary policy decisions.
Speaker 1: Former Atlanta Fed President Dennis locker Heart says overall, he
Speaker 1: thinks j. Powell is taking a long term hawkish position
Speaker 1: on policy.
Speaker 2: Interest rates are also in focus overseas, Karen, the European
Speaker 2: Central Bank is poised to slow the pace of interest
Speaker 2: rate increases later this morning. It's after its preferred measure
Speaker 2: of inflation eased for the first time in ten months.
Speaker 2: Officials at the Central Bank are expected to raise the
Speaker 2: deposit rate by a quarter point to three point two
Speaker 2: five percent.
Speaker 5: Well.
Speaker 1: Staying in Europe here, Nathan Shares of Schaller at more
Speaker 1: than two percent first quarter profit, beating estimates. In the
Speaker 1: oil giants said it will repurchase a further four billion
Speaker 1: dollars of shares. That's the same buyback size as in
Speaker 1: the prior quarter.
Speaker 2: And back here in the US, careen the earnings continued
Speaker 2: to roll in as well, with Apple leading the way.
Speaker 2: Today we get a preview from Bloomberg's Tom Busby.
Speaker 12: Despite expectations of continued solid sales of iPhones, watches, MacBooks,
Speaker 12: and other gadgets, Wall Street is bracing for what could
Speaker 12: be a second year over year sales decline in a
Speaker 12: row as consumers here in the US and all around
Speaker 12: the world pull back a bit on their spending. But
Speaker 12: Apple also expected to boost its dividends and increase its
Speaker 12: share buyback program, which it did by ninety billion dollars
Speaker 12: just a year ago. For the second quarter, look for
Speaker 12: revenue of just under seventy two billion dollars forty nine
Speaker 12: billion of that from iPhone sales and consensus calls for
Speaker 12: innings per share of a dollar forty three. Tom buzzby
Speaker 12: Bloomberg Daybreak. All right, Tom, thanks well.
Speaker 1: Turning to politics, We're just days away from a key
Speaker 1: meeting on the debt ceiling, and now economists at the
Speaker 1: White House are issuing a new warning. The Council of
Speaker 1: Economic Advisor says a short default on the debt would
Speaker 1: cost a half million jobs and knock six tens of
Speaker 1: a percent off GDP. If it lasted a full quarter,
Speaker 1: GDP would fall more than six percent and the unemployment
Speaker 1: rate would go up five percent. Democratic Congressman Henry Kuahar
Speaker 1: is pushing for a clean debt ceiling increase.
Speaker 13: We cannot have a default because that's going to cost
Speaker 13: the US and we saw that at twenty eleven. We
Speaker 13: did it at the very end, and what happened the
Speaker 13: US credit was downgraded and that caused a lot of
Speaker 13: more money where we're paying out billions of dollars on
Speaker 13: interest because of the downgrade.
Speaker 1: And Congressman Henry Quayar of Texas spoke with our Washington
Speaker 1: correspondent Joe Matthew on Bloomberg's sound on Catch the show
Speaker 1: weekdays at one pm Eastern on Bloomberg Radio or listen
Speaker 1: on demand wherever you get your podcasts.
Speaker 2: Tim now to take a look at some of the
Speaker 2: other stories making news in New York and around the world.
Speaker 2: For that, we're joined by Bloomberg's John Tucker. Good Morning, John,
Speaker 2: and Nathan.
Speaker 3: The New York Medical Examiners world The death of a
Speaker 3: thirty year old subway rid a homicide. The NYPD says
Speaker 3: the man had been shouting at people aboard a train
Speaker 3: on Monday, then fellow writers tackled him and won a
Speaker 3: US marine put him at a choke hold that lasted
Speaker 3: until his body went limp. The medical examiners. His thirty
Speaker 3: year old Jordan Neely, died from compression of the neck.
Speaker 3: Neeling is known to some New Yorkers as a Michael
Speaker 3: Jackson impersonator in Times Square. Mayor Adams was ansd on
Speaker 3: CNN about the investigation.
Speaker 14: Well, now it's still ongoing, and really our hearts go
Speaker 14: out to the family and this terrible incident, and the
Speaker 14: disc attorney, as you stated, the Medical Examiner's office just
Speaker 14: bruth the case and now it's in the hands of
Speaker 14: investigators that determine exactly what happened. There's so many unknowns
Speaker 14: at this time.
Speaker 3: For now, the Manhattan DA has not charged anyone. Police
Speaker 3: in Atlanta say they caught the suspected gunman who shot
Speaker 3: and killed one woman and wounded four others at a
Speaker 3: medical center. The mother of the alleged suspect, twenty four
Speaker 3: year old m Patterson, says he was upset or a
Speaker 3: medical mix up and wanted a drug to deal with
Speaker 3: anxiety and depression. Atlanta Mayor Andre Dickens.
Speaker 15: It's the guns that we're talking about. We live in
Speaker 15: a state and in a nation where people have easy
Speaker 15: and wide access to firearms that are used to kill
Speaker 15: other fellow Americans. We need immediate action that meets the
Speaker 15: urgency of this crisis.
Speaker 3: Mayor Dickens says a citizen's tip Lanta Patterson's arrest. People
Speaker 3: are dead, including a seven year old girl, after a
Speaker 3: shooting in Newark, New Jersey, last night. Two others were
Speaker 3: wounded in what polease say is a domestic dispute, and
Speaker 3: a home on Johnson Avenue. The SATs back to gunman
Speaker 3: was also killed. A judge dismissed Donald Trump's one hundred
Speaker 3: million dollar lawsuit against the New York Times and its
Speaker 3: reporters over a twenty eighteen expose on his taxes. The
Speaker 3: New York State Supreme Court judge also ordered the former
Speaker 3: president to pay the news outlets attorney's fees. Prosecutors is
Speaker 3: said to be nearing a decision on whether to charge
Speaker 3: President Biden's son Hunter with tax violations. The Washington Post
Speaker 3: says that's according to people familiar with the matter. Global
Speaker 3: News twenty four hours a day, powervine more than twenty
Speaker 3: seven hundred journalist and analysts, you know, over one hundred
Speaker 3: and twenty countries. I'm John Tucker. This is Bloomberg, Nathan.
Speaker 2: Thank you, John. Time now for Bloomberg Sports Update. For that,
Speaker 2: we bring in John Stanshower.
Speaker 4: All right, Nathan.
Speaker 2: It was a long day.
Speaker 4: I'm not a good one for the Mets in Detroit
Speaker 4: at day night double ahead of the Tigers won the
Speaker 4: openers six to five, scoring twice in the eighth na
Speaker 4: A Bada Montevino. Detroit catcher Eric Pass had five hits
Speaker 4: and then he hit two home runs in the nightcap,
Speaker 4: won by the Tigers eight to one. Max Schurzer, back
Speaker 4: from his suspension, gave up six runs and eight hits.
Speaker 4: This afternoon, Justin Verlander makes his Mets debut. Yankees are
Speaker 4: off before starting a weekend series at Tampa Bay. The
Speaker 4: raised just one again. They are twenty five and six,
Speaker 4: sixteen and two at home, the eight and a half
Speaker 4: games ahead of the Yankees, who did rally to win
Speaker 4: a second straight over Cleveland at the Stadium. The Yanks
Speaker 4: trailed two nothing, got home runs in the fifteen from
Speaker 4: Willie Calhoun and new Yank outfielder Jake Bowers. Calhoun drove
Speaker 4: in the tiny run bottom of the ninth inning, and then
Speaker 4: the Yanks won four to three on the Jose Travino
Speaker 4: hit in the tenth. Before the game, Yankee GM Brian
Speaker 4: Cashman said the reason his team is in last place injury.
Speaker 16: Were banged up so bad right now. If it was
Speaker 16: a short seat and we'd be taken out. But we
Speaker 16: have time to make up ground and we're gonna compete
Speaker 16: with who we have here, and we look forward to
Speaker 16: getting who we need back, you know what, a later date.
Speaker 4: Thanks ok Toad Aaron Judge back next week. Stanley Cup
Speaker 4: flaff Carolina an easy game one win over the Devils
Speaker 4: in Raleigh five to one. That's the same score of
Speaker 4: the games one and two losses by the Devils against
Speaker 4: the Rangers, and of course they came back and won
Speaker 4: that series. Vegas beat Edmonton sixty four. The Oilers Leon
Speaker 4: Dreizeido scored all four in defeat. NBA Boston blew out
Speaker 4: Philadelphia by thirty four. That series tied at one. The
Speaker 4: Jets have signed veteran whiteout Randall Cobb, a longtime teammate
Speaker 4: of Aaron Rodgers in Green Bay.
Speaker 2: John Stash Edwin. Bloomberg Sports.
Speaker 17: Live from coast to coast, from New York to San Francisco,
Speaker 17: Boston to Washington, d C. Nationwide on SIRIUSXAM, the Bloomberg
Speaker 17: Business app, and Bloomberg dot Com.
Speaker 2: This is Bloomberg day Break. Good morning. I'm Nathan Hager.
Speaker 2: Let's continue the conversation now on the latest rate hikes
Speaker 2: from the Federal Reserve and the continued turmoil in the
Speaker 2: regional banking sector. If we've learned one thing over the
Speaker 2: past years monitary tightening cycle, it is that there are
Speaker 2: no guarantees. There was no guarantee that the Fed would
Speaker 2: raise interest rates as fast as it did, and it's
Speaker 2: not guaranteed they're now going to pause Fed chaired jer
Speaker 2: Own pal signal the Central Bank could stop hikes after
Speaker 2: yesterday's quarter point increase, but that the Central Bank will
Speaker 2: remain data dependent and at the same time, the Feds
Speaker 2: not just following the data, it's also closely watching continued
Speaker 2: turmoil in the regional banking sector. Bill Dudley, ran the
Speaker 2: New York Fed, is currently a Bloomberg opinion columnist. He
Speaker 2: says the Central Bank should keep an eye on how
Speaker 2: this turmoil unfolds, but he thinks it's also time to
Speaker 2: own up to the way interest rate increases may have
Speaker 2: fueled the crisis. Bill Dudley discussed that along with Jpalll's
Speaker 2: news conference yesterday with Bloomberg's Tom Kean, Lisa Abramowitz, and
Speaker 2: Jonathan Ferrell. Let's bring you that discussion now.
Speaker 18: If they pause, is it asymmetric or symmetric? Does a
Speaker 18: pause mean rate cuts to come or they can say
Speaker 18: we're going to pause and we can go either way.
Speaker 8: Well, I think they can pause and then continue to
Speaker 8: tighten again if the data turns out to support that.
Speaker 8: But obviously when they do pause, they're making a pretty
Speaker 8: strong statement that they've gotten enough information that they're confident
Speaker 8: that policy is sufficiently restrictive to use German policy terms
Speaker 8: to bring inflation down to two percent over time. So
Speaker 8: a pause is going to be a pretty significant event
Speaker 8: from the Fed. Now. Obviously contact matters that we're in
Speaker 8: the middle of a debt limit ceiling fight at the
Speaker 8: time of the June FMC met.
Speaker 19: You might take a pause for.
Speaker 8: Other reasons, but I would say a pause will be
Speaker 8: pretty important event. What the Fed was trying to do
Speaker 8: today was say, look, we don't know if we're going
Speaker 8: to pause or not at this point. The message, I
Speaker 8: think in the statement and in the Prescombe was pretty clear.
Speaker 8: We think we're getting close to a level that's sufficient restrictive.
Speaker 8: We're not absolutely certain data's going to tell that we
Speaker 8: have to do a little bit more. We're clearly not
Speaker 8: going to cut yet. So I think the pushback that
Speaker 8: the Fed is making is really to the markets price
Speaker 8: seeing rate cuts. The FED thinks that the process of
Speaker 8: getting inflation done to two percent is going to take some.
Speaker 19: Time, a lot longer than what the market thinks.
Speaker 18: What is a cumulative effect of where we are right now?
Speaker 18: Give in how you nailed the need for higher rates
Speaker 18: to fight inflation.
Speaker 8: Well, we're certainly in the vicinity of what's sufficient. I
Speaker 8: think in my mind whether they have to do another
Speaker 8: you know, increase or two it's hard to say at
Speaker 8: this point.
Speaker 19: You know, we've come a long way in the last year.
Speaker 8: As puppet cheer Paul said in his press covers, you
Speaker 8: go five hundred basis point five percent increase in short
Speaker 8: term rates.
Speaker 19: That's a lot in a year.
Speaker 8: And we're also starting to see some of the effects
Speaker 8: of that on the on the banking system, so that
Speaker 8: the FED has a whole nother source of restraint, which
Speaker 8: is a credit conditions are going to tighten because some
Speaker 8: banks are going to pull off. Now the hard part is,
Speaker 8: he said in his press covers, it's very hard to
Speaker 8: access how important that a channel is going to be.
Speaker 8: My own personal view is it's going to be fairly weak,
Speaker 8: because the problems that these banks face were not that
Speaker 8: they went out and made bad loans. The problem that
Speaker 8: these banks spaces they went out and took a lot
Speaker 8: of interest rate risks.
Speaker 7: Bill, were you satisfied with the explanations or the answers
Speaker 7: to the questions about the supervisory of some of these
Speaker 7: banking institutions that have failed, Well, I.
Speaker 8: Don't think the FED is, you know, taking the full
Speaker 8: responsibility for being pretty slow on this process. I mean,
Speaker 8: if you go back and look at the November Financial
Speaker 8: Stability port, which I did this morning, there's there's basically
Speaker 8: no mention of any kind of you know, interest rate
Speaker 8: risk mismatch, any prime kind of potential liquidity problem in
Speaker 8: the bank. So it wasn't just a question of the
Speaker 8: supervision not being more aggressive with Silicon Valley Bank.
Speaker 19: I think the FED basically missed the risk.
Speaker 8: Here that the posits could flow out very very quickly
Speaker 8: because of the marked and market losses on some of
Speaker 8: these banks balance sheets.
Speaker 7: Do you think, then, Bill, they're still missing it, that
Speaker 7: they don't appreciate the full extent of it, based on,
Speaker 7: for example, the preliminary look that they got to the
Speaker 7: Senior Loan Officer opinion survey, which seemed to indicate just
Speaker 7: an ongoing trend of what they had, are then underappreciating
Speaker 7: a new pressure in the market.
Speaker 8: I think that his answer on the Senior Loan Officers
Speaker 8: servey was that it's moving in the same direction that
Speaker 8: it was upward and the tightening of credit conditions, but
Speaker 8: not in a way that would suggest that the problems
Speaker 8: of the banking system since mid March have led to
Speaker 8: a significant further tightening of credit conditions. So I think
Speaker 8: he's basically saying there's not really any new information in
Speaker 8: the senior loan officers survey.
Speaker 19: That was my sense of his response to that question.
Speaker 18: Doctor Dudley, what you just said is extraordinary. You said, basically,
Speaker 18: the FED missed the ramifications of new digital technology the
Speaker 18: speed with which we can move deposits out A delicate question,
Speaker 18: if I may, Bill, and that is basically they want
Speaker 18: Mary Daly's head. There's no other way to put it nicely.
Speaker 18: You've had experience being a president of a FED. Do
Speaker 18: you go after the president of any given regional FRED
Speaker 18: when there's a major blow up like this? Or is
Speaker 18: it much more down the food chain looking at the
Speaker 18: process of supervision and regulation, I think it's.
Speaker 20: A much broader issue about supervisors finding finding problems with
Speaker 20: banks and then not forcing the banks to remedy those
Speaker 20: problems in a timely way. The second issue here was
Speaker 20: I think the FED broadly missed the fact that that
Speaker 20: that this interest rate risks that they had created by
Speaker 20: being very late to tighten monitary policy that they created
Speaker 20: by flooding the bank with deposits by doing quantitative easing
Speaker 20: that they created part of the stress and the banking
Speaker 20: system that rose when they had to tighten.
Speaker 8: Monetary policy by five percent in a little over a year.
Speaker 8: So the Federal Reserve has some culpability here, both in
Speaker 8: terms of the monitary policy policy policies that they pursued
Speaker 8: over the last few years, and also on the supervisory.
Speaker 21: Sid's certainly culpability. They're not really looking to go out
Speaker 21: and acknowledge in a major way, that's for sure, based
Speaker 21: on some of the statements we've heard.
Speaker 19: They have to a degree.
Speaker 8: I mean, I thought I thought the dead report from
Speaker 8: Michael Barr that came out last week was what did.
Speaker 19: Acknowledge that there was a lot of improvement on the
Speaker 19: supervisory side that that needed to be made.
Speaker 8: But I don't think the Fed has acknowledged the fact
Speaker 8: that the monitary policy regime that they followed, which was
Speaker 8: to be purposefully late and tightening monitary policy meant you
Speaker 8: were encouraging banks to take on more interest rate risk,
Speaker 8: and then those banks.
Speaker 19: Got caught and the Federal Reserve heavy ring raised by
Speaker 19: five hundred.
Speaker 8: Basic points, you know, I mean, at the end of
Speaker 8: the day, what they're trying to do is assess what
Speaker 8: is sufficiently restrictive in order to get inflation back down
Speaker 8: to two percent. Before the banking system problems, they thought
Speaker 8: sufficiently restricted was higher than what we are today, And
Speaker 8: in fact, Paul was talking about potentially even doing a
Speaker 8: fifty base ap point Radhi cup not too long ago.
Speaker 8: And then the banking problems hit, and so that caused
Speaker 8: the BED to lower their estimate of what sufficiently restricted is.
Speaker 8: So the data will inform them about what's sufficiently restrictive is.
Speaker 8: If the data is really strong, they'll revive up their
Speaker 8: notion of what's sufficiently restrictively.
Speaker 21: Well, Bill, are they going to put more weight on
Speaker 21: financial sector data or are they going to put more
Speaker 21: weight on the data coming from traditional indicators.
Speaker 8: Think they're going to put a lot of weight on
Speaker 8: what they're seeing in terms of the labor market, wages
Speaker 8: and inflation. You know, that's really where they haven't made
Speaker 8: much progress yet. They're also going to probably take some
Speaker 8: signal by what's having in the housing sector, because if
Speaker 8: you look at the single family housing sector, it looks
Speaker 8: like it's actually stabilizing. So the policy restraint that's already
Speaker 8: been put in place. Looks like it's the effects of
Speaker 8: that on housing are starting to feed.
Speaker 21: But just a final question from us all this is
Speaker 21: something my the Key's brought up over the last week
Speaker 21: in my conversations with him, whether this would be a
Speaker 21: nod to June two thousand and six. You obviously have
Speaker 21: a deep understanding of the history of the Federal Reserve.
Speaker 21: Back in June O six, they wrote in the statement,
Speaker 21: the extent and timing of any additional firming that maybe
Speaker 21: needed to address these risks will depend on the evolution
Speaker 21: of the outlook and et cetera, et cetera, inflation and
Speaker 21: economic growth implied by incoming information. Now, Bill, do you
Speaker 21: think it's a deliberate nod to JUNEO O six when
Speaker 21: essentially that decision ended up being a pause.
Speaker 18: No.
Speaker 19: I don't think they know yet.
Speaker 8: I think Pow being true is very honest when he
Speaker 8: said that we haven't made any decision about whether we're
Speaker 8: going to pause it. I think they think that the
Speaker 8: probability is highed that they're going to pad, but they
Speaker 8: haven't actually got there yet.
Speaker 2: That was former New York Fed President and current Bloomberg
Speaker 2: opinion columnist Bill Dudley speaking with Bloomberg Surveillance following yesterday's
Speaker 2: FED decision. If you missed any part of that conversation,
Speaker 2: you'll be able to hear the full interview on today's
Speaker 2: Bloomberg Daybreak podcast. Download the show every weekday morning wherever
Speaker 2: you get your podcasts. This morning, we continue to watch
Speaker 2: banking stress play out in the pre market, with shares
Speaker 2: of PacWest now down about thirty eight percent. That regional
Speaker 2: bank has confirmed Bloomberg News reporting that it is exploring
Speaker 2: strategic options, including a possible sale. Assurances that the bank
Speaker 2: has not seen unusual deposit outflows. Don't seem to be
Speaker 2: offering assurances to investors this morning. So let's bring in
Speaker 2: Herman Chan to get more analysis on this been analyzing
Speaker 2: the regional banking turmoil throughout. Herman is a senior analyst
Speaker 2: for US regional bank at Bloomberg Intelligence. Herman, Good morning.
Speaker 2: What is prompting paquest to explore strategic options? What is
Speaker 2: going on with this bank?
Speaker 19: Sure?
Speaker 22: So, Packwest is an institution in California. Much like SVB
Speaker 22: and First Republic, it does have some exposure to the
Speaker 22: tech companies, the startups, and the venture capital community. Much
Speaker 22: like SVB, but to a lesser extent, so it's not
Speaker 22: the entirety of its business like SVB, but as a
Speaker 22: subset and that part of the business that suffers some
Speaker 22: deposit outflows in the first quarter. The bank did mention
Speaker 22: in March that it was looking at strategic alternatives, but
Speaker 22: refrain from doing so given the market uncertainty. I think
Speaker 22: that this is just another revisit of that notion that
Speaker 22: it's looking to either sell itself or or sell certain
Speaker 22: sets to shore if it's balance sheet, is.
Speaker 2: That where this is going to go? Are we going
Speaker 2: to see assets going to other institutions here? Could there
Speaker 2: be other shoes to drop in the regional banking sector,
Speaker 2: particularly out west.
Speaker 18: Yeah, you look at.
Speaker 10: What's happening and the market.
Speaker 22: It has this mentality of shooting first and asking questions
Speaker 22: later after uh the failures of really large regional banks
Speaker 22: and strong institutions.
Speaker 10: Before this whole banking turmoil.
Speaker 22: SVB, First Republic and Signature also had some operations on
Speaker 22: the west coastern California. It's it's unfortunate, but the playbook
Speaker 22: for for shorts and the market terminal has been evident
Speaker 22: and and it.
Speaker 10: Is working out well.
Speaker 22: So the market's just going down the list of potentially
Speaker 22: weaker banks, and peck West is firmly in that picture.
Speaker 2: It seems like this list is being gone down in
Speaker 2: pretty rapid fashion here. When we see these kinds of
Speaker 2: shaky situations for these banks happening almost day by day
Speaker 2: here at this point, does that raise the risk that
Speaker 2: we are seeing something systemic playing out here?
Speaker 22: You know what, when the whole SVB situation was playing out,
Speaker 22: I was thinking this was more a idiosyncratic issue because
Speaker 22: SBB managed.
Speaker 10: They're balancing a bit differently.
Speaker 22: They had much more deposit inflow during the pandemic period
Speaker 22: versus other regional banks because of who they cater to,
Speaker 22: the strength of the startup market and the activity there.
Speaker 22: They invested at the height of the pandemic when interest
Speaker 22: rates were zero into security mortgage backed securities, treasuries, et cetera.
Speaker 22: And as interest rates rose those securities went down in value,
Speaker 22: they had much more exposure to that dynamic. What's happening
Speaker 22: now is that adiosyncratic nature initially has seemed to have
Speaker 22: evolved to hit other banks that didn't have necessarily the
Speaker 22: same amount of risk that SBB did. So it seems
Speaker 22: like we need a more holistic solution from Washington, perhaps
Speaker 22: to do something to really stem the nature because if
Speaker 22: we've already seen the domino effect of three banks bail
Speaker 22: and a few banks now teetering, so there needs to
Speaker 22: be some sort of response, it seems, from government.
Speaker 10: Authorities to really address the situation as a whole.
Speaker 2: Well, we have gotten something of a response from the
Speaker 2: FDIC of you know, calling for further cap increase in
Speaker 2: the cap of insurance for some of these deposits. Here
Speaker 2: what more can be done to provide some further confidence
Speaker 2: in the regional banking sector. What could it look like?
Speaker 10: What could it look like? I think it could look
Speaker 10: like a few different areas.
Speaker 22: I think the FDIC have sort of paved the way
Speaker 22: with their report of changing deposit insurance, putting some options
Speaker 22: on the table in terms of increasing the insurance on
Speaker 22: business deposits, perhaps even a blanket insurance guarantee.
Speaker 10: Across all deposits. Maybe that's something that needs to be
Speaker 10: acted upon more forcefully and more quickly. Maybe government can
Speaker 10: do something in terms of guaranteeing deposits for a period
Speaker 10: of time to calm the markets. So that's something perhaps
Speaker 10: that's on the table, and something that we're looking forward
Speaker 10: to hear more about.
Speaker 2: So our last thirty seconds here, what about the assurances
Speaker 2: we heard from Chairman Powell that the First Republic takeover
Speaker 2: can put a floor on all this. Are there further
Speaker 2: shoes to drop potentially?
Speaker 22: I appreciate those comments, but I think that markets has
Speaker 22: their mind made up that the market turmoil hasn't really
Speaker 22: has it really quelled at this point. So it seems
Speaker 22: like based on first quarter reporting that the deposit outflow
Speaker 22: that happened with First Republic was much stronger and First
Speaker 22: Republic was an outlier with.
Speaker 10: The pop down. We didn't see that across the other band.
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