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Speaker 1: This is Bloomberg Gay Break Asia for this Friday, March

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Speaker 1: seventeenth in Hong Kong, Thursday March sixteenth in New York

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Speaker 1: and coming up today, US equities rally after a major

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Speaker 1: deposit injection at First Republic Bank. Credit suis and UBS

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Speaker 1: is said to be opposed to the idea of a

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Speaker 1: forest combination, and the European Central Bank stays the course

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Speaker 1: in raising rates, but it offers few clues about the future.

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Speaker 1: Leaders of Korean Japan hold a historic summit in Tokyo,

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Speaker 1: Poland sending fighter jets to its neighbor Ukraine. I'm Dan Schwartzman.

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Speaker 1: I'll have news coming up that's all straight ahead on

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Speaker 1: Bloomberg Daybreak Asia, The business news you need to start

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Speaker 1: your day in just one fifteen minute podcast available on Apples, Spotify,

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Speaker 1: the Bloomberg Business app and everywhere you get your podcasts.

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Speaker 1: Good morning, I'm Brian Curtis and I'm Doug Krisner. Here

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Speaker 1: are the stories we're following today. Top stories here the

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Speaker 1: biggest banks agreeing to deposit sixty billion dollars with First

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Speaker 1: Republic Bank. It's an effort supported by the US government

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Speaker 1: to help stabilize the California lender after the collapse of

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Speaker 1: three regional banks, JP Morgan Chase, Bank of America's City

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Speaker 1: Group and Wills Fargo contributing deposits of five billion dollars each, Goldman, Saxon,

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Speaker 1: Morgan Stanley kicking in two and a half billion, and

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Speaker 1: then there were a number of other banks providing one billion.

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Speaker 1: We heard earlier from Bloomberg's sermon, chan, I think what

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Speaker 1: the government, in conjunction with the private sector banks are

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Speaker 1: doing is drawing a line in the sand, saying that

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Speaker 1: SVB happened, signature happened. We're not going to let First

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Speaker 1: Republic become a failed bank. Shares of First Republic, has

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Speaker 1: mentioned swung pretty wildly today, plunging about thirty six percent

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Speaker 1: early in the day, then surging as much as twenty

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Speaker 1: eight percent as details of this plan were first reported,

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Speaker 1: and as mentioned during the regular session when it was

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Speaker 1: all said and done, First Republic shares up ten percent,

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Speaker 1: and just now checking again twenty three point eight percent

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Speaker 1: in late trading. Rish are dug And then after the

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Speaker 1: ballot we learned how much should banks have been borrowing

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Speaker 1: from two FED backstop facilities during the most recent week.

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Speaker 1: The number close to one hundred sixty five billion dollars

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Speaker 1: that story from Bloomberg's and Kate's. Data published by the

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Speaker 1: FED show almost one hundred and fifty three billion dollars

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Speaker 1: in borrowing from the Discount Window, the traditional liquidity backstop

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Speaker 1: for banks, and the week ending March fifteenth. That is

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Speaker 1: a record high. The prior all time high was reached

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Speaker 1: during the two thousand and eight financial crisis. The numbers

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Speaker 1: also showed just under twelve billion dollars in borrowing from

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Speaker 1: the new emergency backstop known as the Bank Term Funding Program,

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Speaker 1: which launched Sunday. Taken together, the amount of credit extended

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Speaker 1: shows a banking system that are still fragile. After the

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Speaker 1: collapse of two financial institutions in Washington and Kate's Bloomberg Daybreak, Asia,

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Speaker 1: Treasury Secretary Janet Yellen tried to reassure US lawmakers about

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Speaker 1: the collapse of SVB and Signature Bank. Here she is

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Speaker 1: testifying before the Senate Banking Committee. I can reassure the

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Speaker 1: members of the committee that our banking system is sound

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Speaker 1: and that Americans can feel confident that their deposits will

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Speaker 1: be there when they need them. This week's actions demonstrate

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Speaker 1: our resolute commitment to ensure that our financial system remains

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Speaker 1: strong and the depositors savings remained safe. Yellen said that

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Speaker 1: regulators must re examine banking rules and supervision and make

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Speaker 1: sure that they're appropriate. He added that liquidity in this

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Speaker 1: instance had played a very important role in the recent

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Speaker 1: bank failures. Well, the European Central Bank wind ahead today

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Speaker 1: with its planned half point increase in its key rate,

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Speaker 1: the rate now lifted to three percent, even though we've

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Speaker 1: been talking about the turbulence and financial markets as it

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Speaker 1: results from some of the liquidity problems in the global

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Speaker 1: banking system. Now. During a press conference, President Christina Legarde

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Speaker 1: said the ECB has a lot of confidence in European banks.

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Speaker 1: In Europe, we have strong supervision, we have strong capital,

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Speaker 1: and we have solid liquidity positions and as the vice

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Speaker 1: president said, exposures are not concentrated and based on the

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Speaker 1: work that has been conducted by the SSM, we don't

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Speaker 1: have similar occurrence as the one that occurred in California

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Speaker 1: for instance. Le guard went on to say that it

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Speaker 1: wasn't necessary to give guidance on what the ECB will

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Speaker 1: do at its next meeting. She essentially declined that question.

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Speaker 1: She went on to say the elevated level of uncertainty

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Speaker 1: does reinforce the importance of being data dependent, and she

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Speaker 1: added that ECB officials won't wane on their commitment to

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Speaker 1: fight inflation. We're hearing Credit Suite and UBS are opposed

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Speaker 1: to any kind of forced combination. This comes even as

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Speaker 1: a scenario planning for our government orchestrated tie up continues.

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Speaker 1: We get more from Bloomberg Sonali Basak, BBS Credit Sue.

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Speaker 1: This was the merger of dreams for a very long time,

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Speaker 1: but the moment in time we find ourselves in now.

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Speaker 1: If UBS were to buy a Credit Squees, they would

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Speaker 1: also take on all the risk tied to Credit Swees

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Speaker 1: and would also probably also needs some support from the

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Speaker 1: Swiss National Bank. We hear that UBS would prefer to

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Speaker 1: focus on its own wealth centric standalone strategy and Credit

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Speaker 1: Sweez is seeking some time here to sort through its

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Speaker 1: turnaround after winning a liquidity backstop from the Swiss National Bank.

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Speaker 1: The Swiss government and the lenders are running through a

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Speaker 1: whole range of scenarios and it remains to be seen

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Speaker 1: which additional steps will be taken. All right, doug, Let's

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Speaker 1: take a closer look here at First Republic share. So

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Speaker 1: a lot of listeners might be wondering, well, what does

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Speaker 1: First Republic have to pay to get that kind of injection.

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Speaker 1: I mean, it's just a deposit really of thirty billion dollars,

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Speaker 1: and it's kind of buried in our story. But First

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Speaker 1: Republic actually will just be paying market rates on that

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Speaker 1: thirty billion. And if you think about it, all of

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Speaker 1: Silicon Valley banks depositors were confirmed as whole by the

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Speaker 1: federal authorities, and yet nobody wants to buy the bank,

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Speaker 1: So it can kind of understand this is just deposits

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Speaker 1: at First Republic. Doesn't really change the cash posi position

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Speaker 1: of the company all that much, and so you might

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Speaker 1: wonder if that's why the shares are down so much

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Speaker 1: in after hours. And on top of that, initial commitments

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Speaker 1: from these eleven banks that are supplying the deposit injection

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Speaker 1: that initially will only extend for around one hundred and

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Speaker 1: twenty days. It could go beyond that, but at this point,

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Speaker 1: I think the focus is on just the next four

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Speaker 1: months or so. Now, maybe the market is concerned about

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Speaker 1: the longer term condition of this bank. We'll have to

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Speaker 1: wait and see on that. Yeah, yeah, I mean I

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Speaker 1: think what's interesting is that First Republic since March ninth,

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Speaker 1: so basically just a little over a week, was borrowing

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Speaker 1: money from the Federal Home Loan Bank. It borrowed ten

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Speaker 1: billion dollars at a rate of five point zero nine percent,

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Speaker 1: So that's what it was costing it to get money

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Speaker 1: into the system. Now you get thirty billion. And I

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Speaker 1: went on their website to see what they're paying for deposits,

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Speaker 1: and of course it's not posted. And even if you

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Speaker 1: try to get the one hundred twenty days in a seed,

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Speaker 1: you don't see the numbers, but you know it's going

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Speaker 1: to be way less than that. So it's good for

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Speaker 1: First Republic. They're getting cheaper cash, as it were. But

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Speaker 1: the other thing to kind of put your finger on

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Speaker 1: is this idea that consumer sentiment, even business sentiment, may

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Speaker 1: shift in such a way where people feel more confident

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Speaker 1: in being exposed to or deposited having their deposits with

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Speaker 1: a larger lender rather than a small, boutique regional bank. Yeah,

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Speaker 1: that is a very good point, because this is really

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Speaker 1: about depositors and stomping runs on the banks. It's not

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Speaker 1: for saving the equity investors in these banks. You know

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Speaker 1: that is a sort of distant down the road thing,

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Speaker 1: but keeping the system working and stopping the bank runs

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Speaker 1: and that's what these deposits will help dot at first Republic.

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Speaker 1: But it's a story. As I mentioned, you know, looking

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Speaker 1: at the action after hours shows you that these trends

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Speaker 1: don't last very long, and we don't know exactly where

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Speaker 1: we'll be. The FED has a lot to think about

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Speaker 1: over the next many days before next week's meeting. All right,

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Speaker 1: time for Global News. An important summit occurs in Tokyo.

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Speaker 1: Dan Schwartzwen with details and the news from the New

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Speaker 1: York Newsroom. Dan, Yeah, definitely, Brian who was a thong

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Speaker 1: of relations in Tokyo between two Asian powers. South Korean

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Speaker 1: President yunsuk yul meeting with Japanese Prime Minister of Fumio

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Speaker 1: Kishida as the two countries held their first formal summit

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Speaker 1: since two and eleven. The two leaders agreed to restart

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Speaker 1: a security dialogue as well as advancing military intelligence sharing.

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Speaker 1: Japan also announcing it would be lifting export controls on

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Speaker 1: three key materials used by Korean chipmakers. The US has

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Speaker 1: wanted the two countries to begin warming relations to counter

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Speaker 1: the threat of North Korea and China. Poland sending fighter

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Speaker 1: jets to Ukraine. Polish President Andre Duda says his country

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Speaker 1: is sending four Soviet era MiG twenty nine to Ukraine

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Speaker 1: in the next few days. Poland has already begun sending

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Speaker 1: Leopard two tanks to its eastern neighbors, with a total

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Speaker 1: of fourteen expected across the border. US Secretary of State

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Speaker 1: Anthony Blincoln, commenting on the delivery of the jets, different

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Speaker 1: countries are doing different things in response to what they

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Speaker 1: have and what the perceived needs are. Lincoln was speaking

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Speaker 1: from the West African nation of Niger. China and Ukraine's

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Speaker 1: foreign ministers holding rare talks ahead of a possible conversation

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Speaker 1: between the country's two presidents, King Gang telling Demitro Kuleba

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Speaker 1: that China is committed to promoting peace while also wanting

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Speaker 1: to advance negotiations. Kuleba said he discussed with Gouging the

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Speaker 1: quote significance of the principle of territorial integrity. Ukrainian President

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Speaker 1: Vladimir z Lenski and his counterpart Shijinping could talk for

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Speaker 1: the first time as early as next week, after she

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Speaker 1: is expected to be visiting Moscow. Russia's looking to recover

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Speaker 1: the wreckage of the US drone that went down in

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Speaker 1: the Black Sea. The US says that anything sensitive on

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Speaker 1: the craft would have either sank into the ocean or

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Speaker 1: was destroyed, as the drone operators took mitigating measures. Video

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Speaker 1: of the intercept by two Russian SU twenty seven fighter

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Speaker 1: jets showed the plane spraying jet fuel on the drone

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Speaker 1: before one of the planes appears to clip the propeller

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Speaker 1: of the drone. Russia claims that drone went down due

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Speaker 1: to quote abrupt maneuvering. Pentagon spokesman Brigadier General Pat Rider

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Speaker 1: on why Russia can't get much info from the wreckage.

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Speaker 1: I'm not going to go into details, but that we

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Speaker 1: took steps to protect information aboard that aircraft and to

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Speaker 1: the fact that it crashed and extremely deep water. General

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Speaker 1: Rider was speaking to reporters at the Pentagon. California's crippling

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Speaker 1: drought that has lasted three years is close to ending,

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Speaker 1: as strong storms over the past few months have left

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Speaker 1: behind a record snowpack in the Sierra Nevadas. California relies

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Speaker 1: mainly on snow and rain for the bulk of its

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Speaker 1: water to feed its large agricultural industry, Global news twenty

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Speaker 1: four hours a day, powered by more than twenty seven

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Speaker 1: hundred journalists and analysts in over one hundred and twenty countries.

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Speaker 1: Dan Schwartzman, and this is Bloomberg. This is Bloomberg Daybreak Asia.

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Speaker 1: I'm Brian Curtis in Hong Kong alongside Rashad Salama. So

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Speaker 1: let's welcome to the airwaves. Ann Barry, founder and managing

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Speaker 1: partner at Threadneedle. And we appear to be at the

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Speaker 1: ad or near the end of the rate hiking cycle,

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Speaker 1: regardless of what the FED does next week. I mean,

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Speaker 1: we're getting somewhere close. So I get the enthusiasm today,

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Speaker 1: a little bit of a relief rally with the deposit

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Speaker 1: story at First Republic. But doesn't the downside risk outweigh

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Speaker 1: the upside possibilities at the moment? Sell come back later, Brian, Wow,

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Speaker 1: did you meet my mind and sort of take my

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Speaker 1: talking point and say it right there? Selling? Come back later?

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Speaker 1: I think, Brian, the question around the FED is the

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Speaker 1: really critical one. Particularly enlightened what happened with the ECB

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Speaker 1: making the choice to hike rates if the FED doesn't

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Speaker 1: hike next week, Given that the inflation data here in

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Speaker 1: the US was pretty strong. Is that the FED going

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Speaker 1: to be perceived to be as having a vote of

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Speaker 1: no confidence in the US banking system? Does it almost

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Speaker 1: need to hike at this point because if it doesn't,

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Speaker 1: people are saying it sends the wrong signal. I think

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Speaker 1: it's tricky. I think we are going to have to

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Speaker 1: anticipate a great hike coming through no matter what's going

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Speaker 1: on right now with FARB. I mean that is I

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Speaker 1: think you hit the nail on the head that they

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Speaker 1: are caught within the rock and a hard play, so, yeah,

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Speaker 1: they really are. There's no win. Some humility could be

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Speaker 1: in order. I mean, nobody saw this coming, really. I

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Speaker 1: mean there may have been a few people out there

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Speaker 1: shorting these regional banks so because they saw the mismatch.

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Speaker 1: But for the market's point of view, I mean, and

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Speaker 1: we didn't really see this coming, and the FED wasn't

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Speaker 1: really talking about this and warning about it. Wouldn't it

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Speaker 1: just be a humble move to say, yeah, I mean,

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Speaker 1: we're confident in the banking system, but we've seen some

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Speaker 1: ructions here. We've had three bank feel here. Is it's

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Speaker 1: prudent to pause here and assess and we'll see what

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Speaker 1: happens next. I think that would be a real admission

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Speaker 1: of failure that the SAID can't really afford to do

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Speaker 1: from a credibility perspective right now, Brian. When you think

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Speaker 1: about the Fed's focus, it has been consistent that it

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Speaker 1: has to be uniformly focus on making sure that inflation

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Speaker 1: comes down, maximum possible employment at the lowest possible inflation rate.

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Speaker 1: If they do not believe, if the street doesn't believe,

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Speaker 1: if the market doesn't believe that there's a fundamental risk

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Speaker 1: to unemployment right now and inflation continues to be high,

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Speaker 1: I don't think the FED has any choice, particularly particularly

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Speaker 1: since there have been a number of statements coming out

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Speaker 1: now from the White House and from Secretary Treasury Secretary

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Speaker 1: Yellen saying that there is confidence in the banking system.

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Speaker 1: If the FED doesn't move on that basis, it's contradicting

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Speaker 1: central government. All right, And but let's have a look

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Speaker 1: at all this, you know, because at the same time,

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Speaker 1: we you know, as we be then we went into

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Speaker 1: this like a bit of a lull. But you know,

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Speaker 1: you always felt as the investors were waiting for the

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Speaker 1: next shoe to drop, and then we've got credit Suiee.

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Speaker 1: Was that the shoe which dropped, because really, ultimately that's

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Speaker 1: been in the making for a while. That problem, Yeah,

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Speaker 1: I agree with I think I agree with that. The

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Speaker 1: credit Swie issue has been making in the making for

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Speaker 1: a long time, and you can see it in its

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Speaker 1: share price, which has been consistently declining since posts the

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Speaker 1: Great Financial Crisis. SPB is a different thing, and here's

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Speaker 1: where I think the shoe's about to drop next. And

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Speaker 1: it's not about systemic bank issues. It's about the fact

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Speaker 1: that endowments and pension funds haven't yet seen the full

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Speaker 1: hit to their positions in venture capital and in private

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Speaker 1: capital markets because those funds haven't yet sufficiently marked their

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Speaker 1: portfolios down. But now with SDB, they're going to have to.

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Speaker 1: What are we talking about in terms of exposure here,

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Speaker 1: because these are meant to be retirement funds and meant

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Speaker 1: to be quite conservative. Yeah, I mean it's been significant.

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Speaker 1: If you take a look at a lot of the

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Speaker 1: endowments and pension funds, they have been increasing their exposure

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Speaker 1: personally to later stage private equity, but also to venture

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Speaker 1: capital over time. And if you see what happened Richard,

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Speaker 1: you saw that a lot of these funds. Tiger marked

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Speaker 1: its venture portfolio down thirty three twenty twenty two. Soft

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Speaker 1: Bank has marked their portfolios down for twenty percent for

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Speaker 1: twenty twenty two. But now we're in twenty twenty three,

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Speaker 1: and what happens if someone tries to turn up to

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Speaker 1: buy Silicon Valley Banks ten billion dollars portfolio for even

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Speaker 1: bigger discounts, then what are the endowments and pension funds

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Speaker 1: going to have to They're can have to the marks

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Speaker 1: down further. So I'm kind of surprised because, you know,

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Speaker 1: it seem like from your words to the fed's ears,

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Speaker 1: I mean, are they not listening? Are they not seeing that?

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Speaker 1: But you're saying that you still think that they have

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Speaker 1: to raise twenty five basis points in the end, Does

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Speaker 1: it really matter at all whether it's twenty five or pause.

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Speaker 1: The commentary is going to have to be something about we're,

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Speaker 1: you know, we're assessing where we're at, and we're paying

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Speaker 1: some respect to the long and variable lag angle. I

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Speaker 1: think certainly the voiceover so when we see Jay Powell

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Speaker 1: come out and do his press conference and we read

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Speaker 1: through the minutes, I think we definitely need to see

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Speaker 1: that language. Brian when it comes to the actual execution

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Speaker 1: of a hike, will they pause or not. I'm at

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Speaker 1: least hopeful that they go up and they pursue that

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Speaker 1: twenty five basis points because inflation is not under control

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Speaker 1: yet and there's no sign really that there's going to

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Speaker 1: be that control that two percent target going to be

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Speaker 1: hit anytime in the next twelve months right now, Well chapping,

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Speaker 1: you know, so we're talking about financials, but about the

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Speaker 1: you know, this is one thing which is not as

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Speaker 1: regulated and a bit definitely more opaque. How does it

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Speaker 1: all creep into the non banking side of the economy

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Speaker 1: and then the non formalized banking sector. Well, parts of

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Speaker 1: the non formalized banking sector that has been growing over

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Speaker 1: time is the private credit area. So if you take

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Speaker 1: a look, for example, at these big asset managers which

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Speaker 1: have traditionally been in private equity, or they've had some

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Speaker 1: public market arms such as Blackstone, or if you take

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Speaker 1: a look at Apollo, which is a name that's been

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Speaker 1: going around a lot, it's potential bid of for SVB lately.

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Speaker 1: Traditionally they've made their name in private equity, but private

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Speaker 1: credit is really where a lot of the action has

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Speaker 1: tended to happen, and what we're seeing now with the

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Speaker 1: banks where confidence is low, I think we're going to

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Speaker 1: see the pullback in commercial lending by these big banks

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Speaker 1: as they try and tighten their underwriting standards, and that's

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Speaker 1: where we could see these non traditional capital providers step in. Yeah,

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Speaker 1: let's take a closer look at First Republic. It's only

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Speaker 1: one bank, but you've written about it in your notes,

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Speaker 1: so fair game. We see the star that starts down

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Speaker 1: pretty sharp and after hours. Now I know that liquidity

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Speaker 1: is a bit thin in late trading there, but still,

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Speaker 1: I mean, you have to pay respect that twenty percent

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Speaker 1: down after this thirty billion injection. It's only a deposit injection.

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Speaker 1: And the analogy that I made earlier, I think is

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Speaker 1: real that Silicon Value bank, nobody's buying it, even though

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Speaker 1: all the deposits were guaranteed. And here you have First

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Speaker 1: Reprobably you get thirty billion, but you know, there's who

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Speaker 1: knows whether they get anymore, and people sell down the start. Well,

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Speaker 1: I think the question is whether there's going to be

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Speaker 1: a guarantee extended beyond the two hundred and fifty thousand

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Speaker 1: limits for First Republic in the way that there has

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Speaker 1: been for signature and for SPB. I mean, I think, Brian,

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Speaker 1: what's interesting the eleven banks coming in with a thirty

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Speaker 1: billion dollars of deposits. In my mind, is the banking

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Speaker 1: system self medicating in the hope that this means that

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Speaker 1: regulators won't have to come and cure it for them.

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Speaker 1: But you raised the point earlier. It's only one hundred

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Speaker 1: and twenty day solution, and so I think there's twenty

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Speaker 1: percent down in the after hours trading is a reflection

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Speaker 1: of the fact the market saying, look, we really like

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Speaker 1: the sign of infidence. We like the fact the banking

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Speaker 1: system is rallying together and trying to be collegial about this,

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Speaker 1: but it doesn't solve the longer term issue. We need

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Speaker 1: evidence from First Republic that there's no bigger fundamental issue

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Speaker 1: and that confidence can be restored. Okay, twenty seconds or so.

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Speaker 1: Where would you put new money at the moment or

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Speaker 1: would you hold it in cash? I'm holding it in cash.

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Speaker 1: I have you for a while, Brian. It's particularly creative.

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Speaker 1: We're imaginative, but until this shakes out, I really fail

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Speaker 1: to see something that's yielding a better return than holding

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Speaker 1: short duration treasuries to maturity and thank you very much

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Speaker 1: for joining us. We appreciate it. And Barry, founder and

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Speaker 1: managing partner at Threadneedle. This is Bloomberg. This is Bloomberg

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