1 00:00:04,680 --> 00:00:07,760 Speaker 1: This solution is a take order of Credit Swiss by UBS. 2 00:00:08,039 --> 00:00:10,920 Speaker 1: But the bankruptcy of Credit Swiss would have had a 3 00:00:11,080 --> 00:00:15,560 Speaker 1: collateral damage, a huge collateral damage on the Swiss financial market. 4 00:00:15,720 --> 00:00:21,639 Speaker 1: This really is a crisis of confidence, and so that's 5 00:00:21,680 --> 00:00:26,079 Speaker 1: also why the solution is not the classical too weak 6 00:00:26,120 --> 00:00:28,960 Speaker 1: to fail solution. Here we had a problem of liquidity, 7 00:00:29,080 --> 00:00:31,800 Speaker 1: so it is not typical at all. The combination of 8 00:00:31,840 --> 00:00:36,839 Speaker 1: the two banks further strengthens UBS's position as a leading 9 00:00:36,880 --> 00:00:41,159 Speaker 1: global wealth manager. This is a special edition of Bloomberg 10 00:00:41,200 --> 00:00:47,559 Speaker 1: Serviss A line from New York coming up on the program, 11 00:00:47,560 --> 00:00:51,680 Speaker 1: avoiding another weekend cliff at UBS agreeing to buy Credit Swiss, 12 00:00:51,720 --> 00:00:54,080 Speaker 1: the Swiss government brokering a deal for more than three 13 00:00:54,160 --> 00:00:58,240 Speaker 1: a billion Swiss as officials worldwide race to restore confidence 14 00:00:58,280 --> 00:01:02,080 Speaker 1: in a financial SYSTEMA rabbits, Have we created a monster 15 00:01:02,280 --> 00:01:05,600 Speaker 1: or found a solution? It's a great question. Let's define 16 00:01:05,640 --> 00:01:08,080 Speaker 1: the monster right. On one hand, you've got the monsters 17 00:01:08,120 --> 00:01:10,880 Speaker 1: of moral hazard, which it seems like this has been created. 18 00:01:11,080 --> 00:01:13,400 Speaker 1: On the other hand, you have this question around does 19 00:01:13,440 --> 00:01:15,959 Speaker 1: it create more uncertainty at a time where people are wondering, 20 00:01:16,080 --> 00:01:18,399 Speaker 1: is this it the unknown? Right now? In terms of 21 00:01:18,440 --> 00:01:21,800 Speaker 1: the monster is whether we see ongoing accelerating panic in 22 00:01:21,920 --> 00:01:24,360 Speaker 1: markets on the heels of what we saw over the weekend. 23 00:01:24,520 --> 00:01:27,399 Speaker 1: The fair quite clearly, Lisa, is who's next last week? Can? 24 00:01:27,440 --> 00:01:29,679 Speaker 1: We did with SVB and Signature Bank this week? We 25 00:01:29,680 --> 00:01:32,240 Speaker 1: did in the credit SUAE, Who's next next weekend? Two 26 00:01:32,280 --> 00:01:34,600 Speaker 1: weekends running. We've been sitting here waiting for a last 27 00:01:34,600 --> 00:01:37,240 Speaker 1: minute's solution going into the open of Asian trading. That's 28 00:01:37,240 --> 00:01:39,360 Speaker 1: the problem. You never want to have all of the 29 00:01:39,400 --> 00:01:41,880 Speaker 1: officials around the world coming out and saying everything is fine, 30 00:01:42,120 --> 00:01:44,560 Speaker 1: do not worry, everything is solid and sound, and the 31 00:01:44,600 --> 00:01:47,360 Speaker 1: financial system is steady. As they pour billions of dollars 32 00:01:47,400 --> 00:01:49,320 Speaker 1: into the financial system and say it's not a bailout. 33 00:01:49,320 --> 00:01:51,360 Speaker 1: You do not want to be in that situation. Big 34 00:01:51,400 --> 00:01:54,120 Speaker 1: program coming up for you. Team coverage begins right now 35 00:01:54,120 --> 00:01:57,080 Speaker 1: with Bloomberg's manis Cranny in Zurich, Mike McKee here in 36 00:01:57,080 --> 00:02:00,559 Speaker 1: New York City, manis Cranny? We have a deal, Johnny. 37 00:02:01,040 --> 00:02:04,040 Speaker 1: Then we do have a deal, and there are a 38 00:02:04,120 --> 00:02:06,480 Speaker 1: couple of critically important things to take away. In the 39 00:02:06,520 --> 00:02:10,639 Speaker 1: first take one, we have a bail in of bondholders. 40 00:02:11,000 --> 00:02:13,680 Speaker 1: This is what the market will focus on tomorrow morning. 41 00:02:13,880 --> 00:02:16,120 Speaker 1: When I got on the plane in Dubai this morning, 42 00:02:16,240 --> 00:02:19,080 Speaker 1: this was a billion dollars deal. This Aftenoon and product plants. 43 00:02:19,120 --> 00:02:21,239 Speaker 1: It was a two billion dollars deal. It's now three 44 00:02:21,280 --> 00:02:24,720 Speaker 1: billion dollar deal and it has a lifeline one hundred 45 00:02:24,720 --> 00:02:28,840 Speaker 1: billion from the regulators, the SNB. They're standing behind this 46 00:02:29,040 --> 00:02:31,720 Speaker 1: and column callaher made it very very clear, this is 47 00:02:31,720 --> 00:02:34,120 Speaker 1: the man who steered Morgan standing through a bailout in 48 00:02:34,160 --> 00:02:37,120 Speaker 1: the GFC. He made it very clear we're not in 49 00:02:37,160 --> 00:02:39,920 Speaker 1: the risk business. We're a capital likete model and the 50 00:02:40,000 --> 00:02:44,119 Speaker 1: investment bank at Credit Suite will be reduced to twenty 51 00:02:44,240 --> 00:02:47,880 Speaker 1: five percent approximately. That is the size the backstop is 52 00:02:47,880 --> 00:02:51,560 Speaker 1: in the liquidity. Is there systemic risk? For now, We'll 53 00:02:51,560 --> 00:02:53,639 Speaker 1: see how we go over the next twelve hours. For now, 54 00:02:54,240 --> 00:02:58,440 Speaker 1: this is a salvo at saving systemic risk menace. Does 55 00:02:58,480 --> 00:03:00,639 Speaker 1: it solve the problem, And that's really the key question 56 00:03:00,919 --> 00:03:03,400 Speaker 1: as we're talking about what people will debate a bail 57 00:03:03,480 --> 00:03:11,079 Speaker 1: in versus bailout, it's critically important that we understand what 58 00:03:11,200 --> 00:03:14,560 Speaker 1: at ones are, which are the additional tier one capital. 59 00:03:14,680 --> 00:03:18,760 Speaker 1: They were put in place as the fundamental backstop to 60 00:03:19,080 --> 00:03:23,320 Speaker 1: another situation like this. My first take on this is 61 00:03:23,360 --> 00:03:28,720 Speaker 1: that the bail in is a message from the Swiss 62 00:03:28,760 --> 00:03:32,560 Speaker 1: to say, look, somebody's got to take paying here. The 63 00:03:32,600 --> 00:03:35,520 Speaker 1: equity holders will get a little bit of something, in 64 00:03:35,560 --> 00:03:38,440 Speaker 1: other words, point seven six Swiss Franks, but the bondholders 65 00:03:38,480 --> 00:03:42,320 Speaker 1: who get handsome yield for eighty one, those days are gone. 66 00:03:42,520 --> 00:03:45,560 Speaker 1: My question will be how the credit markets react tomorrow 67 00:03:45,640 --> 00:03:49,320 Speaker 1: morning across Europe and most especially within the banking sector. 68 00:03:49,680 --> 00:03:51,960 Speaker 1: The other dynamics that you've got to keep in mind 69 00:03:52,280 --> 00:03:56,120 Speaker 1: is this, there is also a backstop if things go wrong, 70 00:03:56,200 --> 00:04:00,200 Speaker 1: and Calaher made it very very clear that then in 71 00:04:00,240 --> 00:04:02,080 Speaker 1: the business of trying to make losses, they're going to 72 00:04:02,160 --> 00:04:03,920 Speaker 1: look at the whole book, the whole credit book, the 73 00:04:03,920 --> 00:04:07,120 Speaker 1: whole derivatives book. They're on the hook for five billion, 74 00:04:07,480 --> 00:04:10,360 Speaker 1: and then the SMB comes back in and they're on 75 00:04:10,360 --> 00:04:13,360 Speaker 1: the hook for nine after ubs. So there are a 76 00:04:13,400 --> 00:04:15,800 Speaker 1: myriad of things to keep in mind here. I just 77 00:04:15,800 --> 00:04:17,440 Speaker 1: want to put one other thing to the two of you, 78 00:04:17,520 --> 00:04:19,920 Speaker 1: which is this, at the moment, it looks as if 79 00:04:19,960 --> 00:04:23,680 Speaker 1: no dividends are to come from credit streies. I've got 80 00:04:23,680 --> 00:04:25,800 Speaker 1: some only screaming blah blah blah. He'll get a lot 81 00:04:25,800 --> 00:04:28,719 Speaker 1: more blah blah blah. Before I'm finished. The bottom line 82 00:04:28,880 --> 00:04:33,000 Speaker 1: is ub UBS is a dividend bank of choice. But 83 00:04:33,120 --> 00:04:35,039 Speaker 1: what I didn't hear in that news conference was that 84 00:04:35,080 --> 00:04:39,880 Speaker 1: there's any pause, cessation or temporary pause on the dividend 85 00:04:40,240 --> 00:04:43,920 Speaker 1: from UBS. Kelleher as chairman. Ralph Hamers is the CEO. 86 00:04:44,320 --> 00:04:46,839 Speaker 1: The king is dead, Long live the king, and that 87 00:04:46,960 --> 00:04:49,720 Speaker 1: king is UBS. I thought that people and Zura were 88 00:04:49,720 --> 00:04:52,360 Speaker 1: interested in this blah blah blah blah blah, manage, training 89 00:04:52,400 --> 00:04:54,120 Speaker 1: and manage. We're going to leave it there, thank you. 90 00:04:54,440 --> 00:04:58,200 Speaker 1: My Blomberg terminal on a Sunday evening lighting gap with 91 00:04:58,279 --> 00:05:01,040 Speaker 1: the same question that France Saint la asked brilliantly in 92 00:05:01,040 --> 00:05:04,400 Speaker 1: that news conference. Why is at one at zero but 93 00:05:04,520 --> 00:05:08,280 Speaker 1: equity somehow retains value? Why there will be a lot 94 00:05:08,320 --> 00:05:10,680 Speaker 1: of questions, a lot of people looking to those particular 95 00:05:10,720 --> 00:05:13,560 Speaker 1: capital instruments as designs specifically for this. So if they 96 00:05:13,600 --> 00:05:16,920 Speaker 1: weren't impacted, that would be a serious issue that said, 97 00:05:17,200 --> 00:05:19,480 Speaker 1: why not equity? Who are they catering to? Which are 98 00:05:19,480 --> 00:05:22,680 Speaker 1: the equity investors that were the loudest voice in the politics. 99 00:05:23,080 --> 00:05:26,200 Speaker 1: You're hear in politics? You smell in politics to me 100 00:05:26,320 --> 00:05:28,400 Speaker 1: right now? Right now. How could it not be politics 101 00:05:28,440 --> 00:05:30,279 Speaker 1: when there's a question of a bailout at a time 102 00:05:30,320 --> 00:05:32,520 Speaker 1: when all these regulators said this will never happen again 103 00:05:32,720 --> 00:05:34,720 Speaker 1: after two thousand and eight. Mike McCain in the studio 104 00:05:34,760 --> 00:05:36,560 Speaker 1: with US this often, and I'm happy to say mat 105 00:05:36,640 --> 00:05:40,560 Speaker 1: nickay already hearing from authorities on this side of the Atlantic. Well, 106 00:05:40,600 --> 00:05:44,960 Speaker 1: the FAN and Treasury and through the FDIC have responsibility 107 00:05:45,040 --> 00:05:49,080 Speaker 1: for the credit Sweee operating divisions here in the United States, 108 00:05:49,320 --> 00:05:51,960 Speaker 1: and we don't know exactly whether they have to have 109 00:05:52,080 --> 00:05:54,920 Speaker 1: a veto approval of it, but they have put out 110 00:05:54,960 --> 00:05:58,360 Speaker 1: a statement welcoming in. Here's the statement from Jay Powell 111 00:05:58,440 --> 00:06:02,960 Speaker 1: and from the Treasury Department. We welcome the announcements by 112 00:06:03,000 --> 00:06:07,400 Speaker 1: the Swiss authorities today to support financial stability. The capital 113 00:06:07,400 --> 00:06:11,279 Speaker 1: and liquidity provision positions of the US banking system are strong, 114 00:06:11,600 --> 00:06:14,640 Speaker 1: and the US financial system is resilient. We've been in 115 00:06:14,680 --> 00:06:18,680 Speaker 1: close contact with our international counterparts to support their implementation. 116 00:06:19,040 --> 00:06:22,520 Speaker 1: Now reporting has been and we have been guided to 117 00:06:22,560 --> 00:06:25,599 Speaker 1: the idea that this is all the Treasury or FED 118 00:06:25,680 --> 00:06:27,760 Speaker 1: are going to say today. A lot of people were 119 00:06:27,800 --> 00:06:30,839 Speaker 1: waiting for them to come out with something more to 120 00:06:31,040 --> 00:06:33,520 Speaker 1: support the US banks that are in trouble, and guys, 121 00:06:33,520 --> 00:06:37,840 Speaker 1: we saw everybody up on that DIAS blame the US 122 00:06:37,839 --> 00:06:42,040 Speaker 1: bank system for what happened to Credit suis a lot 123 00:06:42,080 --> 00:06:44,599 Speaker 1: of people wondering, you know, what is going to be 124 00:06:44,640 --> 00:06:47,240 Speaker 1: the status of First Republic in pac West and Western 125 00:06:47,240 --> 00:06:51,479 Speaker 1: Alliance when futures start trading and the at one question 126 00:06:51,760 --> 00:06:54,320 Speaker 1: is going to rise rise here in the United States 127 00:06:54,320 --> 00:06:56,800 Speaker 1: as well. So there's going to be an awful lot 128 00:06:56,800 --> 00:06:58,960 Speaker 1: for investors to sort out over the next few hours. 129 00:06:58,960 --> 00:07:00,760 Speaker 1: And I from what I hearing, we're not going to 130 00:07:00,839 --> 00:07:03,440 Speaker 1: hear anymore from the US authorities tonight. I don't think 131 00:07:03,480 --> 00:07:05,680 Speaker 1: you want to be sitting around a table blaming Twitter 132 00:07:06,000 --> 00:07:07,919 Speaker 1: after an issue like this. What did you make of that? 133 00:07:08,160 --> 00:07:10,560 Speaker 1: I think when everything else fails, you blame Twitter, right, 134 00:07:10,640 --> 00:07:12,960 Speaker 1: This is well, this is the sentiment driven kind of 135 00:07:13,000 --> 00:07:15,440 Speaker 1: fear right, and that's the issue. How do you sort 136 00:07:15,440 --> 00:07:18,200 Speaker 1: of blame social media and the modern era for the 137 00:07:18,320 --> 00:07:22,160 Speaker 1: rapidity for which people can spread concern and withdraw cash. 138 00:07:22,240 --> 00:07:24,720 Speaker 1: Mike McKay stay close with a snam place to say, 139 00:07:24,960 --> 00:07:28,960 Speaker 1: waiting patiently. Mohammad al Arian Blombag opinion columnist, President of 140 00:07:29,040 --> 00:07:31,440 Speaker 1: Queen's College, Cambridge, Muhammad. I'm not sure whether to say 141 00:07:31,480 --> 00:07:34,120 Speaker 1: good morning, good afternoon, good night, because it's like Friday 142 00:07:34,160 --> 00:07:37,360 Speaker 1: never ended. What did you make of this deal? It 143 00:07:37,440 --> 00:07:40,680 Speaker 1: shows you the complexity of what they had to do. Look, 144 00:07:40,760 --> 00:07:43,520 Speaker 1: this was not the best solution, but it dominated the 145 00:07:43,560 --> 00:07:46,960 Speaker 1: other two, which was either nationalization or trying to wind 146 00:07:47,000 --> 00:07:50,440 Speaker 1: down the bank. But it's full of contradictions. You spoke 147 00:07:50,560 --> 00:07:55,320 Speaker 1: about eighty one versus equity. It's a private sector solution, 148 00:07:55,400 --> 00:07:58,360 Speaker 1: but as a government intervention, you know, it's not clean. 149 00:07:59,280 --> 00:08:02,480 Speaker 1: But of the available options, this was the best one 150 00:08:02,560 --> 00:08:07,440 Speaker 1: that they could have had, Mohammed. Was this a bailout? Yeah, 151 00:08:07,480 --> 00:08:11,200 Speaker 1: it was a bailout. There's nine billion of contingency credit 152 00:08:11,280 --> 00:08:17,560 Speaker 1: guarantees there, um, there's there's one hundred billion of liquidity support. 153 00:08:17,960 --> 00:08:20,600 Speaker 1: Yeah it was a bailout, but you know, bailout. The 154 00:08:21,040 --> 00:08:24,880 Speaker 1: phrase bailout has become such an awful phrase that everybody 155 00:08:24,920 --> 00:08:26,400 Speaker 1: is avoiding it. They're going out of their way to 156 00:08:26,440 --> 00:08:29,080 Speaker 1: say it's not a bailout, but then they can't explain 157 00:08:29,600 --> 00:08:33,000 Speaker 1: why why money is being put to work. Yeah, it 158 00:08:33,040 --> 00:08:35,480 Speaker 1: is a bailout, and it's a bailout, and you heard 159 00:08:35,520 --> 00:08:38,840 Speaker 1: the ministers say it's a bailout because they're dealing with 160 00:08:38,920 --> 00:08:42,640 Speaker 1: systemically important bank at the time of market Turmo. Now, 161 00:08:42,640 --> 00:08:44,760 Speaker 1: of course you've got to always be dealing with systemically 162 00:08:44,800 --> 00:08:47,560 Speaker 1: important bank at the time of market turmoal that that's 163 00:08:47,559 --> 00:08:51,480 Speaker 1: by definition what happens when they have systemically important bank 164 00:08:52,240 --> 00:08:54,640 Speaker 1: in trouble, but they do don't want to use that phrase. 165 00:08:54,720 --> 00:08:57,440 Speaker 1: Lisa Mohammed this idea that we're in a moment of 166 00:08:57,440 --> 00:08:59,880 Speaker 1: turmoil and that all of the Swiss authorities and all 167 00:08:59,880 --> 00:09:03,720 Speaker 1: of the banking officials were blaming regional banks in the US. 168 00:09:04,240 --> 00:09:05,839 Speaker 1: What do you make of that in terms of the 169 00:09:05,920 --> 00:09:08,000 Speaker 1: risks that we don't know, that we don't see that 170 00:09:08,040 --> 00:09:10,439 Speaker 1: are continuing to percolate over on the other side of 171 00:09:10,480 --> 00:09:14,720 Speaker 1: the Atlantic. So it's important to recognize what is in 172 00:09:14,760 --> 00:09:20,000 Speaker 1: play here. You have three levels of influences. One is 173 00:09:21,480 --> 00:09:26,160 Speaker 1: institutions with longstanding weaknesses like kritty suits or in the 174 00:09:26,240 --> 00:09:31,599 Speaker 1: case of Silicon Valley Bank, with some imbalance, some mismatch. 175 00:09:32,240 --> 00:09:37,160 Speaker 1: Add on top of that supervisor relapses certainly for SVB. 176 00:09:38,000 --> 00:09:41,400 Speaker 1: And then third, which is something that you and I 177 00:09:41,440 --> 00:09:45,360 Speaker 1: agree on, I think is that we have had one 178 00:09:45,400 --> 00:09:50,160 Speaker 1: of the worst handled interest rate hiking cycles where we 179 00:09:50,320 --> 00:09:54,080 Speaker 1: started too slowly. We didn't even start because we thought 180 00:09:54,120 --> 00:09:57,320 Speaker 1: inflation was transitory according to the FED. And then even 181 00:09:57,320 --> 00:10:00,040 Speaker 1: when it was no longer transitory the FED, than we 182 00:10:00,160 --> 00:10:03,720 Speaker 1: move and then we frontloaded. It's tremendous amount of piping 183 00:10:04,520 --> 00:10:08,800 Speaker 1: and that is impacting a lot of entities, not just banks, 184 00:10:08,840 --> 00:10:12,839 Speaker 1: but beyond banks. So this is not over yet, unfortunately. 185 00:10:13,040 --> 00:10:14,800 Speaker 1: And there's also the question of what's going to happen 186 00:10:14,800 --> 00:10:17,400 Speaker 1: to First Republic. As Mike McGee rightly said, Well, there's 187 00:10:17,400 --> 00:10:20,000 Speaker 1: a word, mahammeta I think makes a lot of people nervous, 188 00:10:20,200 --> 00:10:23,920 Speaker 1: and you hear it all the time. Idiosyncratic. Last weekend, 189 00:10:24,160 --> 00:10:29,840 Speaker 1: SVB the bank for Startups and venture Capital, idiosyncratic, Signature Bank, Crypto, 190 00:10:30,120 --> 00:10:34,760 Speaker 1: idiosyncratic credit sways they've had problems for years, idiosyncratic. Then 191 00:10:34,800 --> 00:10:37,160 Speaker 1: we talked about First Republic last week and people were 192 00:10:37,160 --> 00:10:39,000 Speaker 1: talking on this program as if they were just chasing 193 00:10:39,000 --> 00:10:43,360 Speaker 1: bideonaires in Wyoming. Idiosyncratic. At some point, Mohammed, don't we 194 00:10:43,360 --> 00:10:47,520 Speaker 1: just have a big problem. Well we're starting to, John. 195 00:10:47,559 --> 00:10:49,040 Speaker 1: I can tell you I spend a lot of time 196 00:10:49,120 --> 00:10:51,920 Speaker 1: this weekend talking to people who are asking me a 197 00:10:51,960 --> 00:10:54,559 Speaker 1: simple question, are my deposit safe? And I would say yes, 198 00:10:54,640 --> 00:10:58,320 Speaker 1: they are safe, and then they ask me the following question, well, 199 00:10:58,440 --> 00:11:00,560 Speaker 1: what do I lose if I move them to the 200 00:11:00,640 --> 00:11:03,760 Speaker 1: largest banks? What do I lose? And it's hard to 201 00:11:03,840 --> 00:11:06,800 Speaker 1: argue that you're going to lose something. So people are 202 00:11:06,880 --> 00:11:11,240 Speaker 1: doing something that probably is not rational but totally understandable, 203 00:11:11,720 --> 00:11:14,920 Speaker 1: which is then moving deposits and where they're moving deposits 204 00:11:14,960 --> 00:11:18,040 Speaker 1: out of the smaller and the medium sized banks into 205 00:11:18,040 --> 00:11:21,800 Speaker 1: the larger banks. And that dynamic isn't going to stop overnight. 206 00:11:22,000 --> 00:11:24,959 Speaker 1: Neither is the other losses that are being curred. You've 207 00:11:24,960 --> 00:11:28,559 Speaker 1: wiped out seventeen billion of eighty ones. There's going to 208 00:11:28,600 --> 00:11:31,839 Speaker 1: be a lot of repricing in the credits segment, so 209 00:11:31,920 --> 00:11:34,920 Speaker 1: this is going to be pretty bumpy going forward. You've 210 00:11:34,920 --> 00:11:37,400 Speaker 1: touched on the issue that they have to resolve in 211 00:11:37,480 --> 00:11:40,000 Speaker 1: the US, never mind the Swiss and the Europeans. In 212 00:11:40,040 --> 00:11:42,600 Speaker 1: the United States, right here, right now, it seems like 213 00:11:42,640 --> 00:11:46,240 Speaker 1: a two tier banking system. And what's curious about this situation, Muhammad, 214 00:11:46,280 --> 00:11:49,160 Speaker 1: And you know this. We already knew that because it's 215 00:11:49,160 --> 00:11:52,640 Speaker 1: applied by what you see in the rules quite clearly. 216 00:11:52,640 --> 00:11:56,240 Speaker 1: If you are systemically important, you are exceptional, and all 217 00:11:56,280 --> 00:11:58,760 Speaker 1: your depositors will be made whole, and if you are not, 218 00:11:58,920 --> 00:12:01,240 Speaker 1: they won't be. And what's interesting about the last week, Mohammed, 219 00:12:01,360 --> 00:12:05,160 Speaker 1: is that no matter the size, last weekend, they were told, 220 00:12:05,200 --> 00:12:07,520 Speaker 1: we were told that those banks were systemically important and 221 00:12:07,559 --> 00:12:10,120 Speaker 1: all depositors would be mainhold. And you would think that 222 00:12:10,120 --> 00:12:13,720 Speaker 1: that would imply the all depositors everywhere would be main hold. 223 00:12:13,920 --> 00:12:16,800 Speaker 1: And then Secretary Yellen was asked about it this week 224 00:12:17,200 --> 00:12:19,880 Speaker 1: and she can't say that they will be. Now, I 225 00:12:19,920 --> 00:12:21,560 Speaker 1: just wonder, Mahmmed, what on earth they're going to do 226 00:12:21,600 --> 00:12:24,520 Speaker 1: to resolve that situation. Never mind over the next few months, 227 00:12:24,559 --> 00:12:28,839 Speaker 1: but quite literally this week. They've got to turn the 228 00:12:29,040 --> 00:12:32,720 Speaker 1: factor into the jury. De facto, all deposits are guaranteed 229 00:12:32,760 --> 00:12:36,200 Speaker 1: in the United States banks. Okay, there's no way you 230 00:12:36,240 --> 00:12:39,719 Speaker 1: can guarantee the deposits for SVB and not guarantee them 231 00:12:39,720 --> 00:12:41,880 Speaker 1: for the next bank. Why because you're going to be 232 00:12:41,920 --> 00:12:44,839 Speaker 1: accused of protecting the rich, protecting tech. It just doesn't 233 00:12:44,840 --> 00:12:49,920 Speaker 1: make sense. They're also acknowledged by triggering the systemic risk clause. 234 00:12:50,000 --> 00:12:53,880 Speaker 1: They're also acknowledge that medium size banks are systemically important. 235 00:12:54,559 --> 00:12:57,560 Speaker 1: So I think we've gone down that road, and I 236 00:12:57,559 --> 00:13:03,080 Speaker 1: agree with you. They're quicker we acknowledge this reality the better. 237 00:13:03,280 --> 00:13:06,600 Speaker 1: But we've also got a deal with supervisory lapses as 238 00:13:06,720 --> 00:13:10,240 Speaker 1: VP exploded in size under the nose of the FED. 239 00:13:10,960 --> 00:13:14,320 Speaker 1: And that's what's troubling people, is that there were massive 240 00:13:14,320 --> 00:13:17,600 Speaker 1: supervisory lapses, that there was an attempt to brush them 241 00:13:17,679 --> 00:13:21,600 Speaker 1: under the carpet. That doesn't build confidence in the US 242 00:13:21,679 --> 00:13:24,199 Speaker 1: banking system and doesn't build confidence in the Federal Reserve. 243 00:13:24,360 --> 00:13:26,600 Speaker 1: Have you heard about other banks that are muhammad? I mean, basically, 244 00:13:26,600 --> 00:13:30,320 Speaker 1: this really indicts one of the main regulatory tools that 245 00:13:30,440 --> 00:13:35,720 Speaker 1: some people argue has been softened under Randy quarrels. Are 246 00:13:35,720 --> 00:13:39,000 Speaker 1: you concerned about other institutions that are known to have 247 00:13:39,160 --> 00:13:41,000 Speaker 1: issues or do you think that we really have seen 248 00:13:41,320 --> 00:13:47,160 Speaker 1: the worst offenders. I don't know, because even banks that 249 00:13:47,240 --> 00:13:49,240 Speaker 1: have no issues that just happened to me the wrong 250 00:13:49,240 --> 00:13:54,120 Speaker 1: neighborhood may suffer deposit withdrawth. There's a reason why the 251 00:13:54,360 --> 00:13:58,000 Speaker 1: discount window use shot up to even more than two 252 00:13:58,040 --> 00:14:03,240 Speaker 1: thousand and eight. These are all medium banks, size banks 253 00:14:03,360 --> 00:14:07,040 Speaker 1: looking for liquidity to meet deposits that are simply being 254 00:14:07,480 --> 00:14:10,800 Speaker 1: reallocated within the system. And again, ask youself that question, 255 00:14:11,360 --> 00:14:15,240 Speaker 1: if one of your relatives or to call and say, 256 00:14:15,320 --> 00:14:17,120 Speaker 1: what do I lose by moving my bank from a 257 00:14:17,120 --> 00:14:19,320 Speaker 1: mid sized bank to one of the big ones? What 258 00:14:19,400 --> 00:14:21,480 Speaker 1: are you going to say? What do you? Don't lose anything? 259 00:14:21,480 --> 00:14:23,760 Speaker 1: It's very easy to do, and that's what people are 260 00:14:23,840 --> 00:14:26,720 Speaker 1: up doing because they are naturally risk averse when it 261 00:14:26,760 --> 00:14:29,400 Speaker 1: comes to that deposits. It's a fair question and it's 262 00:14:29,400 --> 00:14:32,320 Speaker 1: a fair response, and it's raising the specter of the 263 00:14:32,400 --> 00:14:34,920 Speaker 1: role that a lot of these medium sized banks play 264 00:14:34,960 --> 00:14:36,840 Speaker 1: in the economy in the United States. Towards and Slock 265 00:14:36,880 --> 00:14:39,280 Speaker 1: of Apollo has been really excellent on this, highlighting the 266 00:14:39,400 --> 00:14:43,520 Speaker 1: credit impulse that is generated by loans to commercial real estate, 267 00:14:43,640 --> 00:14:46,600 Speaker 1: loans to individuals buy some of these smaller and regional banks. 268 00:14:46,880 --> 00:14:49,640 Speaker 1: Why is it that those loans are not being extended 269 00:14:49,640 --> 00:14:51,560 Speaker 1: by the big banks that are getting these deposits that 270 00:14:51,640 --> 00:14:54,280 Speaker 1: don't even want them. In other words, where is this 271 00:14:54,400 --> 00:14:56,760 Speaker 1: credit impulse going to come from if it's not these 272 00:14:56,760 --> 00:15:00,600 Speaker 1: regional banks. And that's the contagion that we're not talking 273 00:15:00,680 --> 00:15:02,360 Speaker 1: enough about. We're talking a lot about the risk of 274 00:15:02,400 --> 00:15:05,880 Speaker 1: financial contagion, but there's economic contagion. And we're going to 275 00:15:05,960 --> 00:15:09,760 Speaker 1: see two influencers that speak to less credit at being 276 00:15:09,800 --> 00:15:14,240 Speaker 1: available to businesses and to individuals. One is exactly what 277 00:15:14,280 --> 00:15:18,320 Speaker 1: you said, which is that banks that are lending that 278 00:15:18,440 --> 00:15:21,520 Speaker 1: these relationships are going to be harder to sustain as 279 00:15:21,520 --> 00:15:24,360 Speaker 1: the deposits move out of those banks. You're also going 280 00:15:24,440 --> 00:15:28,320 Speaker 1: to see banks becoming more risk averse in general, expecting 281 00:15:28,440 --> 00:15:31,960 Speaker 1: greater regulation, tighter regulation, and we will get tighter regulation. 282 00:15:32,360 --> 00:15:35,960 Speaker 1: So the economic contagion is something that we need to 283 00:15:36,000 --> 00:15:39,720 Speaker 1: start talking about and analyzing because it is yet another 284 00:15:39,800 --> 00:15:42,800 Speaker 1: headwind to an economy that so far has proven to 285 00:15:42,840 --> 00:15:45,080 Speaker 1: be really robust. If you want to tune again in 286 00:15:45,120 --> 00:15:47,080 Speaker 1: Life on Tavan Radio, I'm wondering what on earth we're 287 00:15:47,120 --> 00:15:50,720 Speaker 1: doing here. We're wandering the same Let's be honest. If 288 00:15:50,720 --> 00:15:52,440 Speaker 1: you want, just channing and welcome to the program. We 289 00:15:52,480 --> 00:15:54,480 Speaker 1: have a deal for UBS to bank credit swat for 290 00:15:54,560 --> 00:15:58,000 Speaker 1: three point two five billion dollars. Does it end the 291 00:15:58,000 --> 00:16:01,040 Speaker 1: crisis later? That is the big question right now. We'll 292 00:16:01,080 --> 00:16:03,760 Speaker 1: see as we have futures open up. We'll see when 293 00:16:03,760 --> 00:16:05,720 Speaker 1: we get a sense of the credit default swaps of 294 00:16:05,760 --> 00:16:08,760 Speaker 1: some of the other European institutions. It doesn't stop the 295 00:16:08,880 --> 00:16:12,000 Speaker 1: questions in terms of what the broader risks are that 296 00:16:12,080 --> 00:16:14,640 Speaker 1: regulators around the world are scrambling to fill the void 297 00:16:14,680 --> 00:16:16,480 Speaker 1: in and you don't need the tail risk of materialize. 298 00:16:16,480 --> 00:16:18,920 Speaker 1: You touched on the work of torstin Slock of Apollo. 299 00:16:19,200 --> 00:16:21,480 Speaker 1: Torsten right this over the weekend. Here's the quote for you, 300 00:16:21,680 --> 00:16:25,320 Speaker 1: quantifying the impact of tighter financial conditions plus tighter lending standards. 301 00:16:25,360 --> 00:16:28,000 Speaker 1: We estimate the events this past week correspond to a 302 00:16:28,080 --> 00:16:31,360 Speaker 1: one point five percentage point increase in the FED funds rate. 303 00:16:31,640 --> 00:16:35,600 Speaker 1: The risk of a sharper slowdown in the economy have increased. Now, habit, 304 00:16:35,640 --> 00:16:38,080 Speaker 1: if you'll allow us, we should shift towards Chairman Powell 305 00:16:38,400 --> 00:16:40,640 Speaker 1: in a couple of days. What on earth should this 306 00:16:40,760 --> 00:16:45,960 Speaker 1: FOMC do. Yeah, Well, when you dig a hole for yourself, okay, 307 00:16:46,320 --> 00:16:50,000 Speaker 1: and someone else adds to it, then it is really difficult. 308 00:16:50,040 --> 00:16:52,120 Speaker 1: It's going to be really tough to sitting drown, really 309 00:16:52,160 --> 00:16:55,840 Speaker 1: really tough. I think he's got a stick to the 310 00:16:55,960 --> 00:16:59,120 Speaker 1: framework that the European Central Bank set out very well, 311 00:16:59,160 --> 00:17:02,560 Speaker 1: and President Luck had a masterclass in her press confidence 312 00:17:02,600 --> 00:17:05,280 Speaker 1: on this, which is we are aiming both for Chris 313 00:17:05,359 --> 00:17:08,960 Speaker 1: stability and for financial stability, and we have tools to 314 00:17:09,000 --> 00:17:12,520 Speaker 1: address both of these things, and we must not sacrifice 315 00:17:12,640 --> 00:17:16,480 Speaker 1: either of them. That's what he's got to get across, 316 00:17:17,000 --> 00:17:19,320 Speaker 1: and it's not going to be easy. Well, and that's 317 00:17:19,359 --> 00:17:22,400 Speaker 1: really that really goes to the question of supervisory. If 318 00:17:22,440 --> 00:17:25,040 Speaker 1: you can't guarantee that you've got your finger on the 319 00:17:25,040 --> 00:17:27,000 Speaker 1: pulse there, how do you guarantee that you can do 320 00:17:27,240 --> 00:17:30,520 Speaker 1: these sort of dual mandates. At what point does him 321 00:17:30,760 --> 00:17:33,960 Speaker 1: not raising rates by twenty five basis points create a 322 00:17:34,080 --> 00:17:36,919 Speaker 1: much bigger risk? Both with respect from New York. Another 323 00:17:37,000 --> 00:17:40,120 Speaker 1: update on Wall Street. In fact, records to London, UK 324 00:17:40,280 --> 00:17:43,240 Speaker 1: businesses are feeling the effects of high prices. Go home, 325 00:17:43,400 --> 00:17:46,240 Speaker 1: call the Hank sang down about one point three percent 326 00:17:46,400 --> 00:17:49,280 Speaker 1: right now. Twenty four seven Business and Market News That 327 00:17:49,400 --> 00:17:52,600 Speaker 1: expands your worldview. Mail always nice to see you, French 328 00:17:52,640 --> 00:17:55,520 Speaker 1: finance Minister. I'm much more concerned about how things flow 329 00:17:55,560 --> 00:17:59,280 Speaker 1: out of China. Bloomberg eleven three Oh, the Bloomberg business appen, 330 00:17:59,320 --> 00:18:06,120 Speaker 1: Bloomberg dot com, Bloomberg. The world is listening. That experiment 331 00:18:06,280 --> 00:18:12,280 Speaker 1: was successful. Financial markets rallied and it turns out that 332 00:18:12,480 --> 00:18:14,720 Speaker 1: that was the right judgment. The FED is going to 333 00:18:14,800 --> 00:18:16,879 Speaker 1: have to make its own judgment, and it's not an 334 00:18:16,920 --> 00:18:19,119 Speaker 1: easy one. Do you think that the situation in the 335 00:18:19,240 --> 00:18:22,040 Speaker 1: United States is materially different than the one in Europe. 336 00:18:22,080 --> 00:18:24,119 Speaker 1: This is the argument people are making that in Europe 337 00:18:24,160 --> 00:18:26,600 Speaker 1: they are much further behind and they fight against inflation. 338 00:18:26,680 --> 00:18:29,479 Speaker 1: In the US, there already has been this dramatic increase 339 00:18:29,520 --> 00:18:32,199 Speaker 1: in rates that clearly has had lag effects that are 340 00:18:32,280 --> 00:18:36,200 Speaker 1: taking effect. Now do you buy that argument has had 341 00:18:36,320 --> 00:18:39,680 Speaker 1: lagged effect on the financial system. It has not had 342 00:18:40,000 --> 00:18:43,320 Speaker 1: enough of lagged effects on inflation. I remind you they 343 00:18:43,400 --> 00:18:47,800 Speaker 1: said that core inflation we accelerated. We're dealing with a trilemma, 344 00:18:47,920 --> 00:18:51,920 Speaker 1: not a dilemma. We're dealing with the need to a 345 00:18:53,440 --> 00:18:58,320 Speaker 1: low inflation without be sacrificing growth too much, without ce 346 00:18:59,040 --> 00:19:02,640 Speaker 1: sacrificing finance stability. And because the FED was so late 347 00:19:03,200 --> 00:19:05,280 Speaker 1: that try lemma has become a really difficult one. We 348 00:19:05,359 --> 00:19:08,480 Speaker 1: still have an inflation issue, and the worst thing is 349 00:19:08,520 --> 00:19:11,479 Speaker 1: to end up in a stack nation world. Mohammed has 350 00:19:11,480 --> 00:19:13,760 Speaker 1: got about forty five seconds left with you. Let's just 351 00:19:13,840 --> 00:19:16,080 Speaker 1: wrap it up. What are you looking for? Never mind 352 00:19:16,119 --> 00:19:18,160 Speaker 1: the rest of this way. I'm talking quite literally about 353 00:19:18,200 --> 00:19:21,159 Speaker 1: to marmonic. What are you looking for? First and foremost, 354 00:19:21,440 --> 00:19:25,200 Speaker 1: the UBS quit sweet deal? Right? How do the UBS 355 00:19:25,359 --> 00:19:30,120 Speaker 1: shareholders and the UBS bondholders take it. That is absolutely critical. 356 00:19:31,280 --> 00:19:34,200 Speaker 1: Hopefully they'll take it well, but we just don't know. 357 00:19:34,320 --> 00:19:38,200 Speaker 1: That's issue number one. Issue number two is First Republic. 358 00:19:38,880 --> 00:19:43,000 Speaker 1: Bloomberg is carrying a story that S ANDP is about 359 00:19:43,119 --> 00:19:47,840 Speaker 1: to downgrade First Republic rating deeper into drunk from w 360 00:19:47,960 --> 00:19:50,600 Speaker 1: B plus to B plus. That would not be good news. 361 00:19:51,080 --> 00:19:55,960 Speaker 1: That would make First Republic's life much harder. So we 362 00:19:56,080 --> 00:19:57,840 Speaker 1: have to keep an eye on First Republic and then 363 00:19:58,200 --> 00:20:00,760 Speaker 1: the spillovers from all those two. I appreciate your time 364 00:20:00,840 --> 00:20:03,280 Speaker 1: as always, sir, particularly on a Sunday evening. Thank you 365 00:20:03,320 --> 00:20:05,840 Speaker 1: for that Mohammed al Aaron of Bloomberg opinion, and of 366 00:20:05,880 --> 00:20:07,800 Speaker 1: course so much more. Did you see that note? And 367 00:20:07,880 --> 00:20:09,480 Speaker 1: we need to talk about this mid sized banks in 368 00:20:09,560 --> 00:20:14,280 Speaker 1: America basically pleading with American authorities to ensure all deposits 369 00:20:14,440 --> 00:20:16,240 Speaker 1: right for what was it two years? For two years, 370 00:20:16,320 --> 00:20:18,720 Speaker 1: basically coming out saying please FDIC listen, you've got to 371 00:20:18,760 --> 00:20:20,920 Speaker 1: prevent some of these bank runs. There is an ongoing 372 00:20:21,400 --> 00:20:25,000 Speaker 1: concern this consortium of mid sized US banks. This raises 373 00:20:25,000 --> 00:20:27,440 Speaker 1: again the question of what kind of outflows they saw 374 00:20:27,560 --> 00:20:29,920 Speaker 1: of deposits. I mean, we heard that from Credit Suis 375 00:20:30,280 --> 00:20:32,720 Speaker 1: there was about ten billion Swiss francs for more than 376 00:20:32,800 --> 00:20:35,840 Speaker 1: ten billion dollars worth of deposits being withdrawn per day 377 00:20:36,119 --> 00:20:38,240 Speaker 1: by the end of last week. What is that scenario? 378 00:20:38,280 --> 00:20:40,640 Speaker 1: And saying pretty ugly stuff, pretty uply stuff. At least, 379 00:20:40,640 --> 00:20:42,000 Speaker 1: we're I'm going to stick with you through the next 380 00:20:42,080 --> 00:20:43,639 Speaker 1: couple of hours. Looking forward to doing that with you. 381 00:20:43,720 --> 00:20:46,240 Speaker 1: Coming up very shortly in about fifteen minutes, we'll catch 382 00:20:46,359 --> 00:20:49,480 Speaker 1: up with Pitache, the head of macro strategy at Academy Securities. 383 00:20:49,480 --> 00:20:52,080 Speaker 1: Talk to him about the latest deal between Credit Suite 384 00:20:52,320 --> 00:20:54,520 Speaker 1: and UBS, and of course get his thoughts on the 385 00:20:54,600 --> 00:20:56,960 Speaker 1: banking system here in the United States. We have a 386 00:20:57,040 --> 00:20:59,880 Speaker 1: deal finally, UBS agreeing to buy Credit Suite for three 387 00:21:00,119 --> 00:21:09,640 Speaker 1: billion Swiss franks. Life from New York City, this evening, 388 00:21:09,720 --> 00:21:11,920 Speaker 1: Good evening to you. This is a special edition of 389 00:21:12,000 --> 00:21:15,320 Speaker 1: Bloomberg Surveillance alongside Lisa A. Branbit, Sam Jonathan Pharaoh. What 390 00:21:15,480 --> 00:21:17,920 Speaker 1: a week for Credit Swiss the CEO earlier this week, 391 00:21:17,960 --> 00:21:23,399 Speaker 1: attempting to inspire confidence and fully convinced off the spurge 392 00:21:23,440 --> 00:21:25,720 Speaker 1: you we are executing that post. We have the right 393 00:21:25,800 --> 00:21:28,639 Speaker 1: team and you know that's why we said in October 394 00:21:28,720 --> 00:21:31,240 Speaker 1: it needs radical change. You know, the bank needs to 395 00:21:31,320 --> 00:21:34,000 Speaker 1: be changed, and we said it's the three yeest transformation 396 00:21:34,040 --> 00:21:36,320 Speaker 1: and you can't come after two months. And so look, 397 00:21:36,520 --> 00:21:40,159 Speaker 1: why is not everything done? The bank's top shareholder following 398 00:21:40,200 --> 00:21:44,840 Speaker 1: that conversation doing very little to a like concerns. I'm 399 00:21:44,880 --> 00:21:49,600 Speaker 1: wondering whether you would be open to assisting further if 400 00:21:49,640 --> 00:21:52,680 Speaker 1: there was another call for additional liquidity from Credit Free. 401 00:21:52,840 --> 00:21:56,880 Speaker 1: So the answer is absolutely not for many reasons outside 402 00:21:56,920 --> 00:22:00,840 Speaker 1: The simplest reason, which is regulatory, is that we now 403 00:22:00,920 --> 00:22:03,840 Speaker 1: own nine point eight percent of the bank. If we 404 00:22:03,920 --> 00:22:07,040 Speaker 1: go above ten percent, all kinds of new rules tick in. 405 00:22:07,800 --> 00:22:10,720 Speaker 1: Following that, a public display of support from the regulator 406 00:22:10,920 --> 00:22:13,440 Speaker 1: and a major central bank lifeline not enough to prevent 407 00:22:13,520 --> 00:22:16,679 Speaker 1: Credit Suites from coming into the weekend fighting for its future. 408 00:22:16,960 --> 00:22:19,760 Speaker 1: It all ends like solution is the take order of 409 00:22:19,840 --> 00:22:22,920 Speaker 1: credit space by UBS. The freewall count scene welcomes the 410 00:22:23,080 --> 00:22:27,000 Speaker 1: take order and is supporting it by guaranteeing the freework 411 00:22:27,040 --> 00:22:30,440 Speaker 1: conditions necessary for its success. At the forefront of some 412 00:22:30,480 --> 00:22:33,440 Speaker 1: of those conversations joining us now is Bloomberg's Francine laque 413 00:22:33,800 --> 00:22:36,720 Speaker 1: in Bert Switzland Francine. It was only literally days ago 414 00:22:37,160 --> 00:22:39,840 Speaker 1: you were sat there with the CEO in London, together 415 00:22:39,920 --> 00:22:42,600 Speaker 1: with the studio. He was fighting for this institution's future. 416 00:22:43,119 --> 00:22:48,040 Speaker 1: This is how it ends. Yes, this is how it ends. 417 00:22:48,119 --> 00:22:50,160 Speaker 1: Five days on I had to say things moved pretty fast. 418 00:22:50,280 --> 00:22:53,080 Speaker 1: Now we just finished this press conference, really history press 419 00:22:53,200 --> 00:22:55,840 Speaker 1: conference with the two chairman of the two banks. There 420 00:22:56,000 --> 00:22:58,680 Speaker 1: was the SMB president and there were of course a 421 00:22:58,720 --> 00:23:01,200 Speaker 1: couple of not only the finance minister but to the 422 00:23:01,240 --> 00:23:04,320 Speaker 1: regulator here Finnma. Now three points that we need to make. 423 00:23:04,400 --> 00:23:06,240 Speaker 1: First of all, they decided to wipe out to eighty 424 00:23:06,280 --> 00:23:09,719 Speaker 1: one bondholders but give something back to shareholders. Many questions 425 00:23:09,760 --> 00:23:12,240 Speaker 1: on that press conference what that means for the future, 426 00:23:12,520 --> 00:23:15,159 Speaker 1: what that means for precedent to the other thing that 427 00:23:15,320 --> 00:23:18,000 Speaker 1: the Swiss finance minister was at pains and saying, this 428 00:23:18,160 --> 00:23:19,960 Speaker 1: is not a bailout because a lot of the questions, 429 00:23:20,200 --> 00:23:22,520 Speaker 1: of course focus here when we found out details of 430 00:23:22,560 --> 00:23:25,520 Speaker 1: the deal. Well, look, we were promised no bailouts for 431 00:23:25,600 --> 00:23:27,760 Speaker 1: the future after the financial crisis. If you look at 432 00:23:27,840 --> 00:23:30,159 Speaker 1: Kreti Sweets, it had a lot of problems. They had 433 00:23:30,200 --> 00:23:32,520 Speaker 1: had a lot of outflows. It had of course a 434 00:23:32,560 --> 00:23:35,359 Speaker 1: lot of concerns going forward, but it was fully capitalized. 435 00:23:35,400 --> 00:23:37,280 Speaker 1: So if you're a bondholder in Kreis Sweets or any 436 00:23:37,359 --> 00:23:39,959 Speaker 1: other bank, how do you take the news? The other question, 437 00:23:40,280 --> 00:23:43,040 Speaker 1: and we spoke to the UBS chairman many times. A 438 00:23:43,080 --> 00:23:44,560 Speaker 1: couple of times we had a couple of questions with 439 00:23:44,640 --> 00:23:46,680 Speaker 1: him in the presster is what happens to the investment bank? 440 00:23:46,840 --> 00:23:50,280 Speaker 1: What happens to the Swiss Bank? And this he was saying, look, 441 00:23:50,320 --> 00:23:52,240 Speaker 1: Phillips or a bit, Actually they'll probably wind down the 442 00:23:52,280 --> 00:23:55,280 Speaker 1: investment bank. We also spoke to Finnma, this is the 443 00:23:55,400 --> 00:23:59,119 Speaker 1: local regulator, and we asked him what kind of transaction 444 00:23:59,200 --> 00:24:01,080 Speaker 1: of what kind of talks he also had with the 445 00:24:01,160 --> 00:24:04,000 Speaker 1: FED and the Bank of England. Here he is. We 446 00:24:04,119 --> 00:24:08,440 Speaker 1: were speaking very closely with key regulators, key regulators thlves 447 00:24:08,480 --> 00:24:11,480 Speaker 1: that are most relevant for Credit, Swiss Group and for ups, 448 00:24:12,040 --> 00:24:14,639 Speaker 1: notably or most importantly the ones in the US and 449 00:24:14,720 --> 00:24:17,720 Speaker 1: the UK. They were deeply involved and you have seen 450 00:24:17,840 --> 00:24:20,920 Speaker 1: today their support for the solution as well. They're strong 451 00:24:20,960 --> 00:24:23,280 Speaker 1: support for the solution in the sense of or with 452 00:24:23,400 --> 00:24:29,240 Speaker 1: the purpose of financial stability. So there was a deal, 453 00:24:29,480 --> 00:24:32,480 Speaker 1: the first deal of two systemically important banks to the 454 00:24:32,520 --> 00:24:34,959 Speaker 1: financial crisis, and we'll have to wait to see how 455 00:24:35,000 --> 00:24:37,720 Speaker 1: the market's open tomorrow, Fransaine, looking forward to your coverage 456 00:24:37,920 --> 00:24:40,560 Speaker 1: tomorrow from Zurich, from Burnt to Zurich. Francais going to 457 00:24:40,600 --> 00:24:42,520 Speaker 1: be basically across Switzerland throughout the rest of this week. 458 00:24:42,920 --> 00:24:45,040 Speaker 1: You heard what Francais said there, and I think it's important. 459 00:24:45,080 --> 00:24:46,680 Speaker 1: We heard from the President of the United States several 460 00:24:46,800 --> 00:24:49,639 Speaker 1: days ago, after resolving some of the issues in this 461 00:24:49,800 --> 00:24:53,280 Speaker 1: country last weekend with Silicon Valley Bank, keen to point 462 00:24:53,320 --> 00:24:55,960 Speaker 1: out this is not a bailout. And again Swiss authorities 463 00:24:56,000 --> 00:24:58,600 Speaker 1: going out of their way to say, guess what, this 464 00:24:58,840 --> 00:25:00,720 Speaker 1: is not a bailout. Now we're saying this is how 465 00:25:00,760 --> 00:25:03,560 Speaker 1: it ends. I would be asking today as well, is 466 00:25:03,600 --> 00:25:06,080 Speaker 1: it is this how this will end? We will find 467 00:25:06,119 --> 00:25:07,399 Speaker 1: out when we take a look at the credit to 468 00:25:07,400 --> 00:25:09,520 Speaker 1: pult swaps and the bonds and the stocks of banks 469 00:25:09,600 --> 00:25:11,800 Speaker 1: around the world. In terms of a bailout, you heard 470 00:25:11,880 --> 00:25:14,320 Speaker 1: Muhammadalaria just there. It is a bailout for all intents 471 00:25:14,359 --> 00:25:16,480 Speaker 1: and purposes. Perhaps not what you're talking about with the 472 00:25:16,800 --> 00:25:22,320 Speaker 1: specific capital contingent capital instruments, but nine billion euros Swiss 473 00:25:22,359 --> 00:25:27,359 Speaker 1: franks rather being put toward losses at ubs stemming from 474 00:25:27,359 --> 00:25:29,320 Speaker 1: credit Swiss assets so that gives you a sense of 475 00:25:29,359 --> 00:25:31,480 Speaker 1: what we're talking about now, Lisa, we talked last week 476 00:25:31,520 --> 00:25:35,680 Speaker 1: about officials authorities learning from a previous crisis, moving quickly, 477 00:25:35,760 --> 00:25:37,520 Speaker 1: if you will. Is it fair to say the banks 478 00:25:37,560 --> 00:25:39,800 Speaker 1: have learned from a previous crisis as well? And I'm 479 00:25:39,840 --> 00:25:44,640 Speaker 1: thinking of JP Morgan the lessons learned there basically inheriting 480 00:25:44,720 --> 00:25:47,480 Speaker 1: some of the regulatory and legal issues from an institution 481 00:25:47,560 --> 00:25:49,200 Speaker 1: they take over at a time a crisis. Do you 482 00:25:49,280 --> 00:25:51,159 Speaker 1: think UBS has learned that lesson from that? Is that 483 00:25:51,200 --> 00:25:54,480 Speaker 1: why that's there? Are you suggesting that UBS really drew 484 00:25:54,560 --> 00:25:56,760 Speaker 1: a pretty hard bargain here, saying to all of the 485 00:25:56,800 --> 00:25:59,280 Speaker 1: authorities in Switzerland, you've got to cover all our legal costs. 486 00:25:59,320 --> 00:26:02,200 Speaker 1: You've got to cover our potential outlasses and assets that 487 00:26:02,280 --> 00:26:05,320 Speaker 1: we don't know the black box of. I'm sure, I'm 488 00:26:05,359 --> 00:26:06,840 Speaker 1: sure it did you know? These are all of the 489 00:26:06,960 --> 00:26:09,800 Speaker 1: reasons why we cannot do this unless you back stop 490 00:26:09,920 --> 00:26:12,280 Speaker 1: all of these things. And so was a thirty said, Okay, 491 00:26:12,680 --> 00:26:15,160 Speaker 1: very weekend went. We went from one billion to two 492 00:26:15,240 --> 00:26:17,600 Speaker 1: and now something like three, and then at one point 493 00:26:17,640 --> 00:26:20,560 Speaker 1: we were talking about state involvement, partial or full owners ship. 494 00:26:20,600 --> 00:26:22,920 Speaker 1: This move pretty quickly over the weekend. It also really 495 00:26:23,040 --> 00:26:24,960 Speaker 1: speaks to and I hate to use this word, but 496 00:26:25,040 --> 00:26:28,400 Speaker 1: desperation to get it done before Monday. Without a doubt, 497 00:26:28,520 --> 00:26:30,679 Speaker 1: this is absolute desperation. You could smell it, because they 498 00:26:30,720 --> 00:26:33,200 Speaker 1: basically were just that worried about what would happen to 499 00:26:33,280 --> 00:26:35,920 Speaker 1: this bank Monday morning when they walked in. If this 500 00:26:36,040 --> 00:26:38,919 Speaker 1: deal was an exqubs agreeing to pay three billion Swiss 501 00:26:38,960 --> 00:26:41,280 Speaker 1: francs for it's a long time rive or credit sweet 502 00:26:41,320 --> 00:26:43,120 Speaker 1: Joanna to get SNAs Juice Bomont, the head of bank 503 00:26:43,200 --> 00:26:45,959 Speaker 1: researcher apn am Row Juice wonderful to hear from you, sir. 504 00:26:46,080 --> 00:26:50,639 Speaker 1: Let's just start here. What do you make of this one? Um? Well? 505 00:26:50,720 --> 00:26:54,080 Speaker 1: I tend to agree with the fact that it looks 506 00:26:54,440 --> 00:26:58,040 Speaker 1: a bit like being allowed indeed quite some large guarantees 507 00:26:58,160 --> 00:27:01,280 Speaker 1: given to absorb the lassless. And what it in the 508 00:27:01,480 --> 00:27:05,840 Speaker 1: end reflects, I think, is the yeah, the tension there 509 00:27:06,040 --> 00:27:09,160 Speaker 1: is between a bank that is too big to feel 510 00:27:09,800 --> 00:27:14,080 Speaker 1: you want to protect depositors, et cetera. So in the end, yeah, 511 00:27:14,200 --> 00:27:18,359 Speaker 1: governments might need to step into to help failing failing banks, 512 00:27:18,480 --> 00:27:22,200 Speaker 1: especially if they are so large es quite Swiss, and 513 00:27:22,320 --> 00:27:25,520 Speaker 1: that is something that is a little bit within the 514 00:27:25,760 --> 00:27:29,119 Speaker 1: system that we have at the moment. So yeah, it 515 00:27:29,240 --> 00:27:31,800 Speaker 1: looks indeed a bit like a BAI allowed justice. We 516 00:27:31,920 --> 00:27:35,639 Speaker 1: heard authorities there from Switzerland banking executives say that a 517 00:27:35,720 --> 00:27:37,639 Speaker 1: lot of this stem from what we saw over in 518 00:27:37,640 --> 00:27:40,480 Speaker 1: the United States with medium sized banks. Is that's past 519 00:27:40,520 --> 00:27:45,000 Speaker 1: the smell test for you? Well, I think with the 520 00:27:45,119 --> 00:27:46,960 Speaker 1: medium sized bank, I think there are two things that 521 00:27:47,080 --> 00:27:49,879 Speaker 1: you have the US cases, the regional mid sized banks. 522 00:27:49,920 --> 00:27:54,280 Speaker 1: You have quite Swiss. Maybe if you continue with pretty Swiss, 523 00:27:54,440 --> 00:27:58,280 Speaker 1: I think it was already a very legal bank in trouble, 524 00:27:58,440 --> 00:28:02,320 Speaker 1: something needed to happen. Moving to the US, these regional banks, 525 00:28:02,440 --> 00:28:05,360 Speaker 1: they I think they were so vulnerable because they had 526 00:28:05,359 --> 00:28:09,240 Speaker 1: a lot of uninsured deposits, of course, making them very 527 00:28:09,320 --> 00:28:13,720 Speaker 1: vulnerable for bank runs. And then also the way, especially 528 00:28:13,800 --> 00:28:17,200 Speaker 1: with Silicon Valley Bank, how they had mismanaged basically the 529 00:28:17,720 --> 00:28:22,480 Speaker 1: assets and liabilities made them also extremely vulnerable. And you 530 00:28:22,560 --> 00:28:25,119 Speaker 1: can even say it goes a bit back to twenty 531 00:28:25,440 --> 00:28:29,480 Speaker 1: eighteen when the rules and the oversight of these mid 532 00:28:29,640 --> 00:28:34,920 Speaker 1: sized banks were basically east which yeah, kept them a 533 00:28:35,000 --> 00:28:37,560 Speaker 1: bit off the hook of the regulators. You could connect 534 00:28:37,600 --> 00:28:40,760 Speaker 1: the two juice by just saying that right now, given 535 00:28:40,960 --> 00:28:43,400 Speaker 1: the potential risks that have been highlighted in a couple 536 00:28:43,440 --> 00:28:48,120 Speaker 1: of potentially idiosyncratic instances that investors credit people who have 537 00:28:48,240 --> 00:28:49,840 Speaker 1: their money in a bank wanted to be a safe, 538 00:28:49,960 --> 00:28:53,160 Speaker 1: big bank with no potential risks. Are there other big 539 00:28:53,400 --> 00:28:57,880 Speaker 1: banks in Europe in the US that perhaps might be 540 00:28:58,240 --> 00:29:02,200 Speaker 1: vulnerable to significant amount to depositor with depositors with drawing 541 00:29:02,240 --> 00:29:07,480 Speaker 1: their cash. At first side, I would say no, or 542 00:29:07,520 --> 00:29:10,640 Speaker 1: at least there's limited risk. I think if you speak 543 00:29:10,760 --> 00:29:17,080 Speaker 1: for Europe, I think the deposit guarantee scheme is more 544 00:29:17,200 --> 00:29:21,920 Speaker 1: effective in a wave. Look at European banks, the coverage 545 00:29:21,960 --> 00:29:25,120 Speaker 1: of deposits is way higher than what it is for 546 00:29:25,240 --> 00:29:29,520 Speaker 1: say the smaller regional banks in the US. If you 547 00:29:29,600 --> 00:29:32,840 Speaker 1: look at the larger US banks. This is also the 548 00:29:33,520 --> 00:29:39,200 Speaker 1: case of the risk for depositors really run away from 549 00:29:39,280 --> 00:29:43,720 Speaker 1: from a bank is less in that respect, also something 550 00:29:43,880 --> 00:29:46,520 Speaker 1: in Europe if you look at the investments that banks have, 551 00:29:46,840 --> 00:29:50,560 Speaker 1: so the risks they have to edit they run if 552 00:29:50,560 --> 00:29:54,360 Speaker 1: they need to sell assets is also less than than 553 00:29:54,520 --> 00:29:59,120 Speaker 1: say the regional banks in the US. So my yeah, 554 00:29:59,240 --> 00:30:02,600 Speaker 1: my first when looking at all a bit more top 555 00:30:03,080 --> 00:30:08,160 Speaker 1: down numbers still makes me think that these cases are 556 00:30:08,240 --> 00:30:11,680 Speaker 1: special cases, but of course it runs the risk if 557 00:30:11,720 --> 00:30:14,600 Speaker 1: a lot of medium sized, mid sized banks in the 558 00:30:14,760 --> 00:30:18,160 Speaker 1: US run into trouble, then of course it's it's the 559 00:30:18,240 --> 00:30:22,080 Speaker 1: ball that starts rolling, and then it can become a 560 00:30:22,160 --> 00:30:25,320 Speaker 1: systemic issue chase. Whenever things get messy, we start throwing 561 00:30:25,360 --> 00:30:28,120 Speaker 1: around acronyms, and I think it's difficult for people to follow, 562 00:30:28,600 --> 00:30:30,880 Speaker 1: and a lot of people outside of banking right now 563 00:30:31,000 --> 00:30:32,760 Speaker 1: might be Chinn again wondering what on earth is coming 564 00:30:32,800 --> 00:30:34,520 Speaker 1: on with this name, and then they have things like 565 00:30:34,720 --> 00:30:37,680 Speaker 1: eighty one. Now we know that that market is huge 566 00:30:37,720 --> 00:30:40,680 Speaker 1: in Europe, so back two hundred and seventy five billion dollars, 567 00:30:40,840 --> 00:30:42,520 Speaker 1: What on earth is going to happen with that market? 568 00:30:42,800 --> 00:30:46,680 Speaker 1: After what happened with this bank today, I think a 569 00:30:46,720 --> 00:30:52,680 Speaker 1: lot of investors will reassess how they need to assess 570 00:30:52,720 --> 00:30:56,360 Speaker 1: the risks to these instruments. Of course, these are instruments 571 00:30:56,520 --> 00:30:59,440 Speaker 1: very equity, Like you run a large risk, you get 572 00:30:59,480 --> 00:31:04,720 Speaker 1: a higher return. I do think that maybe also investors 573 00:31:04,800 --> 00:31:08,080 Speaker 1: or financial markets more generally have been living a little 574 00:31:08,120 --> 00:31:13,080 Speaker 1: bit in like a Goldilocks scenario, pricing in that the 575 00:31:13,240 --> 00:31:17,760 Speaker 1: sharp increases in in in in rates should not really 576 00:31:17,880 --> 00:31:21,200 Speaker 1: leave their mark on the financial sector. And in that respect, 577 00:31:21,280 --> 00:31:23,640 Speaker 1: this is also a wake up call and therefore shoot 578 00:31:24,360 --> 00:31:28,080 Speaker 1: make investors assess the risks they run to the banking 579 00:31:28,120 --> 00:31:30,920 Speaker 1: they have to against the banking sector. Ayah, more carefully, 580 00:31:31,000 --> 00:31:33,000 Speaker 1: it's going to be interesting way ahead in that market. 581 00:31:33,080 --> 00:31:36,040 Speaker 1: Just but I'm on the of IBN am row Lisa, 582 00:31:36,120 --> 00:31:38,240 Speaker 1: what do you make of that that decision around credit swas. 583 00:31:38,720 --> 00:31:40,200 Speaker 1: I think that what it's going to do is make 584 00:31:40,240 --> 00:31:42,160 Speaker 1: it a lot more expensive for banks to raise capital 585 00:31:42,240 --> 00:31:45,760 Speaker 1: because this has basically been one regulatory option, a sort 586 00:31:45,760 --> 00:31:50,120 Speaker 1: of safety net to protect against losses, to prevent another bailout. 587 00:31:50,200 --> 00:31:53,120 Speaker 1: So yes, of course it was triggered in this particular instance. 588 00:31:53,360 --> 00:31:55,160 Speaker 1: But what does that do for all the other banks 589 00:31:55,200 --> 00:31:57,760 Speaker 1: that are forced to have these kinds of instruments. How 590 00:31:57,840 --> 00:31:59,400 Speaker 1: much are they going to have to pay up for 591 00:31:59,520 --> 00:32:01,360 Speaker 1: people to take that risk? Going to be an interesting 592 00:32:01,400 --> 00:32:03,560 Speaker 1: couple of days. Never mind that said Dan i uson 593 00:32:03,600 --> 00:32:06,320 Speaker 1: a PIMCO that quote that he had earlier, the sweet 594 00:32:06,360 --> 00:32:08,520 Speaker 1: with our team here at Bloomberg sticks with me. This 595 00:32:08,680 --> 00:32:11,000 Speaker 1: is going to be a multi month process. A multi 596 00:32:11,080 --> 00:32:13,880 Speaker 1: month process, not a band aid on a weekend on 597 00:32:13,920 --> 00:32:17,000 Speaker 1: a Sunday evening going into the Asia open going into Monday, 598 00:32:17,240 --> 00:32:20,200 Speaker 1: a multi month process because it's a liquidity issue. It's 599 00:32:20,200 --> 00:32:23,080 Speaker 1: the fact that perhaps depositors are rethinking where they put 600 00:32:23,120 --> 00:32:25,600 Speaker 1: their money, and there is a question about what other 601 00:32:25,720 --> 00:32:28,400 Speaker 1: banks are stressed in response to that and what happens 602 00:32:28,400 --> 00:32:30,040 Speaker 1: to their assets. Since these were a lot of the 603 00:32:30,120 --> 00:32:32,680 Speaker 1: banks that were providing some of the credit to a 604 00:32:32,760 --> 00:32:35,160 Speaker 1: lot of the areas that got the most inflated during 605 00:32:35,560 --> 00:32:38,440 Speaker 1: the decade of zero rates, We're going to stay with 606 00:32:38,560 --> 00:32:40,440 Speaker 1: you working through some of these issues up next on 607 00:32:40,520 --> 00:32:43,000 Speaker 1: this program. Coming up next, Peter Cheer, the head of 608 00:32:43,080 --> 00:32:46,400 Speaker 1: macro strategy at Academy Securities. Life from New York City 609 00:32:46,440 --> 00:32:55,600 Speaker 1: this evening. This is Bloomberg Life from New York City, 610 00:32:55,640 --> 00:32:58,560 Speaker 1: this evening, Good evening, alongside Lisa Brabbitt's I'm Jonathan Pharaoh. 611 00:32:58,640 --> 00:33:01,200 Speaker 1: This is a special edition of burg Surveillance. We have 612 00:33:01,680 --> 00:33:05,080 Speaker 1: a deal between UBS and Credit suis the number three 613 00:33:05,160 --> 00:33:08,840 Speaker 1: billion Swiss francs three point two five billion dollars. There's 614 00:33:08,840 --> 00:33:10,040 Speaker 1: a lot of things we need to get through in 615 00:33:10,080 --> 00:33:13,000 Speaker 1: this deal, though, Bramo. Here's one the one hundred billion 616 00:33:13,040 --> 00:33:15,400 Speaker 1: franc liquidity assistants that's going to be offered to UBS 617 00:33:15,480 --> 00:33:19,000 Speaker 1: from the SNB. Here's another, a nine billion dollar franc 618 00:33:19,400 --> 00:33:22,760 Speaker 1: nine billion franc guarantee for potential losses from assets UBS 619 00:33:22,920 --> 00:33:25,880 Speaker 1: is taking over. There's a new one. Well, that's the 620 00:33:26,040 --> 00:33:28,520 Speaker 1: question that people are looking at for the bailout kind 621 00:33:28,520 --> 00:33:31,920 Speaker 1: of definition, because essentially that is bailing out losses. I 622 00:33:32,000 --> 00:33:33,960 Speaker 1: guess that the way that they try to paper over 623 00:33:34,080 --> 00:33:38,160 Speaker 1: that is the sixteen billion dollars of equity like bonds 624 00:33:38,200 --> 00:33:40,280 Speaker 1: that are going to get wiped out, and that perhaps 625 00:33:40,400 --> 00:33:42,640 Speaker 1: is the pain that the regulators are trying to inflict 626 00:33:43,000 --> 00:33:45,640 Speaker 1: on risk holders. To say it's such as us. Peter 627 00:33:45,720 --> 00:33:47,880 Speaker 1: shares with us looking forward to this conversation head a 628 00:33:47,880 --> 00:33:51,440 Speaker 1: macro Strategy Academy Securities. Peter, we're leading with this story. 629 00:33:51,800 --> 00:33:56,240 Speaker 1: Seventeen billion dollars of risky bonds worthless, eighty ones gone 630 00:33:56,520 --> 00:33:59,479 Speaker 1: written down, the equity retained some value. Can you make 631 00:33:59,560 --> 00:34:01,760 Speaker 1: sense of that? Yeah, suppose. I guess they triggered it 632 00:34:01,840 --> 00:34:03,640 Speaker 1: under some sort of viability clause. But this is going 633 00:34:03,720 --> 00:34:05,440 Speaker 1: to raise a lot of questions, Right, why should I 634 00:34:05,480 --> 00:34:07,600 Speaker 1: be in at ones if it feels I'm treated unfairly 635 00:34:07,720 --> 00:34:10,520 Speaker 1: or picked on? And what I'm looking for is a 636 00:34:10,840 --> 00:34:13,120 Speaker 1: who's holding those at ones? So does this spread the 637 00:34:13,280 --> 00:34:16,279 Speaker 1: risk then too, whether it's insurance companies, pension funds, some 638 00:34:16,440 --> 00:34:18,560 Speaker 1: other part of the financial cat world that we haven't 639 00:34:18,600 --> 00:34:21,280 Speaker 1: really seen dragged into this mess at all. And finally, 640 00:34:22,000 --> 00:34:25,000 Speaker 1: the size of the loss that's occurring seems much bigger 641 00:34:25,000 --> 00:34:27,440 Speaker 1: than anyone expected. Right, the equity is getting devalued much 642 00:34:27,480 --> 00:34:29,680 Speaker 1: more than you know, illustrating last week, you've got this, 643 00:34:29,920 --> 00:34:32,080 Speaker 1: You've got this weird nine billion that's supposed they're going 644 00:34:32,120 --> 00:34:34,239 Speaker 1: to be contributed. What does the books look like? Does 645 00:34:34,320 --> 00:34:36,520 Speaker 1: this give people confidence or does this people make people 646 00:34:36,600 --> 00:34:39,920 Speaker 1: question the banks? Let's put this into perspective. The sixteen 647 00:34:40,000 --> 00:34:43,839 Speaker 1: billion dollar, sixteen billion Swiss frank write down of these 648 00:34:43,920 --> 00:34:46,200 Speaker 1: particular instruments will be the biggest of the two hundred 649 00:34:46,200 --> 00:34:49,839 Speaker 1: and seventy five billion dollar market for this debt. How 650 00:34:49,960 --> 00:34:53,200 Speaker 1: much does this essentially raise financing costs for a lot 651 00:34:53,200 --> 00:34:55,840 Speaker 1: of banks that are forced to raise these instruments to 652 00:34:55,960 --> 00:34:58,040 Speaker 1: be in Europe? I think no one's going to be 653 00:34:58,040 --> 00:34:59,480 Speaker 1: buying these for a period of time. Right, You've got 654 00:34:59,560 --> 00:35:01,640 Speaker 1: to look at this and wonder how did this happen? 655 00:35:01,760 --> 00:35:04,480 Speaker 1: What happened? And again, it didn't follow any leverage rules 656 00:35:04,560 --> 00:35:07,200 Speaker 1: or any capital rules. Per se it came under. I 657 00:35:07,200 --> 00:35:10,080 Speaker 1: believe this viability trigger, so it adds a new element 658 00:35:10,120 --> 00:35:11,600 Speaker 1: of risks. So I think this markets can be for 659 00:35:11,680 --> 00:35:14,399 Speaker 1: sale from the secondary standpoint, and I don't think people 660 00:35:14,400 --> 00:35:15,759 Speaker 1: are going to be able to raise capital in this 661 00:35:16,000 --> 00:35:18,759 Speaker 1: What did you make of these Swiss authorities coming out 662 00:35:18,920 --> 00:35:22,560 Speaker 1: and blaming the US midsize bank and some of the 663 00:35:22,640 --> 00:35:27,239 Speaker 1: turmoil there for what happened with credit Suite. I think 664 00:35:27,239 --> 00:35:29,759 Speaker 1: there's kind of two separate issues. There's somewhat at some 665 00:35:29,960 --> 00:35:31,480 Speaker 1: level of the One problem is it seems that a 666 00:35:31,520 --> 00:35:34,440 Speaker 1: lot of banks have assets that are held at par 667 00:35:34,640 --> 00:35:37,040 Speaker 1: or whatever the purchase price is, and the current valuation 668 00:35:37,160 --> 00:35:39,840 Speaker 1: do largely to interest rates, not credit is lower. So 669 00:35:40,280 --> 00:35:42,640 Speaker 1: that's everywhere, you know. I think I was actually on 670 00:35:42,800 --> 00:35:46,560 Speaker 1: with you guys on Wednesday morning when the Saudi person 671 00:35:46,640 --> 00:35:49,799 Speaker 1: spoke and kind of it was very dismissive all most 672 00:35:49,840 --> 00:35:51,440 Speaker 1: of their investment, and that seemed to trigger a lot. 673 00:35:51,560 --> 00:35:52,960 Speaker 1: So I think there's a lot of moving parts. I 674 00:35:53,000 --> 00:35:55,560 Speaker 1: think what it does highlight is the system is very 675 00:35:55,600 --> 00:35:58,640 Speaker 1: fragile in the banking system right. It's companies are levered. 676 00:35:58,760 --> 00:36:01,800 Speaker 1: I think they're well managed when things get exposed or 677 00:36:01,880 --> 00:36:04,080 Speaker 1: moved it moves quickly, and I want to see the 678 00:36:04,120 --> 00:36:06,480 Speaker 1: regulators respond faster than they have. I would really like 679 00:36:06,600 --> 00:36:09,200 Speaker 1: to see the FED or FDIC come in and do 680 00:36:09,320 --> 00:36:11,719 Speaker 1: something for all bank deposits, because I think that's a risk. 681 00:36:11,960 --> 00:36:14,560 Speaker 1: Do you think that needs to be done imminently? I 682 00:36:14,640 --> 00:36:17,200 Speaker 1: would have expected and liked to see it done today. Right. 683 00:36:17,280 --> 00:36:20,480 Speaker 1: I think you can almost implicitly say, well, if they 684 00:36:20,560 --> 00:36:23,640 Speaker 1: build out the depositors of SVB and Signature Bank, they'll 685 00:36:23,680 --> 00:36:25,719 Speaker 1: build out other depositors. But why not get ahead of 686 00:36:25,800 --> 00:36:28,040 Speaker 1: that and stop this. I think Alarion was on and 687 00:36:28,080 --> 00:36:29,360 Speaker 1: I don't always agree with them, but I think he 688 00:36:29,440 --> 00:36:31,640 Speaker 1: was right on. This is if you get asked the question, well, 689 00:36:31,640 --> 00:36:33,759 Speaker 1: as my money safe, I would say, yes, is there 690 00:36:33,760 --> 00:36:36,000 Speaker 1: any cost of moving it? Not? Really? So I think 691 00:36:36,040 --> 00:36:37,800 Speaker 1: that's what has to be addressed. Is this so it 692 00:36:37,880 --> 00:36:40,080 Speaker 1: stops packs from being forced to sell assets which then 693 00:36:40,160 --> 00:36:42,919 Speaker 1: trigger these losses. What should be the limit? Senator Warren 694 00:36:43,000 --> 00:36:45,360 Speaker 1: was speaking to Face the Nation a show here in 695 00:36:45,360 --> 00:36:47,960 Speaker 1: the United States of the weekend today, I believe, and 696 00:36:48,080 --> 00:36:50,520 Speaker 1: she said, what is it? Billion? It's just the number million, 697 00:36:50,560 --> 00:36:53,360 Speaker 1: two million, three million? What is the number? That is 698 00:36:53,400 --> 00:36:55,120 Speaker 1: a great question. And I'm also not sure why we 699 00:36:55,160 --> 00:36:57,600 Speaker 1: didn't spend some time figuring out, in the case of SVB, 700 00:36:57,960 --> 00:36:59,640 Speaker 1: what the recovery value might have been. Maybe you have 701 00:36:59,680 --> 00:37:01,399 Speaker 1: to cover up to a certain amount and then there's 702 00:37:01,400 --> 00:37:04,600 Speaker 1: a recovery. It's been very quickly. I think we should 703 00:37:04,600 --> 00:37:06,759 Speaker 1: have put some stop gap in place. But ultimately all 704 00:37:06,760 --> 00:37:08,960 Speaker 1: of this comes down to getting capital, and I think 705 00:37:09,000 --> 00:37:10,759 Speaker 1: that's why you saw the at ones get hit here. 706 00:37:10,840 --> 00:37:12,960 Speaker 1: That's why the Swiss National Bank is putting up that 707 00:37:13,000 --> 00:37:15,520 Speaker 1: potential extra nine billion a verse defined, It's going to 708 00:37:15,560 --> 00:37:17,319 Speaker 1: be about capital, and that's what we need to see 709 00:37:17,320 --> 00:37:20,000 Speaker 1: in the US banking system, is deposit protected to give 710 00:37:20,040 --> 00:37:22,279 Speaker 1: us that opportunity to raise capital. You said you don't 711 00:37:22,280 --> 00:37:24,560 Speaker 1: always agree with Muhammad Larrian, and I'm curious what you 712 00:37:24,640 --> 00:37:27,080 Speaker 1: think about his assertion that this Federal Reserve has to 713 00:37:27,560 --> 00:37:29,880 Speaker 1: come out and raise rates to follow what the ECP 714 00:37:30,040 --> 00:37:32,480 Speaker 1: did by twenty five bases points to say, Look, we're 715 00:37:32,480 --> 00:37:34,759 Speaker 1: going to deal with the financial system itself, but we 716 00:37:34,840 --> 00:37:36,600 Speaker 1: are dealing with inflation and we're not going to let 717 00:37:36,680 --> 00:37:38,759 Speaker 1: that go. So that part I completely disagree with him. 718 00:37:38,840 --> 00:37:41,800 Speaker 1: I think we were seeing deflationary pressure coming into January, 719 00:37:42,080 --> 00:37:44,240 Speaker 1: then we slowed down. We saw little bits of inflation 720 00:37:44,280 --> 00:37:46,360 Speaker 1: here and there, the wage numbers were under control. I 721 00:37:46,400 --> 00:37:48,080 Speaker 1: think now you have to say, we don't know what's 722 00:37:48,080 --> 00:37:50,640 Speaker 1: going on with the banking system. Nothing about a slowdown 723 00:37:50,719 --> 00:37:52,560 Speaker 1: or tightening and financial credits is going to be good. 724 00:37:52,840 --> 00:37:54,480 Speaker 1: So I think you pause here and say, we want 725 00:37:54,520 --> 00:37:56,200 Speaker 1: to see where this all comes out. If we still 726 00:37:56,200 --> 00:37:58,120 Speaker 1: have inflation in a month or two, we will worry 727 00:37:58,160 --> 00:38:00,040 Speaker 1: about it. The price of oil has been plummeting. I 728 00:38:00,080 --> 00:38:01,560 Speaker 1: don't think you do that. If anything, I think you 729 00:38:01,640 --> 00:38:03,600 Speaker 1: maybe bring up I don't think you do this time. 730 00:38:03,840 --> 00:38:07,160 Speaker 1: But you talk about maybe we suspend quantitative tightening, maybe 731 00:38:07,239 --> 00:38:10,400 Speaker 1: we stop reducing our balance sheet while this is going on. 732 00:38:10,520 --> 00:38:13,000 Speaker 1: So if anything, I was about to say the exact 733 00:38:13,040 --> 00:38:14,960 Speaker 1: same thing. Well, it's been growing, but it's been growing 734 00:38:15,000 --> 00:38:20,239 Speaker 1: at the short term. Yeah, you're right, So, yes, the 735 00:38:20,280 --> 00:38:22,279 Speaker 1: balance sheet has been growing. So maybe this would make 736 00:38:22,320 --> 00:38:24,600 Speaker 1: it even more explicit that, hey, we're going to suspend 737 00:38:24,640 --> 00:38:26,480 Speaker 1: this for now. I don't think they enter into large 738 00:38:26,520 --> 00:38:28,600 Speaker 1: scale acid purchases, but I think we're more likely to 739 00:38:28,680 --> 00:38:32,000 Speaker 1: have that direction and inflation. Wow, it's let's see how 740 00:38:32,040 --> 00:38:34,480 Speaker 1: this all plays out. We just had a very big 741 00:38:34,520 --> 00:38:37,320 Speaker 1: event here. People are worried about the banking system. Inflation 742 00:38:37,360 --> 00:38:39,480 Speaker 1: should not be the priority, especially when you've seen things 743 00:38:39,520 --> 00:38:42,600 Speaker 1: like oil come down, way just come down. Let's be honest. 744 00:38:42,640 --> 00:38:44,400 Speaker 1: It's certainly not the cleanest wife doing it. But does 745 00:38:44,440 --> 00:38:48,560 Speaker 1: some financial instabilities take care of the inflation issue for them? Sadly? 746 00:38:48,600 --> 00:38:50,880 Speaker 1: I think it does. It cause again, it just causes problems. 747 00:38:50,920 --> 00:38:53,640 Speaker 1: It might cause bouts of inflation, but I think financial 748 00:38:53,640 --> 00:38:56,319 Speaker 1: conditions are now going to tighten everywhere you look at it. Right, 749 00:38:56,360 --> 00:38:59,279 Speaker 1: banks have to protect their balance sheet, they are less 750 00:38:59,320 --> 00:39:01,680 Speaker 1: likely to land that will slow down this economy and 751 00:39:01,760 --> 00:39:04,040 Speaker 1: the theory inflation. So let's say there's somebody out here 752 00:39:04,080 --> 00:39:06,200 Speaker 1: who's listening to this and saying how should I position 753 00:39:06,239 --> 00:39:08,400 Speaker 1: in Monday morning? And they're thinking, okay, well, if the 754 00:39:08,440 --> 00:39:12,480 Speaker 1: fedstops quantitative tightening, it doesn't high rates risk on. How 755 00:39:12,560 --> 00:39:15,239 Speaker 1: do you basically make the argument that Morgan Stanley has 756 00:39:15,280 --> 00:39:17,200 Speaker 1: been trying to make for quite a bit, which is 757 00:39:17,320 --> 00:39:20,120 Speaker 1: basically the tightening that will ensue from a lot of 758 00:39:20,200 --> 00:39:24,000 Speaker 1: these regional banks pulling back on credit will be perhaps 759 00:39:24,080 --> 00:39:26,359 Speaker 1: not the best for risk assets for quite a time. 760 00:39:27,400 --> 00:39:30,480 Speaker 1: So I would probably lean towards I'm actually will buy 761 00:39:30,600 --> 00:39:32,279 Speaker 1: I've been trying to buy and sell the financials, and 762 00:39:32,800 --> 00:39:34,560 Speaker 1: assuming we get any dip, I probably buy some of 763 00:39:34,560 --> 00:39:36,960 Speaker 1: the regionals banks. Again, I think this will ultimately get 764 00:39:37,000 --> 00:39:38,839 Speaker 1: in taken care of. It's not happening all at once, 765 00:39:39,200 --> 00:39:40,880 Speaker 1: and you probably have to go back to shorting some 766 00:39:40,920 --> 00:39:42,319 Speaker 1: of the big tech, some of the names that really 767 00:39:42,400 --> 00:39:44,759 Speaker 1: took the boost last week, right because last week we 768 00:39:44,800 --> 00:39:48,960 Speaker 1: almost had this Pavlovian reaction lower rates, higher tech, higher 769 00:39:49,120 --> 00:39:51,160 Speaker 1: ARC And I think the reality is this time is 770 00:39:51,160 --> 00:39:53,440 Speaker 1: going to be different. Starting conditions are much different, and 771 00:39:53,600 --> 00:39:55,680 Speaker 1: this is happening because of a recession risk. Spending is 772 00:39:55,719 --> 00:39:57,360 Speaker 1: going to slow. People aren't going to spend money on that. 773 00:39:57,480 --> 00:39:59,440 Speaker 1: So I think we had this knee jerk reaction that 774 00:39:59,480 --> 00:40:01,400 Speaker 1: I want to face. So I've kind of looked for 775 00:40:01,400 --> 00:40:03,279 Speaker 1: the opposite of last week's trade. Hey, don't you get 776 00:40:03,280 --> 00:40:05,439 Speaker 1: the fin in though we've got no idea what's going 777 00:40:05,480 --> 00:40:08,760 Speaker 1: on right now. On Friday at the clothes, the market 778 00:40:08,800 --> 00:40:10,719 Speaker 1: took care of business with credit suists and price there 779 00:40:10,719 --> 00:40:13,399 Speaker 1: at one eighty six. What did this deal close? Four 780 00:40:13,560 --> 00:40:15,680 Speaker 1: seventy six? Yeah, something like that. Okay, so what three 781 00:40:15,719 --> 00:40:18,239 Speaker 1: billion Swiss? They raise four a couple of months ago 782 00:40:18,640 --> 00:40:22,360 Speaker 1: they raise four billion, and now it's worth three. And 783 00:40:22,480 --> 00:40:24,839 Speaker 1: I was told repeatedly that the Swiss unit was worth 784 00:40:25,080 --> 00:40:27,600 Speaker 1: what ten billion, correct, and they're getting that for three 785 00:40:27,680 --> 00:40:29,879 Speaker 1: And they need to throw government guarantees in there as well. 786 00:40:29,960 --> 00:40:31,759 Speaker 1: Now that's just credit swists and it takes out the 787 00:40:31,800 --> 00:40:34,799 Speaker 1: eighty ones. Does that not make you just pause and say? 788 00:40:35,320 --> 00:40:36,960 Speaker 1: There might be some stuff that I don't know here. 789 00:40:37,120 --> 00:40:39,440 Speaker 1: I think the fear everyone is going to have is 790 00:40:39,920 --> 00:40:41,920 Speaker 1: if we get a look behind the balance sheets and 791 00:40:42,000 --> 00:40:44,920 Speaker 1: really what's in there are the loss is more concerning. 792 00:40:45,239 --> 00:40:46,920 Speaker 1: And then all these things, right, we all know what 793 00:40:47,000 --> 00:40:49,640 Speaker 1: it costs to sell a treasury or sell a mortgage bond. Right, 794 00:40:49,640 --> 00:40:51,799 Speaker 1: there's a bid out there, but if ten banks are 795 00:40:51,840 --> 00:40:53,640 Speaker 1: all selling that same bond, the bid will be lower 796 00:40:53,880 --> 00:40:56,040 Speaker 1: if thirty banks are getting four. So that is why 797 00:40:56,040 --> 00:40:58,520 Speaker 1: I think we've got to start this deposit flight, because 798 00:40:58,600 --> 00:41:02,000 Speaker 1: it creates effectively for sellers and price doesn't become the 799 00:41:02,040 --> 00:41:04,040 Speaker 1: object then. So yes, I think that is the risk, 800 00:41:04,080 --> 00:41:06,680 Speaker 1: and that's why I'm not in love with what happened 801 00:41:06,680 --> 00:41:08,960 Speaker 1: in Switzerland today. I don't think it solves the problem 802 00:41:09,040 --> 00:41:11,879 Speaker 1: for Europe. I think their problems are different than ours here. 803 00:41:11,920 --> 00:41:14,479 Speaker 1: I think a deposit guarantee would really solve this issue 804 00:41:14,520 --> 00:41:16,239 Speaker 1: for us, or at least put on hold. But that's 805 00:41:16,239 --> 00:41:18,520 Speaker 1: going to be The scrutiny that the bank balancies are 806 00:41:18,560 --> 00:41:21,200 Speaker 1: getting is going to be intense, and it's intensifying and 807 00:41:21,320 --> 00:41:23,040 Speaker 1: more and more people want to know what do you have, 808 00:41:23,520 --> 00:41:26,040 Speaker 1: not just in terms of the details of your maturity, 809 00:41:26,320 --> 00:41:28,320 Speaker 1: the types of assets, but even where are your deposits? 810 00:41:28,360 --> 00:41:30,439 Speaker 1: Where's your cast sitting? That's a new thing. I paid. 811 00:41:30,480 --> 00:41:32,840 Speaker 1: This is great. Thanks for dropping by on a Sunday 812 00:41:32,960 --> 00:41:34,400 Speaker 1: of old days. Here we are paid a chair of 813 00:41:34,400 --> 00:41:36,960 Speaker 1: the Academy Securities. First republic A bank will need to 814 00:41:37,000 --> 00:41:40,280 Speaker 1: talk about eleven banks getting together in America, depositing thirty 815 00:41:40,360 --> 00:41:44,600 Speaker 1: billion US Internet institution and a stock closed Friday down 816 00:41:44,640 --> 00:41:48,399 Speaker 1: almost thirty three percent. The conversation continues from New York. 817 00:41:48,760 --> 00:41:59,360 Speaker 1: This is blowing back. If you think about where we 818 00:41:59,520 --> 00:42:02,640 Speaker 1: were year ago, the FED was just starting its rate 819 00:42:02,760 --> 00:42:06,560 Speaker 1: hiking cycle. So over the next couple quarters you're going 820 00:42:06,640 --> 00:42:11,239 Speaker 1: to get those long, invariable, cumulative and lagged impacts hitting 821 00:42:11,280 --> 00:42:14,640 Speaker 1: the market further. So I think this is the tip 822 00:42:15,200 --> 00:42:18,560 Speaker 1: of the iceberg. I think there's a lot more consolidation, 823 00:42:19,080 --> 00:42:21,680 Speaker 1: a lot more pain yet to come. So you put 824 00:42:21,760 --> 00:42:24,640 Speaker 1: your money into the highest quality assets you can find, 825 00:42:24,920 --> 00:42:29,399 Speaker 1: whether it's government bonds or high quality corporates, and securitize credit. Well, 826 00:42:29,480 --> 00:42:32,480 Speaker 1: Michael JP Morgan Asset Management, joting us around this table 827 00:42:32,640 --> 00:42:35,000 Speaker 1: in just seconds from now, Lisa, that take away from 828 00:42:35,040 --> 00:42:37,360 Speaker 1: the conversation we had earlier this week tip of the 829 00:42:37,440 --> 00:42:39,279 Speaker 1: iceberg for him, which is the reason why he thinks 830 00:42:39,320 --> 00:42:41,920 Speaker 1: that the FED pause, given that there is this commulative 831 00:42:42,000 --> 00:42:44,279 Speaker 1: lag that is coming to the four now, he says 832 00:42:44,320 --> 00:42:46,960 Speaker 1: it's the tip of the iceberg with respect to credited 833 00:42:47,000 --> 00:42:50,480 Speaker 1: heeration and impact from the FED rate hikes, not necessarily 834 00:42:50,560 --> 00:42:53,240 Speaker 1: the tip of the iceberg from the financial system distress. 835 00:42:53,600 --> 00:42:55,560 Speaker 1: That I think is the question tonight as we take 836 00:42:55,560 --> 00:42:57,560 Speaker 1: a look at what happened earth credit sace, which make 837 00:42:57,600 --> 00:42:59,360 Speaker 1: the comment that we've got a solution of credit swace 838 00:43:00,840 --> 00:43:03,080 Speaker 1: last weekend, we had a solution for banks and difficulty 839 00:43:03,200 --> 00:43:05,160 Speaker 1: in America that should allow them to just focus on 840 00:43:05,239 --> 00:43:08,359 Speaker 1: one thing, monety, policy and inflation. Would you make of that? Well, 841 00:43:08,480 --> 00:43:10,400 Speaker 1: first of all, it's not that simple. We all know that. 842 00:43:10,520 --> 00:43:12,400 Speaker 1: We just don't know yet in terms of how far 843 00:43:12,560 --> 00:43:15,239 Speaker 1: they've gone to stave off the distress. But we just 844 00:43:15,480 --> 00:43:17,680 Speaker 1: don't know. I mean, what did and this is something 845 00:43:17,760 --> 00:43:20,080 Speaker 1: that some people have just mentioned, which is what did 846 00:43:20,200 --> 00:43:23,800 Speaker 1: ubsc that required it to have all of these demands 847 00:43:24,200 --> 00:43:26,120 Speaker 1: for the deal. They took a lid, a look under 848 00:43:26,160 --> 00:43:29,120 Speaker 1: the lid and didn't like what they see, Right, we 849 00:43:29,280 --> 00:43:31,440 Speaker 1: kind of anticipated that through the weekend. What did what 850 00:43:31,560 --> 00:43:35,000 Speaker 1: did they see? Yep, that's going to be the conversation 851 00:43:35,440 --> 00:43:38,000 Speaker 1: into tomorrow morning. We're going to stick with you, Bob 852 00:43:38,040 --> 00:43:46,320 Speaker 1: Michael a JP Morgan Asset Management up next. This solution 853 00:43:46,560 --> 00:43:49,640 Speaker 1: is a takeover of creaty speech by UBS. Yeah, it 854 00:43:49,719 --> 00:43:54,000 Speaker 1: wasn't out. There's nine big billion of contingency credit guarantees. There, 855 00:43:55,560 --> 00:44:00,080 Speaker 1: there's a hundred billion of liquidity support. I can are 856 00:44:00,080 --> 00:44:02,520 Speaker 1: you sure the members of the committee that our banking 857 00:44:02,719 --> 00:44:05,240 Speaker 1: system is sound? I was a run in two thousand 858 00:44:05,280 --> 00:44:07,920 Speaker 1: and eight. I think that the banking sector is currently 859 00:44:08,000 --> 00:44:10,840 Speaker 1: in a much much stronger position than where it was 860 00:44:10,960 --> 00:44:14,080 Speaker 1: back in two thousand and eight. Americans can rest assured 861 00:44:14,600 --> 00:44:18,080 Speaker 1: that our banking system is saying, your deposits are saying. 862 00:44:19,000 --> 00:44:28,000 Speaker 1: This is a special edition of Bloomberg's Rooms Life from 863 00:44:28,040 --> 00:44:30,960 Speaker 1: New York City coming up. Avoiding a weekend cliff Edge 864 00:44:31,040 --> 00:44:34,600 Speaker 1: UBS agreeing to buy Credit Suiss, the Swiss government brokering 865 00:44:34,640 --> 00:44:37,360 Speaker 1: a deal for more than three billion, as officials worldwide 866 00:44:37,440 --> 00:44:40,520 Speaker 1: race to restore confidence. From New York City for our 867 00:44:40,520 --> 00:44:44,120 Speaker 1: audience worldwide, Good Evening alongside Lisa Brabbitt, Sam Jonathan Ferrer, 868 00:44:44,200 --> 00:44:48,080 Speaker 1: a special edition of Bloomberg Surveillance continues, Lisa, we have 869 00:44:48,160 --> 00:44:50,279 Speaker 1: a deal. We've been asking this question for the last hour. 870 00:44:50,440 --> 00:44:52,440 Speaker 1: Have we found a real solution? I think the answer 871 00:44:52,560 --> 00:44:55,120 Speaker 1: is probably there are more questions than answers right now 872 00:44:55,200 --> 00:44:57,480 Speaker 1: in terms of the fallout, in terms of just what 873 00:44:57,600 --> 00:45:00,200 Speaker 1: exactly was agreed upon and why, And yes, we have 874 00:45:00,280 --> 00:45:02,800 Speaker 1: some of the details, but we don't understand what UBS 875 00:45:02,920 --> 00:45:05,759 Speaker 1: is rational was for some pretty steep pushback that we 876 00:45:05,800 --> 00:45:08,440 Speaker 1: saw evolve over the weekend. Let's strikes and attained conference 877 00:45:08,520 --> 00:45:11,040 Speaker 1: joining US, NASH Blimpugs, France, Saint La and Zurich, Caddy 878 00:45:11,080 --> 00:45:13,239 Speaker 1: Lines in Washington, my McKay here in New York, and 879 00:45:13,320 --> 00:45:16,440 Speaker 1: my McKay just Momsagog a little bit of brank canoes. Yes, 880 00:45:16,520 --> 00:45:18,520 Speaker 1: another statement out of the Federal Reserve, and it's also 881 00:45:18,600 --> 00:45:21,280 Speaker 1: coming from the other central banks, major central banks around 882 00:45:21,320 --> 00:45:24,040 Speaker 1: the world, addressing the possibility of a liquidity problem in 883 00:45:24,120 --> 00:45:26,920 Speaker 1: one small area of the markets, and that's if you're 884 00:45:26,960 --> 00:45:30,560 Speaker 1: making cross border payments. The Federal Reserve, the Bank of Canada, 885 00:45:30,760 --> 00:45:33,560 Speaker 1: Bank of England, Bank of Japan, European Central Bank, and 886 00:45:33,640 --> 00:45:39,800 Speaker 1: Swiss National Bank are expanding the frequency of their swap 887 00:45:39,920 --> 00:45:43,960 Speaker 1: line transfers to daily from weekly, so there will be 888 00:45:44,560 --> 00:45:49,000 Speaker 1: cross border currency available if you need it through your 889 00:45:49,080 --> 00:45:52,359 Speaker 1: central bank. They already have these swap lines in place. 890 00:45:52,600 --> 00:45:54,839 Speaker 1: I would imagine that most of the action would come 891 00:45:54,960 --> 00:45:57,960 Speaker 1: with the Federal Reserve, but certainly with the Swiss and 892 00:45:58,200 --> 00:46:01,040 Speaker 1: with the Europeans tomorrow could be a major issue. Meanwhile, 893 00:46:01,040 --> 00:46:03,279 Speaker 1: we did hear Kaylee from the Federal Reserve and the 894 00:46:03,400 --> 00:46:06,640 Speaker 1: US Treasure Department. I'm curious what kind of further statement 895 00:46:06,719 --> 00:46:10,480 Speaker 1: we could expect to hear from Washington d C. Well, 896 00:46:10,520 --> 00:46:13,160 Speaker 1: we aren't necessarily expecting anything tonight, Lisa. But yes, we 897 00:46:13,239 --> 00:46:15,279 Speaker 1: did get that joint statement out of FED Chairman J 898 00:46:15,480 --> 00:46:18,120 Speaker 1: Powell and Treasury Secretary Jann yell And saying they welcome 899 00:46:18,160 --> 00:46:20,480 Speaker 1: the announcements by the Swiss authorities today to shore up 900 00:46:20,560 --> 00:46:23,400 Speaker 1: financial stability. They then went on to say that the 901 00:46:23,480 --> 00:46:27,000 Speaker 1: capital and liquidity positions of the US banking system are strong, 902 00:46:27,120 --> 00:46:29,560 Speaker 1: and that the financial system is resilient, which just speaks 903 00:46:29,560 --> 00:46:31,440 Speaker 1: to the fact that here on this side of the Atlantic, 904 00:46:31,480 --> 00:46:34,360 Speaker 1: we are still on watch for continued turmoil in banks, 905 00:46:34,400 --> 00:46:36,880 Speaker 1: whether we will get deals from the failed lenders Silicon 906 00:46:37,000 --> 00:46:40,080 Speaker 1: Valley Bank, at Signature Bank, what happens with First Republic, 907 00:46:40,160 --> 00:46:42,440 Speaker 1: which market confidence on Friday did not look like it 908 00:46:42,560 --> 00:46:45,120 Speaker 1: believed that that thirty billion dollars in deposits from eleven 909 00:46:45,239 --> 00:46:48,160 Speaker 1: large banks would be enough. So there remain questions here 910 00:46:48,239 --> 00:46:51,000 Speaker 1: that regulators still are monitoring. We are, of course on 911 00:46:51,080 --> 00:46:53,759 Speaker 1: watch for anything out of Capital Hill. Nothing yet from 912 00:46:53,800 --> 00:46:55,759 Speaker 1: the lawmakers in DC. We've been doing this now for 913 00:46:55,800 --> 00:46:58,719 Speaker 1: two weekends, Lisa, here we are on weekend number two. Yeah, 914 00:46:58,719 --> 00:47:00,640 Speaker 1: although this one feels a little bit differ given that 915 00:47:00,719 --> 00:47:03,680 Speaker 1: this is a globally systemic bank that has a pretty 916 00:47:03,680 --> 00:47:06,120 Speaker 1: significant response for authorities. If you are just tune again, 917 00:47:06,160 --> 00:47:08,400 Speaker 1: welcome to the program. A three point two five billion 918 00:47:08,440 --> 00:47:11,320 Speaker 1: dollar deal or UBS agreeing to buy Kredit Suiss Francaying 919 00:47:11,320 --> 00:47:13,480 Speaker 1: you've been at the heart of this conversation not just 920 00:47:13,560 --> 00:47:15,560 Speaker 1: the last week, but for much of the last decade. 921 00:47:16,200 --> 00:47:22,160 Speaker 1: Plenty of questions how controversial is this well, it's pretty 922 00:47:22,200 --> 00:47:24,440 Speaker 1: controversial if your bondholder and you got wiped out if 923 00:47:24,440 --> 00:47:27,759 Speaker 1: you're at one bondholder, but actually if you're a shareholder 924 00:47:27,880 --> 00:47:29,480 Speaker 1: you get a little bit. So I think many questions 925 00:47:29,520 --> 00:47:33,000 Speaker 1: from the markets, many questions also from the point of 926 00:47:33,040 --> 00:47:35,720 Speaker 1: view of what happens to all the Kredit Swiss assets 927 00:47:35,760 --> 00:47:37,680 Speaker 1: being up for by UBS. So first of all, UBS 928 00:47:38,000 --> 00:47:40,360 Speaker 1: asking a lot of guarantees not only for FINNMA but 929 00:47:40,480 --> 00:47:43,120 Speaker 1: also from the SMB in terms of liquidity and loans 930 00:47:43,160 --> 00:47:45,319 Speaker 1: to make sure that everything's in order. What did they 931 00:47:45,400 --> 00:47:47,880 Speaker 1: see that we hadn't seen in Kredit Suiss. And then 932 00:47:47,920 --> 00:47:50,160 Speaker 1: the second question is what happens to the investment bank 933 00:47:50,360 --> 00:47:52,080 Speaker 1: they say they'll wind it down, do they put in 934 00:47:52,160 --> 00:47:54,880 Speaker 1: a bad bank? What happens of course to the Swiss 935 00:47:54,920 --> 00:47:57,399 Speaker 1: bank if you have some kind of super Swiss bank, 936 00:47:57,480 --> 00:48:00,760 Speaker 1: which is UBS and Kredit Suist together, what did regulators 937 00:48:00,760 --> 00:48:03,239 Speaker 1: say about that? So many questions. For the moment, the 938 00:48:03,360 --> 00:48:05,799 Speaker 1: markets I think are a little bit safer maybe than 939 00:48:05,800 --> 00:48:07,680 Speaker 1: they were a couple of days ago, but we'll see 940 00:48:07,680 --> 00:48:10,280 Speaker 1: how they open tomorrow. But going forward, many many questions 941 00:48:10,360 --> 00:48:12,399 Speaker 1: of how we got here so quickly, and of course 942 00:48:12,880 --> 00:48:15,239 Speaker 1: what this means going forward Fran saying, how stunt do 943 00:48:15,320 --> 00:48:18,200 Speaker 1: you think leadership is a Credit Swae Only days ago 944 00:48:18,280 --> 00:48:19,759 Speaker 1: to be sitting there with you in the studio in 945 00:48:19,840 --> 00:48:23,279 Speaker 1: London looking towards the future, talking about a better Q one, 946 00:48:23,640 --> 00:48:28,839 Speaker 1: and then to face this this weekend. I have to say, John, 947 00:48:28,960 --> 00:48:31,000 Speaker 1: we were in a press conference with the SMB president, 948 00:48:31,120 --> 00:48:33,960 Speaker 1: with the Swiss of course, the finance minister, with the 949 00:48:34,000 --> 00:48:35,839 Speaker 1: two chairman of UBS and Credit Sweets, and they all 950 00:48:35,840 --> 00:48:38,080 Speaker 1: look stunted. I don't think anyone was expecting it quite 951 00:48:38,120 --> 00:48:41,400 Speaker 1: to happen so quickly. Many times also the Swiss finance 952 00:48:41,440 --> 00:48:43,360 Speaker 1: Minister is saying, look, this is not a bailout, this 953 00:48:43,520 --> 00:48:46,480 Speaker 1: is a corporate solution. You're right. Five days ago, no 954 00:48:46,600 --> 00:48:48,879 Speaker 1: one thought it could happen so quickly. We had heard 955 00:48:48,960 --> 00:48:51,640 Speaker 1: rumors that this longer term was going to be difficult 956 00:48:51,640 --> 00:48:53,520 Speaker 1: for Credit sweet so that there was going to be 957 00:48:53,640 --> 00:48:55,799 Speaker 1: some kind of breakup. But I remember at the time 958 00:48:55,840 --> 00:48:57,960 Speaker 1: people saying, look, this is two, three or four years 959 00:48:58,000 --> 00:49:01,560 Speaker 1: down the line. If that I think being stunned certainly 960 00:49:01,600 --> 00:49:03,759 Speaker 1: over Credit Swie and you wonder what that means for 961 00:49:03,840 --> 00:49:06,279 Speaker 1: your job. But also if you're UBS, you've absorbed this 962 00:49:06,480 --> 00:49:08,719 Speaker 1: bank and then you need to figure out really how 963 00:49:08,800 --> 00:49:11,400 Speaker 1: the bids fit all together and what happens going forward. 964 00:49:11,440 --> 00:49:13,560 Speaker 1: I did ask the German many times, and actually there 965 00:49:13,600 --> 00:49:16,360 Speaker 1: were four questions the press conference. How many cost cards, 966 00:49:16,520 --> 00:49:18,520 Speaker 1: how many job losses? And that's something that he said 967 00:49:18,520 --> 00:49:21,120 Speaker 1: it's too soon to answer. Fran saying, wonderful work over 968 00:49:21,200 --> 00:49:23,359 Speaker 1: the last week. Really looking forward to coverage this week 969 00:49:23,400 --> 00:49:25,560 Speaker 1: in the week ahead, Francy and Lackwell alongside Candy Knights 970 00:49:25,800 --> 00:49:28,160 Speaker 1: and might be key. Let's go through the numbers. Here 971 00:49:28,160 --> 00:49:30,400 Speaker 1: are the numbers. So the Swiss Bank UBS paying three 972 00:49:30,440 --> 00:49:33,399 Speaker 1: billion Swiss francs for credit Swiss. That's three point two 973 00:49:33,480 --> 00:49:37,040 Speaker 1: five billion dollars. This includes some big government involvement. Let's 974 00:49:37,080 --> 00:49:39,160 Speaker 1: be clear about all of that. Think about what this 975 00:49:39,200 --> 00:49:42,160 Speaker 1: bank was worth on Friday, seven point four billion Swiss 976 00:49:42,160 --> 00:49:45,520 Speaker 1: francs at the closest trading on Friday. This is what 977 00:49:45,600 --> 00:49:47,719 Speaker 1: the government has thrown in. So the Swiss National Bank 978 00:49:47,800 --> 00:49:50,760 Speaker 1: is offering a one hundred billion Frank liquidity assistance to UBS. 979 00:49:51,239 --> 00:49:54,080 Speaker 1: The government is granting LISA a nine billion Frank guarantee 980 00:49:54,400 --> 00:49:58,520 Speaker 1: for potential losses from the assets UBS is taken over. 981 00:49:58,880 --> 00:50:01,040 Speaker 1: This felt desperate, especial because we got the tick by 982 00:50:01,080 --> 00:50:03,680 Speaker 1: tick over the weekend of what some of the parameters 983 00:50:03,719 --> 00:50:07,040 Speaker 1: for negotiations were. One of them was that UBS was 984 00:50:07,120 --> 00:50:10,000 Speaker 1: to buy Credit Swiss for a billion Swiss francs, and 985 00:50:10,320 --> 00:50:13,960 Speaker 1: Credit Suis pushed back and said that absolutely is almost punitive. 986 00:50:14,320 --> 00:50:16,840 Speaker 1: So then as this evolves, not only did some of 987 00:50:16,920 --> 00:50:19,240 Speaker 1: the things get stripped out, like credit to fault swap 988 00:50:19,320 --> 00:50:22,799 Speaker 1: guarantees in terms of things and that were pretty unconventional, 989 00:50:23,200 --> 00:50:26,520 Speaker 1: but the backstop that Credit Suis had to require by 990 00:50:26,560 --> 00:50:29,480 Speaker 1: the Swiss government is raising probably more questions than anything else. 991 00:50:29,520 --> 00:50:31,759 Speaker 1: At this point. We've got a fantastic guest alongside us 992 00:50:32,040 --> 00:50:34,800 Speaker 1: in the studio this evening, Bob Michael, the CIO and 993 00:50:34,920 --> 00:50:37,320 Speaker 1: Global had a fixed income at jpeople can asset management. 994 00:50:37,520 --> 00:50:41,239 Speaker 1: I usually say good monic, good afternoon. Yeah, I wish 995 00:50:41,280 --> 00:50:43,719 Speaker 1: I wasn't here tonight. This is different. Then we all 996 00:50:43,760 --> 00:50:45,560 Speaker 1: film the same. A couple lot of people sitting at 997 00:50:45,600 --> 00:50:47,520 Speaker 1: home would rather be watching a basketball or something, but 998 00:50:47,560 --> 00:50:50,160 Speaker 1: they're not. They're talking about this. You need to translate this. 999 00:50:50,239 --> 00:50:53,400 Speaker 1: For a sault sixteen billion Swiss francs worth of risky 1000 00:50:53,440 --> 00:50:57,400 Speaker 1: notes go to zero? What just happened there? Well, for 1001 00:50:57,560 --> 00:50:59,759 Speaker 1: those of us in the bond market. We always knew 1002 00:51:00,000 --> 00:51:04,000 Speaker 1: at ones were the fulcrum in the bank's capital structure, 1003 00:51:04,400 --> 00:51:07,080 Speaker 1: and we always wondered if there ever came in an 1004 00:51:07,160 --> 00:51:10,560 Speaker 1: event which would cause those bail inable bonds to be 1005 00:51:10,719 --> 00:51:13,799 Speaker 1: bailed in, how would they be bailed in, how would 1006 00:51:13,840 --> 00:51:16,920 Speaker 1: they be treated. Now we know they were bailed in 1007 00:51:17,239 --> 00:51:21,279 Speaker 1: and then zeroed they actually are below equity holders in 1008 00:51:21,360 --> 00:51:24,560 Speaker 1: the capital structure, which is not something I guess most 1009 00:51:24,640 --> 00:51:27,320 Speaker 1: investors would have assumed. What does that mean for a 1010 00:51:27,440 --> 00:51:30,600 Speaker 1: two hundred and seventy five billion dollar market of these 1011 00:51:30,719 --> 00:51:33,920 Speaker 1: instruments that are owned by pension funds and other investors 1012 00:51:33,960 --> 00:51:36,120 Speaker 1: around the world. Well, you have to go back and 1013 00:51:36,480 --> 00:51:41,360 Speaker 1: reassess everything in the European bank capital structure. Why was 1014 00:51:41,400 --> 00:51:44,640 Speaker 1: it put in there. You had the TLAC issuance, you 1015 00:51:44,719 --> 00:51:48,200 Speaker 1: had the MRIL issuance. All of these things were designed 1016 00:51:48,239 --> 00:51:52,279 Speaker 1: to add capital buffers. So yeah, look, we're all big investors. 1017 00:51:52,440 --> 00:51:55,200 Speaker 1: We get it, our bonds were bailed in, they were 1018 00:51:55,280 --> 00:51:58,680 Speaker 1: zeroed out, But you have to wonder are you being 1019 00:51:58,840 --> 00:52:01,480 Speaker 1: compensated enough for these risks? So let's take that a 1020 00:52:01,480 --> 00:52:05,000 Speaker 1: step further. Was what we just saw enough to stave 1021 00:52:05,120 --> 00:52:09,120 Speaker 1: off some of the concerns of the potential selling activity 1022 00:52:09,440 --> 00:52:11,800 Speaker 1: that we can expect to see tomorrow at European banks, 1023 00:52:11,880 --> 00:52:16,560 Speaker 1: particularly those that have more wobbly structures. I hope. So. 1024 00:52:17,239 --> 00:52:21,279 Speaker 1: I think the regulators in Europe and Switzerland, and I 1025 00:52:21,360 --> 00:52:24,759 Speaker 1: think those in the US when you circled back a 1026 00:52:24,840 --> 00:52:28,279 Speaker 1: week ago, responded with the speed that we've never seen 1027 00:52:28,440 --> 00:52:31,560 Speaker 1: before and cut a lot of red tape and stop 1028 00:52:31,760 --> 00:52:34,320 Speaker 1: this in its tracks. And I think we just have 1029 00:52:34,520 --> 00:52:39,320 Speaker 1: to accept that the banking system is a fractional reserve system. 1030 00:52:39,760 --> 00:52:42,520 Speaker 1: Three years ago we saw the benefit of that, right, 1031 00:52:42,880 --> 00:52:47,080 Speaker 1: you had liquidity injection into the system, it was extended 1032 00:52:47,280 --> 00:52:50,520 Speaker 1: into the economy. There was a multiplier effect. It worked. 1033 00:52:50,920 --> 00:52:53,960 Speaker 1: Now we have the reverse happening. You had a raychok 1034 00:52:54,080 --> 00:52:57,640 Speaker 1: rippling through the system. You have quantitative tightening sucking it 1035 00:52:57,840 --> 00:53:00,960 Speaker 1: out of the system. And what we're learning is the 1036 00:53:01,120 --> 00:53:04,600 Speaker 1: multiplier effect works in reverse. Hearing from the UBS CEO 1037 00:53:04,719 --> 00:53:07,080 Speaker 1: Ralph Hammers, right now, here's the headline for you. Inflows 1038 00:53:07,200 --> 00:53:10,560 Speaker 1: last weekend show we are a safe haven. They were 1039 00:53:10,600 --> 00:53:13,680 Speaker 1: getting the inflows. We know where the outflows were. Bob, 1040 00:53:13,719 --> 00:53:16,440 Speaker 1: it's interesting you talk about the banking model. It's been 1041 00:53:16,480 --> 00:53:19,040 Speaker 1: interesting me for the last week to hear people describe 1042 00:53:19,200 --> 00:53:23,320 Speaker 1: the way banking works that you are borrowing short, you 1043 00:53:23,400 --> 00:53:25,840 Speaker 1: were lending long, and you were booking the difference in 1044 00:53:25,920 --> 00:53:28,040 Speaker 1: between to make a profit. And people turn around and say, well, 1045 00:53:28,040 --> 00:53:30,400 Speaker 1: that's sounds risky. What were they up to? Sounds a 1046 00:53:30,440 --> 00:53:32,560 Speaker 1: bit naughty. And I sat there thinking, well, that's the model, 1047 00:53:32,880 --> 00:53:35,680 Speaker 1: that's what a bank does. And I think a lot 1048 00:53:35,680 --> 00:53:37,960 Speaker 1: of people have slowly worked out what banks do, but 1049 00:53:38,160 --> 00:53:40,239 Speaker 1: outside of our world, outside of our world, and they've 1050 00:53:40,239 --> 00:53:43,279 Speaker 1: suddenly realized, actually, there is an FDIC limit and that 1051 00:53:43,480 --> 00:53:46,720 Speaker 1: maybe maybe I won't be made whole. After two hundred 1052 00:53:46,719 --> 00:53:49,120 Speaker 1: and fifty thousand and we've created a two tier banking 1053 00:53:49,200 --> 00:53:51,400 Speaker 1: system in America. Now, what's odd about that is we 1054 00:53:51,440 --> 00:53:53,080 Speaker 1: can sit here and say, well, that was always true 1055 00:53:53,239 --> 00:53:55,400 Speaker 1: based on the rules. We kind of knew this already. 1056 00:53:55,840 --> 00:53:57,400 Speaker 1: A lot of people didn't know that, and they know 1057 00:53:57,520 --> 00:53:59,800 Speaker 1: that now to be true. But how are things changed 1058 00:54:00,200 --> 00:54:03,320 Speaker 1: for this banking system in the last two weeks. Well, 1059 00:54:03,560 --> 00:54:07,359 Speaker 1: I think there's a greater awareness of how back models work, 1060 00:54:07,719 --> 00:54:10,320 Speaker 1: and that as you walk around and see where your local, 1061 00:54:10,480 --> 00:54:14,200 Speaker 1: regional or even money center bank has financed projects in 1062 00:54:14,320 --> 00:54:17,000 Speaker 1: different communities, you start to think will they get their 1063 00:54:17,040 --> 00:54:19,800 Speaker 1: money back? Are they using my deposits for that or not. 1064 00:54:20,320 --> 00:54:23,880 Speaker 1: I still go back to where a fractional reserve system, 1065 00:54:24,239 --> 00:54:27,239 Speaker 1: that's how we're set up for. We're seeing the downside now, 1066 00:54:27,600 --> 00:54:30,520 Speaker 1: but there are benefits to the upside. It's that extension 1067 00:54:30,560 --> 00:54:34,080 Speaker 1: of credit, that money multiplier effect, that's what got the 1068 00:54:34,160 --> 00:54:37,439 Speaker 1: economy restarted three years ago. Last week you talked about 1069 00:54:37,440 --> 00:54:40,560 Speaker 1: the tip of the iceberg in a conversation. I didn't 1070 00:54:40,560 --> 00:54:43,759 Speaker 1: expect this though, Okay, but it wasn't necessarily the tip 1071 00:54:43,840 --> 00:54:45,800 Speaker 1: of the iceberg with a banking system. It was a 1072 00:54:45,880 --> 00:54:48,120 Speaker 1: tip of the iceberg in terms of the effects of 1073 00:54:48,280 --> 00:54:52,840 Speaker 1: tightening of monetary policy becoming more restrictive. I'm curious to 1074 00:54:53,120 --> 00:54:58,040 Speaker 1: understand whether you have perhaps accelerated your expectation for the 1075 00:54:58,120 --> 00:55:01,640 Speaker 1: potential credit losses that could be incurred, especially as some 1076 00:55:01,719 --> 00:55:06,000 Speaker 1: of these regional banks truly retrench. You could sit there 1077 00:55:06,280 --> 00:55:10,719 Speaker 1: and say, in theory, this shouldn't have happened. Do you 1078 00:55:10,880 --> 00:55:16,239 Speaker 1: go after the most heavily regulated capitalized industry on the 1079 00:55:16,320 --> 00:55:19,200 Speaker 1: face of Earth, which is banking, and then you go 1080 00:55:19,480 --> 00:55:22,800 Speaker 1: into the Swiss system and you've got a bank with 1081 00:55:23,080 --> 00:55:28,200 Speaker 1: over thirteen percent common equity tier one. So it's telling 1082 00:55:28,400 --> 00:55:32,240 Speaker 1: me that the long and variable, the cumulative and lagged, 1083 00:55:32,600 --> 00:55:36,120 Speaker 1: they're catching up fast, and they're biting in ways that 1084 00:55:36,280 --> 00:55:40,439 Speaker 1: maybe we were somewhat naive and expecting. So I think 1085 00:55:40,680 --> 00:55:44,359 Speaker 1: this is still the start of that taking hold. For sure, 1086 00:55:44,400 --> 00:55:46,680 Speaker 1: it's going to slow growth, for sure, it's going to 1087 00:55:46,800 --> 00:55:50,080 Speaker 1: bring down inflationary pressures. I'm anxious to see what the 1088 00:55:50,160 --> 00:55:53,239 Speaker 1: Fed does on Wednesday. I understand you've gotten quite a 1089 00:55:53,320 --> 00:55:58,120 Speaker 1: few calls from clients. What's their biggest concern right now? Well, 1090 00:55:58,520 --> 00:56:00,640 Speaker 1: of course they want to know do we hold in 1091 00:56:00,719 --> 00:56:03,640 Speaker 1: their portfolios? How did we put it in there, how 1092 00:56:03,680 --> 00:56:05,840 Speaker 1: did we research it? Then you get a lot of 1093 00:56:06,560 --> 00:56:10,120 Speaker 1: questions about what they held elsewhere with other managers are 1094 00:56:10,200 --> 00:56:14,239 Speaker 1: bought internally, there's a concern out there. I think what 1095 00:56:14,400 --> 00:56:18,600 Speaker 1: you're pointing at is this is another layer of credit 1096 00:56:18,680 --> 00:56:21,960 Speaker 1: conditions tightening. And last time I was on I talked 1097 00:56:21,960 --> 00:56:24,160 Speaker 1: about the three layers with John. The first are the 1098 00:56:24,280 --> 00:56:27,120 Speaker 1: central banks, right we've know they've raised rates at the 1099 00:56:27,239 --> 00:56:30,800 Speaker 1: fastest rate since the nineteen eighties, tighter credit conditions. The 1100 00:56:30,920 --> 00:56:34,960 Speaker 1: second are the banks. You look at senior loan officers surveys, 1101 00:56:35,280 --> 00:56:38,800 Speaker 1: credit conditions have tightened dramatically there. So that's the second 1102 00:56:38,880 --> 00:56:41,759 Speaker 1: layer of credit tightening that's going on. Then you look 1103 00:56:41,840 --> 00:56:47,320 Speaker 1: at the non bank the non bank lenders, that's me. 1104 00:56:47,600 --> 00:56:51,160 Speaker 1: Those are people in the markets, and when you think 1105 00:56:51,160 --> 00:56:53,239 Speaker 1: about the size of these markets, we went back, we 1106 00:56:53,400 --> 00:56:56,360 Speaker 1: looked at the bank loan market, the high yield market, 1107 00:56:56,680 --> 00:57:00,279 Speaker 1: the private credit market. In two thousand and seven, one 1108 00:57:00,360 --> 00:57:04,440 Speaker 1: point four trillion. Today it's four point two trillion. And 1109 00:57:04,600 --> 00:57:08,400 Speaker 1: what you're going to see is a further draw drawing 1110 00:57:08,480 --> 00:57:11,640 Speaker 1: back of credit there. So the Fed doesn't have to 1111 00:57:11,840 --> 00:57:15,719 Speaker 1: raise rates on Wednesday. The market's going to do the 1112 00:57:15,800 --> 00:57:17,960 Speaker 1: credit tightening, four of them. We're going to take this 1113 00:57:18,080 --> 00:57:20,400 Speaker 1: conversation a step further and continue this conversation in just 1114 00:57:20,480 --> 00:57:23,360 Speaker 1: a moment, Bob Michael of JP Morgan Asset Management. There 1115 00:57:23,480 --> 00:57:25,720 Speaker 1: is an analyst call going on right now with the 1116 00:57:25,840 --> 00:57:28,880 Speaker 1: UBS executive, the CEO saying the integration of credit suits 1117 00:57:28,920 --> 00:57:31,600 Speaker 1: to take three to four years, also pointing out they 1118 00:57:31,640 --> 00:57:35,640 Speaker 1: will pause their share repurchase program. The latest headlines from 1119 00:57:36,120 --> 00:57:39,360 Speaker 1: UBS just months ago coming up in the next hour. 1120 00:57:39,560 --> 00:57:41,440 Speaker 1: Looking forward to this conversation with grow Peter as the 1121 00:57:41,440 --> 00:57:45,000 Speaker 1: cocio at PGIM Fixed Income from New York. This is 1122 00:57:45,040 --> 00:57:55,360 Speaker 1: blown back. Yeah, it is a bailout, and it's a bailout. 1123 00:57:55,400 --> 00:57:58,960 Speaker 1: And you heard the minister say it's a bailout because 1124 00:57:59,080 --> 00:58:02,360 Speaker 1: they're dealing with this chemically important bank at the time 1125 00:58:02,440 --> 00:58:04,520 Speaker 1: of market turmol Now, of course you're going to always 1126 00:58:04,560 --> 00:58:06,840 Speaker 1: be dealing with systemically important back at the time of 1127 00:58:07,240 --> 00:58:11,080 Speaker 1: market turmoal that's by definition what happens when you have 1128 00:58:11,120 --> 00:58:14,800 Speaker 1: the systemically important bank in trouble. But they doesn't want 1129 00:58:14,800 --> 00:58:17,400 Speaker 1: to use that phrase. Muhammad al Arian right on the 1130 00:58:17,480 --> 00:58:20,480 Speaker 1: Money in the last hour on this program in conversation 1131 00:58:20,520 --> 00:58:23,840 Speaker 1: with Lisa Brabbitts and Jonathan Faraoh at Lisa, I've got 1132 00:58:23,880 --> 00:58:26,040 Speaker 1: to say, they're allergic to that word right now. They 1133 00:58:26,120 --> 00:58:27,880 Speaker 1: hate it. They want to come out in a news 1134 00:58:27,960 --> 00:58:30,320 Speaker 1: conference saying that's not what this is. This isn't what 1135 00:58:30,400 --> 00:58:31,960 Speaker 1: it is. It's not a bailout. You heard it from 1136 00:58:31,960 --> 00:58:34,440 Speaker 1: the President this week as well. My favorite thing is 1137 00:58:34,480 --> 00:58:36,120 Speaker 1: that all of the regulators come out and say this 1138 00:58:36,280 --> 00:58:38,160 Speaker 1: is not a bailout, and then all of the market 1139 00:58:38,280 --> 00:58:40,880 Speaker 1: prognosticators come out and say that absolutely is a bailout. 1140 00:58:40,960 --> 00:58:43,400 Speaker 1: Pretty much one after one another. It looks like one, 1141 00:58:43,440 --> 00:58:45,560 Speaker 1: it smells like one. It's money going in to protect 1142 00:58:45,600 --> 00:58:48,040 Speaker 1: against risk in order to stave off the contagion. Whether 1143 00:58:48,120 --> 00:58:50,320 Speaker 1: they should or shouldn't do it as one question, whether 1144 00:58:50,400 --> 00:58:52,640 Speaker 1: it will work is quite another. Last weekend we were 1145 00:58:52,680 --> 00:58:55,760 Speaker 1: dealing with SVB and Signature Bank. I'm not sure we 1146 00:58:55,800 --> 00:58:57,920 Speaker 1: even knew that Signature Bank was about to fail, and 1147 00:58:58,000 --> 00:59:00,200 Speaker 1: so we were told it had failed last week ken 1148 00:59:00,320 --> 00:59:02,920 Speaker 1: this weekend we did, and we credit Swiss UBS agreeing 1149 00:59:02,960 --> 00:59:06,040 Speaker 1: to buy its long time Swiss rival for three billion 1150 00:59:06,080 --> 00:59:08,640 Speaker 1: Swiss francs set it a little bit earlier on worth 1151 00:59:08,720 --> 00:59:11,520 Speaker 1: mentioning again, think about where this closed on Friday, not 1152 00:59:11,640 --> 00:59:14,640 Speaker 1: three billion Swiss seven point four billion Swiss and we 1153 00:59:14,720 --> 00:59:17,440 Speaker 1: thought that was low. What a price cut they've got 1154 00:59:17,480 --> 00:59:19,200 Speaker 1: by the end of the weekend. And this gets throwed 1155 00:59:19,240 --> 00:59:21,920 Speaker 1: in as well, the SMB offering a one hundred billion 1156 00:59:21,960 --> 00:59:25,240 Speaker 1: franc liquidity assistance to UBS, the government granting a nine 1157 00:59:25,280 --> 00:59:28,600 Speaker 1: billion franc guarantee for potential losses. Now, all of a sudden, 1158 00:59:28,880 --> 00:59:31,960 Speaker 1: if that guarantee gets used, then what'd you call it? Well, exactly, 1159 00:59:32,040 --> 00:59:33,600 Speaker 1: and I think that that's the provision that people are 1160 00:59:33,640 --> 00:59:35,560 Speaker 1: looking at. In the meantime, you've got a sixteen billion 1161 00:59:35,560 --> 00:59:38,320 Speaker 1: Swiss franc a portion of bonds that have been completely 1162 00:59:38,360 --> 00:59:41,160 Speaker 1: wiped out, really resetting the rules for a two hundred 1163 00:59:41,160 --> 00:59:43,800 Speaker 1: and seventy five billion dollar market in Europe and throughout 1164 00:59:43,840 --> 00:59:47,200 Speaker 1: the world. It raises some questions also about what they 1165 00:59:47,320 --> 00:59:50,800 Speaker 1: saw under the hood of Credit Suiss that raised all 1166 00:59:50,840 --> 00:59:53,040 Speaker 1: of the back and forth. It was reported all throughout 1167 00:59:53,040 --> 00:59:55,760 Speaker 1: the weekend that started for a one billion Swiss frank 1168 00:59:55,880 --> 00:59:58,120 Speaker 1: price tag that UBS was willing to pay for. Credit 1169 00:59:58,120 --> 00:59:59,760 Speaker 1: Twists are lucky to have Bob Michael with us in 1170 00:59:59,800 --> 01:00:02,960 Speaker 1: this studio. JP Mulgan Asset Managements. Bob Michael with us 1171 01:00:03,040 --> 01:00:05,640 Speaker 1: right now for a few more minutes, Bob, let's talk 1172 01:00:05,680 --> 01:00:09,040 Speaker 1: about this two weekend's running. Officials come out and try 1173 01:00:09,080 --> 01:00:12,680 Speaker 1: and restore confidence. Does this inspire confidence? Will make you nervous? 1174 01:00:15,160 --> 01:00:18,080 Speaker 1: It gives me a lot of confidence that they're willing 1175 01:00:18,160 --> 01:00:21,960 Speaker 1: to respond this quickly and put in place decisions that 1176 01:00:22,160 --> 01:00:24,960 Speaker 1: help stabilize things at least for the time being. And 1177 01:00:25,080 --> 01:00:27,919 Speaker 1: we're talking about you, what was the value of Credit 1178 01:00:27,960 --> 01:00:31,440 Speaker 1: Suites or not? What is UBS? Now? Maybe it's UBS 1179 01:00:31,760 --> 01:00:35,240 Speaker 1: doesn't know enough to make a decision, so it wants 1180 01:00:35,320 --> 01:00:38,120 Speaker 1: something in place that could protect them from what they'll learn. 1181 01:00:38,560 --> 01:00:42,640 Speaker 1: There's close to a five year period that this execution 1182 01:00:42,800 --> 01:00:45,680 Speaker 1: is supposed to take place. They're talking about having it 1183 01:00:45,840 --> 01:00:49,280 Speaker 1: done by the end of twenty twenty seven. So I 1184 01:00:49,560 --> 01:00:53,600 Speaker 1: give the regulators, the official institutions, a lot of credit 1185 01:00:53,680 --> 01:00:56,480 Speaker 1: for stepping in, and I give ubs a break here, 1186 01:00:56,640 --> 01:00:59,720 Speaker 1: because come on, they had a couple days to do 1187 01:01:00,040 --> 01:01:03,480 Speaker 1: due diligence. Perhaps it gives you some comfort, Does it 1188 01:01:03,600 --> 01:01:06,040 Speaker 1: make you optimistic? What would it take for you to 1189 01:01:06,120 --> 01:01:09,840 Speaker 1: feel a bit more optimistic of just not necessarily a 1190 01:01:09,960 --> 01:01:17,120 Speaker 1: significant downturn and potentially inflation that just naturally disinflates. It 1191 01:01:17,600 --> 01:01:22,320 Speaker 1: makes me more confident that we're headed to recession, and 1192 01:01:22,880 --> 01:01:27,120 Speaker 1: that's unfortunate. But I think what we're seeing now is 1193 01:01:27,360 --> 01:01:30,440 Speaker 1: actually a little bit ahead of schedule. I wouldn't have 1194 01:01:30,520 --> 01:01:33,240 Speaker 1: expected to see the shit. I wouldn't have expected it 1195 01:01:33,360 --> 01:01:35,800 Speaker 1: to happen in the banking system. I think when you 1196 01:01:35,880 --> 01:01:38,800 Speaker 1: go back and look at it and you realize, well, 1197 01:01:39,160 --> 01:01:42,360 Speaker 1: it was depositors, they're facing a lot of different pressures 1198 01:01:42,480 --> 01:01:45,600 Speaker 1: you could get there. That's what you would expect when 1199 01:01:45,680 --> 01:01:49,200 Speaker 1: you have central banks taking away the punch bowl. So 1200 01:01:49,720 --> 01:01:52,800 Speaker 1: I think when we have had this period of tremendous 1201 01:01:53,360 --> 01:01:57,240 Speaker 1: liquidity and stimulus, sloshing around the system, which we needed 1202 01:01:57,480 --> 01:02:00,080 Speaker 1: to get us through pandemic, and we always knew we 1203 01:02:00,160 --> 01:02:02,200 Speaker 1: got to the other side, it would be painful to 1204 01:02:02,320 --> 01:02:05,080 Speaker 1: withdraw it. We're going through that now and that washes 1205 01:02:05,120 --> 01:02:09,080 Speaker 1: out the unsustainable accesses. Given that, in your view, this accelerates, 1206 01:02:09,120 --> 01:02:12,200 Speaker 1: this brings forward a recession. How does it change the 1207 01:02:12,320 --> 01:02:14,920 Speaker 1: contours of that recession at a time when you're going 1208 01:02:14,960 --> 01:02:17,800 Speaker 1: to see a lot of these regional banks potentially tighten 1209 01:02:17,880 --> 01:02:21,080 Speaker 1: credit conditions for commercial real estate as well as for 1210 01:02:21,200 --> 01:02:25,040 Speaker 1: personal loans. It depends what the policy response is. And 1211 01:02:25,200 --> 01:02:28,720 Speaker 1: I'm expecting the FED to cut rates in September. September, 1212 01:02:28,760 --> 01:02:31,400 Speaker 1: that's soon, yep, the beginning of a cycle, or just 1213 01:02:31,760 --> 01:02:36,960 Speaker 1: shift back. I think it's to stave off recession. And 1214 01:02:37,080 --> 01:02:39,000 Speaker 1: there are so many things you can look at. The 1215 01:02:40,200 --> 01:02:42,680 Speaker 1: inversion of the Yel curve, you can go back and 1216 01:02:42,880 --> 01:02:45,080 Speaker 1: look at one of the things that Jay Pale told 1217 01:02:45,120 --> 01:02:48,800 Speaker 1: us was their favorite indicator, the three month versus three 1218 01:02:48,840 --> 01:02:53,160 Speaker 1: months eighteen months forward. That inverted at the end of 1219 01:02:53,320 --> 01:02:57,120 Speaker 1: last year, and generally once that invert, you have recession 1220 01:02:57,520 --> 01:03:00,520 Speaker 1: about a year later. So that's put recession on track 1221 01:03:01,000 --> 01:03:04,360 Speaker 1: for end of this year, which means FED easing always 1222 01:03:04,400 --> 01:03:08,280 Speaker 1: comes before that September. So here's the question. Some people 1223 01:03:08,360 --> 01:03:09,920 Speaker 1: might be listened to this thinking I missed much chance 1224 01:03:09,920 --> 01:03:11,880 Speaker 1: to go to two year with a five handle, might 1225 01:03:11,960 --> 01:03:14,320 Speaker 1: have missed it at four. Do I need to grab 1226 01:03:14,360 --> 01:03:18,400 Speaker 1: it now before it gets to two? I won't way 1227 01:03:18,480 --> 01:03:20,960 Speaker 1: too long? Really yeah, I think they could cut back 1228 01:03:21,000 --> 01:03:24,000 Speaker 1: that much. As I said in the past, I think 1229 01:03:24,080 --> 01:03:28,440 Speaker 1: the entire yield curve will be three percent over the summer, 1230 01:03:29,440 --> 01:03:31,920 Speaker 1: and you said we're almost there. Now, Look there's got 1231 01:03:32,040 --> 01:03:34,520 Speaker 1: to be some backup, right. A lot of government bonds 1232 01:03:34,600 --> 01:03:38,800 Speaker 1: were bought before the weekend as some downside protection for risk, 1233 01:03:39,080 --> 01:03:43,560 Speaker 1: and there's got to be some give back Monday Tuesday. 1234 01:03:43,600 --> 01:03:46,880 Speaker 1: I keep half forgetting it seriously us as well. What 1235 01:03:47,000 --> 01:03:50,440 Speaker 1: does that mean then for longer duration credit, longer duration 1236 01:03:50,560 --> 01:03:53,080 Speaker 1: bonds at a time when we're still dealing with inflationary 1237 01:03:53,120 --> 01:03:55,640 Speaker 1: pressures that people said, we're so much stickier than people thought. 1238 01:03:57,240 --> 01:04:01,240 Speaker 1: I think that's in the rear view mirror. As Peter 1239 01:04:01,400 --> 01:04:04,640 Speaker 1: Cheer said, before you look at oil, it's come down 1240 01:04:04,720 --> 01:04:08,200 Speaker 1: a lot. That's going to be pretty disinflationary. I think 1241 01:04:08,280 --> 01:04:11,680 Speaker 1: this is going to cause business and households to pull 1242 01:04:11,760 --> 01:04:14,680 Speaker 1: in a lot of their saving things will slow down, 1243 01:04:15,080 --> 01:04:18,240 Speaker 1: and then you're going to start to hit the cumulative 1244 01:04:18,320 --> 01:04:22,600 Speaker 1: and lagged impacts of the very aggressive monetary tightening that 1245 01:04:22,800 --> 01:04:26,560 Speaker 1: started just about a year ago. As I said, this 1246 01:04:26,840 --> 01:04:30,400 Speaker 1: is not a typical and after all the liquidity that 1247 01:04:30,560 --> 01:04:33,680 Speaker 1: was pumped in, it's probably needed. The one year anniversary 1248 01:04:33,720 --> 01:04:36,640 Speaker 1: the hiking cycle much sixteenth. Here we are in March nineteenth. 1249 01:04:36,880 --> 01:04:38,520 Speaker 1: I'm still getting accustomed to the fact we're here on 1250 01:04:38,560 --> 01:04:40,800 Speaker 1: a Sunday evening. I think I walked in today in 1251 01:04:40,840 --> 01:04:42,960 Speaker 1: a second morning at two pm. I might have done 1252 01:04:42,960 --> 01:04:45,040 Speaker 1: the stand two pm, good morning, good morning on the door, 1253 01:04:45,120 --> 01:04:46,880 Speaker 1: but like, who is this guy that people see and 1254 01:04:46,920 --> 01:04:48,560 Speaker 1: they just expect. Now someone's already asked, can you do 1255 01:04:48,600 --> 01:04:51,360 Speaker 1: good evening, good evening, Yeah, just diday later. Stay tuned, 1256 01:04:51,920 --> 01:04:55,400 Speaker 1: Michael see thanks for being with us. But Michael J. Morgan, 1257 01:04:55,600 --> 01:04:58,320 Speaker 1: Asset Management. The coverage continues. We'll be here until about 1258 01:04:58,320 --> 01:05:00,800 Speaker 1: seven pm Eastern times six forty Eastern time. Will catch 1259 01:05:00,880 --> 01:05:04,200 Speaker 1: up with Steve Paluka, the senior advisor at Bank Capital 1260 01:05:11,720 --> 01:05:13,640 Speaker 1: Life from New York City. This evening, good evening, And 1261 01:05:13,760 --> 01:05:16,439 Speaker 1: here we are on another Sunday at the cliff edge, 1262 01:05:16,680 --> 01:05:19,560 Speaker 1: looking for authorities to do something about the financial system. 1263 01:05:19,760 --> 01:05:22,280 Speaker 1: And here's the deal, UBS agreeing to buy Credit Suis 1264 01:05:22,600 --> 01:05:26,840 Speaker 1: for three billion Swiss francs Lisa. The controversy around this 1265 01:05:27,040 --> 01:05:30,480 Speaker 1: deal there are many points. One aspect of it the 1266 01:05:30,640 --> 01:05:34,120 Speaker 1: seventeen billion dollars of risky bonds that will go to zero. 1267 01:05:34,640 --> 01:05:37,120 Speaker 1: There was an analyst call still ongoing. The CEO Ralph 1268 01:05:37,160 --> 01:05:39,360 Speaker 1: Hammers asked about this and he said the Swiss regulator 1269 01:05:39,400 --> 01:05:44,200 Speaker 1: took the decision on eighty one FINNMA basically decided what 1270 01:05:44,320 --> 01:05:46,720 Speaker 1: the protocol was. It has not really been tested before. 1271 01:05:46,720 --> 01:05:49,760 Speaker 1: As Bob Michael is just explaining, they didn't know where 1272 01:05:49,800 --> 01:05:54,000 Speaker 1: they stacked up with these particular bonds, these contingent capital instruments, 1273 01:05:54,200 --> 01:05:56,480 Speaker 1: where they started out versus equity and they found out 1274 01:05:56,720 --> 01:05:58,800 Speaker 1: it was below the equity And this is going to 1275 01:05:58,960 --> 01:06:01,480 Speaker 1: change the the scenario for a lot of people who 1276 01:06:01,520 --> 01:06:03,320 Speaker 1: own this step currently. Where does it leave this market 1277 01:06:03,440 --> 01:06:06,560 Speaker 1: now into tomorrow morning and beyond a little bit lower 1278 01:06:06,760 --> 01:06:08,760 Speaker 1: or a lot lower. I mean you have to imagine 1279 01:06:08,800 --> 01:06:10,400 Speaker 1: that people are going to look around and say, what 1280 01:06:10,600 --> 01:06:12,160 Speaker 1: kind of risks do you have to bake into this 1281 01:06:12,440 --> 01:06:15,440 Speaker 1: versus equity valuation? And am I getting compensated for it. 1282 01:06:15,600 --> 01:06:18,360 Speaker 1: That said, you know, do we get some more clarity 1283 01:06:18,400 --> 01:06:21,040 Speaker 1: about what goes into that and how stable other banks 1284 01:06:21,080 --> 01:06:23,080 Speaker 1: are to avoid a scenario like this. There's tons of 1285 01:06:23,120 --> 01:06:26,160 Speaker 1: complex issues here. Michael Harnet, Bank for America at the 1286 01:06:26,280 --> 01:06:28,840 Speaker 1: end of this week on Friday, made it pretty simple. 1287 01:06:28,920 --> 01:06:32,680 Speaker 1: He said, bank emergency borrowing, tighter lending standards, small business 1288 01:06:32,720 --> 01:06:36,880 Speaker 1: credit crunch, LISA higher unemployment base case for Michael, base 1289 01:06:36,960 --> 01:06:39,600 Speaker 1: case for many others too. Basically saying, bringing forward a 1290 01:06:39,680 --> 01:06:42,880 Speaker 1: recession at a time when you're suddenly seeing the lagged 1291 01:06:42,920 --> 01:06:46,760 Speaker 1: effects of tightening really take hold. This to me is 1292 01:06:46,800 --> 01:06:49,439 Speaker 1: really the ultimate consequence of this. How long does it take, 1293 01:06:49,800 --> 01:06:53,240 Speaker 1: Given you might see potentially some kind of response from 1294 01:06:53,240 --> 01:06:55,640 Speaker 1: different kinds of regulators, it doesn't someone stand up around 1295 01:06:55,640 --> 01:06:59,000 Speaker 1: the table at the FMC on Wednesday and basically read 1296 01:06:59,040 --> 01:07:02,360 Speaker 1: out the same quote something similar to it. You know, 1297 01:07:02,560 --> 01:07:04,479 Speaker 1: then you'll get a lot of pushbacks. In other words, 1298 01:07:04,520 --> 01:07:06,760 Speaker 1: banks raise their hand and you say, here's here's some 1299 01:07:06,880 --> 01:07:09,320 Speaker 1: kind of response. I mean, this is really the dilemmas. 1300 01:07:09,360 --> 01:07:12,160 Speaker 1: From New York City, the conversation continues. Stephen Bigger is 1301 01:07:12,160 --> 01:07:13,919 Speaker 1: going to join us a little bit later. From Marcus 1302 01:07:14,120 --> 01:07:18,960 Speaker 1: Research from New York City. Welcome to the program. What 1303 01:07:19,080 --> 01:07:21,480 Speaker 1: a week for Credit Suites. Earlier this week, the CEO 1304 01:07:21,640 --> 01:07:27,240 Speaker 1: attempting to inspire confidence and fully convinced off the swurchy 1305 01:07:27,440 --> 01:07:29,800 Speaker 1: we are executing that post. We have the right team, 1306 01:07:30,320 --> 01:07:32,480 Speaker 1: and you know that's why we staid in October it 1307 01:07:32,560 --> 01:07:35,600 Speaker 1: needs radical change. You know, the bank needs to be changed, 1308 01:07:35,960 --> 01:07:38,240 Speaker 1: and we said it's the sweetest transformation and you can't 1309 01:07:38,240 --> 01:07:40,640 Speaker 1: come after two months. And so look, why is not 1310 01:07:40,720 --> 01:07:44,280 Speaker 1: everything done only days later? The bank's top shareholder doing 1311 01:07:44,400 --> 01:07:48,760 Speaker 1: very little to a late concerns. I'm wondering whether you 1312 01:07:48,800 --> 01:07:52,760 Speaker 1: would be open to assisting further if there was another 1313 01:07:52,920 --> 01:07:56,000 Speaker 1: call for additional liquidity from Credit Suite. The answer is 1314 01:07:56,000 --> 01:08:00,880 Speaker 1: absolutely mad for many reasons outside the reason which is 1315 01:08:01,280 --> 01:08:05,800 Speaker 1: regulatory and statutor. We now own nine point eight percent 1316 01:08:05,800 --> 01:08:07,840 Speaker 1: of the bank. If we go above ten percent, all 1317 01:08:07,920 --> 01:08:11,320 Speaker 1: kinds of new rules kick in. Following that, the stock 1318 01:08:11,360 --> 01:08:13,480 Speaker 1: started to sink. We've got a public display of support 1319 01:08:13,520 --> 01:08:16,920 Speaker 1: from the regulator and a major central bank lifeline, not 1320 01:08:17,160 --> 01:08:19,839 Speaker 1: enough to prevent Credit Suits from coming into the weekend 1321 01:08:19,920 --> 01:08:22,600 Speaker 1: fighting for its future. And it all ends like this. 1322 01:08:23,840 --> 01:08:26,920 Speaker 1: This solution is the takeoverder of Credit Swace by ubs 1323 01:08:27,080 --> 01:08:30,320 Speaker 1: the three Well account Seal welcomes this takeolder and is 1324 01:08:30,400 --> 01:08:35,640 Speaker 1: supporting it by guaranteeing the framework conditions necessary for its success. LA. 1325 01:08:35,720 --> 01:08:38,160 Speaker 1: So this is the outcome that everybody fit. And this 1326 01:08:38,360 --> 01:08:40,920 Speaker 1: is really raising more questions than it is answers Billy 1327 01:08:41,360 --> 01:08:44,240 Speaker 1: over the melk And Institute Chief Economists. They're saying, unfortunately, 1328 01:08:44,280 --> 01:08:47,720 Speaker 1: continued references by Swiss authorities and executives to the US 1329 01:08:47,760 --> 01:08:52,559 Speaker 1: banking turmoil raises concerns that intrinsic problems among Swiss banks 1330 01:08:52,600 --> 01:08:54,880 Speaker 1: are not being addressed. There is a question of what 1331 01:08:55,000 --> 01:08:57,880 Speaker 1: the unknowns are at a time of so much speculation. 1332 01:08:58,040 --> 01:08:59,800 Speaker 1: Most people have come on this show over the last 1333 01:08:59,800 --> 01:09:02,240 Speaker 1: few weeks, dare I say the last few years and 1334 01:09:02,320 --> 01:09:04,760 Speaker 1: pointed out the problems with credit suites. We used to 1335 01:09:04,800 --> 01:09:07,120 Speaker 1: talk about Deutsche Bank being the poster child for problems 1336 01:09:07,160 --> 01:09:09,000 Speaker 1: in banking in Europe, and it's been credit suite for 1337 01:09:09,000 --> 01:09:10,720 Speaker 1: a number of years now, hasn't it. How can we 1338 01:09:10,800 --> 01:09:13,360 Speaker 1: sit here and seriously saying this was about was happening 1339 01:09:13,400 --> 01:09:15,679 Speaker 1: on the other side of the Atlantic in the United States. 1340 01:09:16,000 --> 01:09:18,320 Speaker 1: Some might argue that it pushed it to a threshold. 1341 01:09:18,400 --> 01:09:20,240 Speaker 1: It pushed it to a brink at a time when 1342 01:09:20,320 --> 01:09:23,519 Speaker 1: people have been looking around and wondering where a crisis 1343 01:09:23,560 --> 01:09:26,120 Speaker 1: and confidence could hit next. If you're wondering where a 1344 01:09:26,160 --> 01:09:29,479 Speaker 1: crisis of confidence could hit, Credit Suite is a prime 1345 01:09:29,520 --> 01:09:33,120 Speaker 1: poster child for that. Now that said there was no 1346 01:09:33,280 --> 01:09:35,920 Speaker 1: problem until there was, They said that their capital buffers 1347 01:09:35,960 --> 01:09:38,760 Speaker 1: hadn't been breached. All of the reassurances that all went 1348 01:09:38,760 --> 01:09:41,759 Speaker 1: out the window. We heard about some ten billion dollars 1349 01:09:41,840 --> 01:09:44,040 Speaker 1: of outflows on a daily basis at the end of 1350 01:09:44,120 --> 01:09:47,360 Speaker 1: last week, as Financial Times reported earlier. As we've covered 1351 01:09:47,400 --> 01:09:49,840 Speaker 1: this story through the week, you and I have both 1352 01:09:49,880 --> 01:09:52,240 Speaker 1: said Tom has as well that we all know some 1353 01:09:52,360 --> 01:09:56,479 Speaker 1: super talented individuals at this institution, at Credit Suites, it's 1354 01:09:56,520 --> 01:09:58,200 Speaker 1: going to be a really difficult time for people who 1355 01:09:58,240 --> 01:10:00,240 Speaker 1: work at that bank. And I always get frustraight when 1356 01:10:00,240 --> 01:10:02,080 Speaker 1: we read those headlines ten percent of the workforce is 1357 01:10:02,120 --> 01:10:05,400 Speaker 1: going to go ten thousand people at real people, there's 1358 01:10:05,439 --> 01:10:08,439 Speaker 1: some serious overlap between what UBS is taken on and 1359 01:10:08,600 --> 01:10:11,040 Speaker 1: what they're absorbing. And I just wonder what those numbers 1360 01:10:11,120 --> 01:10:13,000 Speaker 1: LEASA are going to look like through the next What 1361 01:10:13,080 --> 01:10:14,920 Speaker 1: did they say three to four years to fully absorb 1362 01:10:15,000 --> 01:10:17,479 Speaker 1: integrate this institution and how do they keep all those 1363 01:10:17,520 --> 01:10:20,880 Speaker 1: talented individuals that made the bank successful at the times 1364 01:10:20,920 --> 01:10:23,600 Speaker 1: when it was successful. These are all the questions that 1365 01:10:23,760 --> 01:10:26,360 Speaker 1: UBS has to work through now at a time when 1366 01:10:26,400 --> 01:10:30,599 Speaker 1: it's dealing with bringing together the only major Swiss bank 1367 01:10:30,720 --> 01:10:33,559 Speaker 1: now because it is really now one kind of banking town, 1368 01:10:33,960 --> 01:10:36,840 Speaker 1: a nation that it's known for its financial system. The 1369 01:10:36,920 --> 01:10:40,400 Speaker 1: coverage continues special coverage right here on Bloomberg TV and radio. 1370 01:10:40,520 --> 01:10:42,880 Speaker 1: If you are just tuning in, Welcome to the program, 1371 01:10:42,920 --> 01:10:45,519 Speaker 1: A special edition of Bloomberg Surveillance with Lisa and myself. 1372 01:10:45,800 --> 01:10:48,760 Speaker 1: A three billion Swiss Frank deal, UBS agreeing to buy 1373 01:10:48,800 --> 01:10:52,040 Speaker 1: Credit suis some important numbers in this though Friday. Think 1374 01:10:52,040 --> 01:10:54,400 Speaker 1: about where the market cap was at the close, seven 1375 01:10:54,479 --> 01:10:59,000 Speaker 1: point four billion Swiss franks. The deal three billion. We 1376 01:10:59,160 --> 01:11:02,040 Speaker 1: got absolutely hammered over the last year on that stock, 1377 01:11:02,080 --> 01:11:05,040 Speaker 1: and yet still not enough to entice UBS. They had 1378 01:11:05,080 --> 01:11:07,280 Speaker 1: to come even lower. Here are some other numbers for 1379 01:11:07,439 --> 01:11:10,599 Speaker 1: you from the SNB, the Swiss National Bank. They're offering 1380 01:11:10,640 --> 01:11:13,880 Speaker 1: a one hundred billion frank liquidity assistant to UBS. And 1381 01:11:13,960 --> 01:11:16,280 Speaker 1: a bit of controversy around what happened to eighty one 1382 01:11:17,280 --> 01:11:20,880 Speaker 1: this risky debt. At least the government granting a nine 1383 01:11:20,920 --> 01:11:23,839 Speaker 1: billion franc guarantee for potential losses from assets the UBS 1384 01:11:24,000 --> 01:11:27,120 Speaker 1: is taken on. We've talked how quickly this has happened 1385 01:11:27,400 --> 01:11:30,719 Speaker 1: single weekend. I understand from reporting the talks actually started 1386 01:11:30,760 --> 01:11:33,280 Speaker 1: on March fifteenth, and then it got really serious over 1387 01:11:33,360 --> 01:11:34,920 Speaker 1: the weekend where they felt like we need to find 1388 01:11:35,240 --> 01:11:40,240 Speaker 1: a deal imminently. Immediately. UBS was clearly nervous about inheriting 1389 01:11:40,320 --> 01:11:43,439 Speaker 1: some legal and regulatory risks around these assets and around 1390 01:11:43,479 --> 01:11:47,559 Speaker 1: this institution. Is that number big enough? I think right 1391 01:11:47,600 --> 01:11:51,040 Speaker 1: now what people are looking at is whether that sixteen 1392 01:11:52,080 --> 01:11:57,280 Speaker 1: sixteen billion franc allotment of eighty ones or capital contingent 1393 01:11:57,360 --> 01:12:00,080 Speaker 1: bonds can actually absorb a lot of those losses. But 1394 01:12:00,160 --> 01:12:03,240 Speaker 1: it really goes to this bigger question. What did ubsc 1395 01:12:03,600 --> 01:12:06,320 Speaker 1: under the hood that made them raise the price and 1396 01:12:06,520 --> 01:12:10,240 Speaker 1: raise the guarantees, raise their threshold for what they were 1397 01:12:10,320 --> 01:12:12,439 Speaker 1: going to be okay with when they were speaking with 1398 01:12:12,479 --> 01:12:15,080 Speaker 1: Swiss regulators, joining US naw places to science. Mark now 1399 01:12:15,120 --> 01:12:18,080 Speaker 1: at the senior analyst that Danska Bank, Mark, I'll make 1400 01:12:18,120 --> 01:12:19,880 Speaker 1: it simple. Then you tell me what you think. Has 1401 01:12:20,040 --> 01:12:26,800 Speaker 1: UBS got a bargain or taken on a problem. I 1402 01:12:26,880 --> 01:12:31,000 Speaker 1: think that's of course the million dollar question. At this point, 1403 01:12:31,640 --> 01:12:33,920 Speaker 1: I think the truth is that there's simply too many, 1404 01:12:34,320 --> 01:12:37,960 Speaker 1: too many unknowns to truthfully say anything about whether it's 1405 01:12:37,960 --> 01:12:40,720 Speaker 1: a bargain or whether they're overpaying. But I think at 1406 01:12:40,800 --> 01:12:43,679 Speaker 1: least with the eighty one write down that we're seeing 1407 01:12:43,960 --> 01:12:47,439 Speaker 1: and a relatively low share price compared to it to 1408 01:12:47,560 --> 01:12:51,760 Speaker 1: the market value by Friday, as well as the guarantees 1409 01:12:51,840 --> 01:12:53,599 Speaker 1: that they got from the Swiss government, I think they've 1410 01:12:53,600 --> 01:12:55,720 Speaker 1: got a lot of security cooked into this deal. So 1411 01:12:56,200 --> 01:12:58,880 Speaker 1: I'm having a pretty hard time seeing that it'll turn 1412 01:12:58,960 --> 01:13:01,120 Speaker 1: into a disaster for But there's a lot of things 1413 01:13:01,160 --> 01:13:03,160 Speaker 1: that I've had a hard time imagining during this week 1414 01:13:03,240 --> 01:13:05,880 Speaker 1: that's happened. So I wouldn't I wouldn't call it a 1415 01:13:05,960 --> 01:13:09,200 Speaker 1: confidence statement. Given the fact that UBS will be the 1416 01:13:09,439 --> 01:13:12,800 Speaker 1: lone major global banking institution of a nation known for 1417 01:13:12,960 --> 01:13:16,360 Speaker 1: its banking institutions, doesn't this implicitly have the guarantee of 1418 01:13:16,400 --> 01:13:23,040 Speaker 1: the entire Swiss government behind it? Are we talking about 1419 01:13:23,080 --> 01:13:28,240 Speaker 1: the US generally UBS in particular, once it's assumed it's 1420 01:13:28,280 --> 01:13:34,320 Speaker 1: credit Swiss acquisition, Well, I mean the the I'm not 1421 01:13:34,439 --> 01:13:36,640 Speaker 1: sure whether we're talking about the at ones or what 1422 01:13:36,800 --> 01:13:40,080 Speaker 1: we're talking about specifically, but I think we've got a 1423 01:13:40,120 --> 01:13:42,200 Speaker 1: lot of guarantees. They'll of course have to take the 1424 01:13:42,280 --> 01:13:45,920 Speaker 1: first billions in losses from from any legacy cases that 1425 01:13:46,120 --> 01:13:51,320 Speaker 1: the Credit Swiss potentially hasn't hasn't popped up fully yet, 1426 01:13:51,600 --> 01:13:53,439 Speaker 1: so they'll have to take some of those losses. But 1427 01:13:53,560 --> 01:13:56,800 Speaker 1: other than that, it seems like the Swiss government will 1428 01:13:56,880 --> 01:13:59,479 Speaker 1: most likely be under writing those risks. So two a 1429 01:13:59,680 --> 01:14:03,120 Speaker 1: large agree. I agree with you that there should be 1430 01:14:03,240 --> 01:14:07,000 Speaker 1: a lot of margin of safety cooked in before we 1431 01:14:07,160 --> 01:14:10,519 Speaker 1: got ubs bidding for more than what was the closing 1432 01:14:10,640 --> 01:14:14,360 Speaker 1: value of the of the stock on Friday. Mark. From 1433 01:14:14,400 --> 01:14:17,080 Speaker 1: your perspective, as you look around to other European banks, 1434 01:14:17,520 --> 01:14:21,320 Speaker 1: are there other vulnerable institutions, particularly in France that came 1435 01:14:21,400 --> 01:14:24,960 Speaker 1: under some selling pressure last week, that you're really watching 1436 01:14:25,040 --> 01:14:32,519 Speaker 1: closely at the open tomorrow. Of course, I'm mostly concerned 1437 01:14:32,520 --> 01:14:35,080 Speaker 1: about the Nordic banks, and I would say I'm not 1438 01:14:35,439 --> 01:14:39,760 Speaker 1: paying particular attention to any of those who suffered very 1439 01:14:39,840 --> 01:14:44,120 Speaker 1: liberal similarity to the Credit Swiss case. If we're looking 1440 01:14:44,200 --> 01:14:48,759 Speaker 1: beyond the Nordics, and as you mentioned France, naturally there's 1441 01:14:48,840 --> 01:14:50,880 Speaker 1: going to be some banks down there that we know 1442 01:14:51,040 --> 01:14:54,360 Speaker 1: have been heavily involved with some some business with Credit 1443 01:14:54,400 --> 01:14:57,920 Speaker 1: Swiss during the years. Having said that, however, I also 1444 01:14:58,040 --> 01:15:01,960 Speaker 1: think that we've it's been a long long way leading 1445 01:15:02,080 --> 01:15:05,000 Speaker 1: up to the collapse that we're seeing unfold of Credit 1446 01:15:05,040 --> 01:15:07,320 Speaker 1: Swiss right now. So I think that to the extent 1447 01:15:07,479 --> 01:15:11,679 Speaker 1: that any bank had any meaningful exposure, they've had ample 1448 01:15:11,760 --> 01:15:14,080 Speaker 1: time to cover it, and I would assume that they've 1449 01:15:14,120 --> 01:15:16,760 Speaker 1: done so. So for me, tomorrow, it will be more 1450 01:15:16,760 --> 01:15:20,360 Speaker 1: about looking into how the market absorbs this, and looking 1451 01:15:20,439 --> 01:15:25,200 Speaker 1: into particularly how the at one market is able to 1452 01:15:25,280 --> 01:15:28,120 Speaker 1: absorb this deal. Mark a week ago, not even a 1453 01:15:28,200 --> 01:15:30,840 Speaker 1: week ago, this was the trade in Europe. It was 1454 01:15:30,920 --> 01:15:33,640 Speaker 1: long European banks. We had guest after guests come on 1455 01:15:33,680 --> 01:15:36,360 Speaker 1: this program say get long, great story right to going up. 1456 01:15:36,400 --> 01:15:38,519 Speaker 1: Economy is doing better, this is where you want to be. 1457 01:15:38,600 --> 01:15:42,080 Speaker 1: We saw massive a performance in that sector. Mark what's 1458 01:15:42,120 --> 01:15:48,479 Speaker 1: the argument for that sector Now? I think that that 1459 01:15:48,720 --> 01:15:52,200 Speaker 1: narrative has at least been put on hold, and I 1460 01:15:52,320 --> 01:15:54,519 Speaker 1: think that'll be for a very long period until we 1461 01:15:54,640 --> 01:15:58,920 Speaker 1: restore some confidence in the European banking sector. I still 1462 01:15:59,040 --> 01:16:02,080 Speaker 1: think this Credits we case is in many many ways 1463 01:16:02,200 --> 01:16:04,640 Speaker 1: quite unique, and it's not like we didn't know there 1464 01:16:04,760 --> 01:16:08,280 Speaker 1: was going to be problems or that they weren't suffering 1465 01:16:08,320 --> 01:16:12,719 Speaker 1: some challenges. But so from that perspective, I see relatively 1466 01:16:12,800 --> 01:16:17,560 Speaker 1: labeled spill over directly to European banks. But naturally a 1467 01:16:17,680 --> 01:16:19,400 Speaker 1: lot of the tailwinds that have led us to have 1468 01:16:19,560 --> 01:16:23,280 Speaker 1: a positive view on the outlook for European banks over 1469 01:16:23,320 --> 01:16:26,040 Speaker 1: the foreseeable future seem to have been put on a 1470 01:16:26,200 --> 01:16:30,200 Speaker 1: long pause and maybe even have reversed altogether. I Mark 1471 01:16:30,240 --> 01:16:32,280 Speaker 1: want offul to hear from you. Mark. Now there of 1472 01:16:32,400 --> 01:16:35,400 Speaker 1: Danska Bank. Let's see how UBS trites tomorrow. And I'm 1473 01:16:35,400 --> 01:16:37,240 Speaker 1: not just talking about the equity they sa. Let's see 1474 01:16:37,240 --> 01:16:40,560 Speaker 1: how the whole universe of UBS securities trites tomorrow. The 1475 01:16:40,600 --> 01:16:42,880 Speaker 1: people I'm talking with are all watching the credit default 1476 01:16:42,880 --> 01:16:46,080 Speaker 1: swaps of ubs, which have been increasing over the past 1477 01:16:46,160 --> 01:16:48,760 Speaker 1: couple of trading sessions. They want to understand when those 1478 01:16:48,800 --> 01:16:51,599 Speaker 1: credit swaps increase, when the price increases, it's the price 1479 01:16:51,920 --> 01:16:55,240 Speaker 1: to protect against the default that is not good. And 1480 01:16:55,360 --> 01:16:57,720 Speaker 1: people are wondering whether they have assumed the risk of 1481 01:16:57,800 --> 01:17:01,240 Speaker 1: credit sweee that the guarantees of this regulators, have they 1482 01:17:01,360 --> 01:17:04,240 Speaker 1: been enough to prevent that from happening. So let's assume 1483 01:17:04,280 --> 01:17:06,479 Speaker 1: this is a resolved issue. Not sure it is, but 1484 01:17:06,560 --> 01:17:08,640 Speaker 1: let's assume it is a resolved issue. We need to 1485 01:17:08,680 --> 01:17:10,519 Speaker 1: talk about the ripples off the back of this story, 1486 01:17:10,960 --> 01:17:13,080 Speaker 1: and we need to discuss the unresolved issues on this 1487 01:17:13,240 --> 01:17:16,559 Speaker 1: site of the Atlantic. It's only this week we had 1488 01:17:16,600 --> 01:17:20,639 Speaker 1: eleven banks banned together and park thirty billion deposit. There 1489 01:17:20,720 --> 01:17:23,000 Speaker 1: you go at First Republic. I think we need to 1490 01:17:23,080 --> 01:17:24,960 Speaker 1: keep going back to this. On that same day, Friday, 1491 01:17:24,960 --> 01:17:27,719 Speaker 1: at the clothes that stock was down thirty three percent. 1492 01:17:27,960 --> 01:17:31,479 Speaker 1: First Republic. Two mondays ago, it was a one hundred 1493 01:17:31,479 --> 01:17:34,200 Speaker 1: and twenty three dollars stock at the close on Friday 1494 01:17:34,560 --> 01:17:37,759 Speaker 1: it was twenty three. You have medium sized banks begging 1495 01:17:37,880 --> 01:17:40,599 Speaker 1: the FDIC in the United States for a bit more 1496 01:17:40,680 --> 01:17:44,439 Speaker 1: reprieve to get some sort of insurance against the limits 1497 01:17:44,520 --> 01:17:46,960 Speaker 1: that they have on depositors, that they can go back 1498 01:17:47,040 --> 01:17:48,960 Speaker 1: and say, you know what, even if you've got two 1499 01:17:49,000 --> 01:17:51,599 Speaker 1: million dollars in our bank, it will all be protected 1500 01:17:51,640 --> 01:17:53,479 Speaker 1: should we go under not things you really want to 1501 01:17:53,520 --> 01:17:56,479 Speaker 1: be saying to people. The larger point, though, is that 1502 01:17:56,640 --> 01:18:00,600 Speaker 1: these banks are probably seeing withdrawals. They're probably seeing deposits 1503 01:18:00,880 --> 01:18:03,120 Speaker 1: go to the major banks, just like Muhammad al Arian 1504 01:18:03,280 --> 01:18:06,160 Speaker 1: was saying, in that case, what is the consequence both 1505 01:18:06,200 --> 01:18:07,960 Speaker 1: in the side of these medium sized banks as well 1506 01:18:08,000 --> 01:18:10,559 Speaker 1: as the large banks that suddenly are sitting on billions 1507 01:18:10,600 --> 01:18:12,640 Speaker 1: and billions more deposits. My question would be, how do 1508 01:18:12,680 --> 01:18:17,479 Speaker 1: you restore confidence without changing policy? What can you do? Second, 1509 01:18:17,600 --> 01:18:19,160 Speaker 1: Yell and I think had a really difficult time in 1510 01:18:19,200 --> 01:18:21,599 Speaker 1: front of the Senate Finance Committee this week, couldn't answer 1511 01:18:21,640 --> 01:18:24,719 Speaker 1: the question, how do you resolve this issue? Now? People 1512 01:18:24,760 --> 01:18:26,479 Speaker 1: believe there is a two tier banking system in the 1513 01:18:26,560 --> 01:18:28,560 Speaker 1: United States of America and their deposits are safer in 1514 01:18:28,680 --> 01:18:30,840 Speaker 1: one place and not in the other. How do you 1515 01:18:30,920 --> 01:18:32,800 Speaker 1: resolve that? A lot of people are saying the only 1516 01:18:32,840 --> 01:18:35,080 Speaker 1: way to resolve that is to tighten regulations on some 1517 01:18:35,240 --> 01:18:38,400 Speaker 1: of these medium sized, medium sized banks to make them 1518 01:18:38,640 --> 01:18:41,160 Speaker 1: more in tandem with the larger banks. Because right now, 1519 01:18:41,479 --> 01:18:43,360 Speaker 1: how much is this a banking crisis and how much 1520 01:18:43,439 --> 01:18:46,599 Speaker 1: is it's a banking regulation crisis, which is exactly at 1521 01:18:46,680 --> 01:18:48,920 Speaker 1: what we heard from Terry Haynes over at Pangaea Capital 1522 01:18:49,000 --> 01:18:51,080 Speaker 1: as he was putting together some of his thoughts. This 1523 01:18:51,280 --> 01:18:54,439 Speaker 1: to me was a failure of regulations that even flagged 1524 01:18:54,520 --> 01:18:57,080 Speaker 1: concerns as we see the reporting, So at what point 1525 01:18:57,320 --> 01:18:59,240 Speaker 1: do they have to move on that before they can 1526 01:18:59,280 --> 01:19:02,120 Speaker 1: restore confidence. We'll continue this conversation coming up shortly as 1527 01:19:02,160 --> 01:19:06,040 Speaker 1: Simacha the chief Global strategistic principal Asset Management, as we 1528 01:19:06,200 --> 01:19:09,679 Speaker 1: guide you towards the open in Asia and towards trading 1529 01:19:09,760 --> 01:19:12,840 Speaker 1: next week, Stateside. I believe equality futures open up in 1530 01:19:12,920 --> 01:19:15,680 Speaker 1: about eighteen minutes from now, looking forward to that from 1531 01:19:15,720 --> 01:19:25,560 Speaker 1: New York, this is Bloomberg. People are doing something that 1532 01:19:26,000 --> 01:19:29,680 Speaker 1: probably is not rational but totally understandable, which is them 1533 01:19:29,760 --> 01:19:33,479 Speaker 1: moving deposits and where they're moving deposits out of the 1534 01:19:33,640 --> 01:19:36,240 Speaker 1: smaller and the medium sized banks into the latter backs. 1535 01:19:36,479 --> 01:19:40,040 Speaker 1: And that dynamic isn't going to stop overnight. Neither is 1536 01:19:40,120 --> 01:19:42,840 Speaker 1: the other losses that are being incurred. You've wiped out 1537 01:19:42,920 --> 01:19:46,240 Speaker 1: seventeen billion of eighty ones. There's going to be a 1538 01:19:46,320 --> 01:19:49,640 Speaker 1: lot of replacing in the credits segment, so this is 1539 01:19:49,720 --> 01:19:52,880 Speaker 1: going to be pretty bumpy going forward. We've been really 1540 01:19:52,920 --> 01:19:55,320 Speaker 1: lucky this season. Need to catch up with some fantastic guests, 1541 01:19:55,360 --> 01:19:58,639 Speaker 1: including Muhammad al Arian. There Following the deal between UBS 1542 01:19:58,680 --> 01:20:01,280 Speaker 1: and Credit Suites for three Bill Swiss Franks, a bit 1543 01:20:01,320 --> 01:20:03,479 Speaker 1: of news crossing the Bloomberg moments ago, Kenny lines for 1544 01:20:03,600 --> 01:20:07,040 Speaker 1: US down at DC kavy, what have you got, Well, 1545 01:20:07,080 --> 01:20:10,360 Speaker 1: it's related to First Republic John downgraded again when in 1546 01:20:10,479 --> 01:20:13,000 Speaker 1: terms of its credit rating by SMP Global Ratings to 1547 01:20:13,080 --> 01:20:15,040 Speaker 1: B plus from double B plus. Remember it had just 1548 01:20:15,160 --> 01:20:18,120 Speaker 1: been cut to junk days ago. The analyst over at 1549 01:20:18,240 --> 01:20:22,040 Speaker 1: SMP referring back to that thirty billion dollars in deposits 1550 01:20:22,120 --> 01:20:25,040 Speaker 1: put in to First Republic by eleven larger banks last 1551 01:20:25,080 --> 01:20:28,000 Speaker 1: week and an attempted rescue, basically saying that they don't 1552 01:20:28,040 --> 01:20:31,440 Speaker 1: think that is a long term solution. They say attracting 1553 01:20:31,520 --> 01:20:35,559 Speaker 1: meaningful deposits will be difficult, constraining the bank's business position. 1554 01:20:35,600 --> 01:20:37,600 Speaker 1: And this does seem to be somewhat in line with 1555 01:20:37,680 --> 01:20:40,320 Speaker 1: the view of the market, considering after that rescue was announced, 1556 01:20:40,360 --> 01:20:43,240 Speaker 1: we saw for US Republic shares down thirty three percent 1557 01:20:43,560 --> 01:20:45,559 Speaker 1: in the Friday session. So now there is a massive 1558 01:20:45,640 --> 01:20:47,880 Speaker 1: question about the future of this bank, as it is 1559 01:20:47,920 --> 01:20:51,000 Speaker 1: one of those regional lenders that has struggled with deposit 1560 01:20:51,080 --> 01:20:53,640 Speaker 1: outflows in the wakes of multiple bank failures here in 1561 01:20:53,640 --> 01:20:55,040 Speaker 1: the US. And this is when we're going to be 1562 01:20:55,120 --> 01:20:58,320 Speaker 1: watching to see if it gets put into a receivership 1563 01:20:58,360 --> 01:21:01,120 Speaker 1: potentially or if it needs to be bought out by 1564 01:21:01,160 --> 01:21:03,720 Speaker 1: another bank, similar to what we are seeing across the 1565 01:21:03,760 --> 01:21:06,120 Speaker 1: Atlantic today. Guys II Kayley on the latest Kelly Lanes 1566 01:21:06,120 --> 01:21:08,760 Speaker 1: there Dan in Washington. Kelly, thank you that line there, 1567 01:21:08,800 --> 01:21:13,840 Speaker 1: Bramo is absolutely scan think brutal Attracting meaningful deposits will 1568 01:21:13,880 --> 01:21:16,760 Speaker 1: be difficult. This goes exactly to the question that you 1569 01:21:16,920 --> 01:21:19,680 Speaker 1: just asked, which is how do you restore confidence in 1570 01:21:20,080 --> 01:21:23,280 Speaker 1: this banking system that is below the top tier of banks, 1571 01:21:23,720 --> 01:21:26,960 Speaker 1: and that is basically a credit rating agency agonizing over 1572 01:21:27,080 --> 01:21:29,840 Speaker 1: that question and twice in a row in two weeks 1573 01:21:30,120 --> 01:21:33,040 Speaker 1: saying not looking good and still not looking good standard 1574 01:21:33,080 --> 01:21:35,120 Speaker 1: and pauls taking shots. It's take a shot at the 1575 01:21:35,160 --> 01:21:38,200 Speaker 1: credit rating companies. These banks were I G sure a 1576 01:21:38,280 --> 01:21:41,320 Speaker 1: week ago, two weeks ago, ten days ago. The banking 1577 01:21:41,360 --> 01:21:44,240 Speaker 1: industry runs on trust. Ultimately, it's when you put your 1578 01:21:44,280 --> 01:21:45,960 Speaker 1: money in a bank, you can get it back out 1579 01:21:45,960 --> 01:21:48,639 Speaker 1: again when you want it. When that trust is broken, 1580 01:21:49,120 --> 01:21:51,439 Speaker 1: how does that get it sort of spiraled through this 1581 01:21:51,520 --> 01:21:53,679 Speaker 1: system in a way that sort of feeds on itself, 1582 01:21:53,760 --> 01:21:55,479 Speaker 1: and that I think is what regulators are trying to 1583 01:21:55,520 --> 01:21:58,080 Speaker 1: stave off. And we're asking the question, is it enough, 1584 01:21:58,240 --> 01:21:59,840 Speaker 1: Let's keep building on this. If you're just tuning in, 1585 01:22:00,000 --> 01:22:01,760 Speaker 1: welcome to the program. At least when I've been talking 1586 01:22:01,760 --> 01:22:03,880 Speaker 1: about this for the last two hours together with a team, 1587 01:22:04,040 --> 01:22:06,120 Speaker 1: I've been talking about it all weekend, the potential for 1588 01:22:06,200 --> 01:22:08,720 Speaker 1: a deal, just the way this came together. First it 1589 01:22:08,840 --> 01:22:11,479 Speaker 1: was one billion, then it was two. Then it turns 1590 01:22:11,479 --> 01:22:13,760 Speaker 1: out to be three ubs agreeing to take over Credit 1591 01:22:13,800 --> 01:22:16,679 Speaker 1: Suis for three billion Swiss franks, way below its market 1592 01:22:16,760 --> 01:22:19,719 Speaker 1: cap at a close on Friday of seven point four billion, 1593 01:22:19,840 --> 01:22:23,160 Speaker 1: joining US now. Seema Cha, Chief Global strategistic Principal Asset 1594 01:22:23,240 --> 01:22:26,439 Speaker 1: Management Seema I said this to Bob. Usually, it's good morning, 1595 01:22:26,479 --> 01:22:28,800 Speaker 1: it's good evening on a Sunday. Do you feel more 1596 01:22:28,880 --> 01:22:32,920 Speaker 1: or less confident after this weekend? Oh? God, you know, 1597 01:22:33,040 --> 01:22:35,800 Speaker 1: I think we all closed our computures on Friday worried 1598 01:22:35,800 --> 01:22:38,280 Speaker 1: about what could come out over the weekend. I don't 1599 01:22:38,479 --> 01:22:40,719 Speaker 1: feel more rash or to feel a little bit concerned 1600 01:22:40,720 --> 01:22:42,960 Speaker 1: about what this week is going to bring. Sema. In 1601 01:22:43,040 --> 01:22:45,839 Speaker 1: about thirteen minutes, we're going to see the cash futures 1602 01:22:45,920 --> 01:22:50,439 Speaker 1: open for US stocks. I'm wondering what you're watching for 1603 01:22:50,760 --> 01:22:53,519 Speaker 1: as markets open to understand the tenor of how this 1604 01:22:53,680 --> 01:22:57,840 Speaker 1: is being received. Like you just said, you know, the 1605 01:22:58,000 --> 01:23:01,479 Speaker 1: banking sector is really it runs onidence. We just need 1606 01:23:01,520 --> 01:23:03,639 Speaker 1: to see what the sentiment is out there. If you're 1607 01:23:03,680 --> 01:23:05,920 Speaker 1: going to continue to see moves away from smaller banks 1608 01:23:05,960 --> 01:23:08,040 Speaker 1: into bigger banks, We're going to see what happensoluely course 1609 01:23:08,120 --> 01:23:13,200 Speaker 1: to treasuries. This is really about investors or actually anyone 1610 01:23:13,280 --> 01:23:16,280 Speaker 1: about thinking about where can we is safe? Where are 1611 01:23:16,280 --> 01:23:18,240 Speaker 1: the safe favors out there? So if you're going to 1612 01:23:18,280 --> 01:23:20,320 Speaker 1: see a continued rallying treasuries, that is going to be 1613 01:23:20,360 --> 01:23:22,360 Speaker 1: a concern in terms of the wider backdrop and what 1614 01:23:22,479 --> 01:23:26,320 Speaker 1: the implications are broad risk assets. You know, we need 1615 01:23:26,320 --> 01:23:28,679 Speaker 1: to look again, of course what's happening through the European 1616 01:23:28,720 --> 01:23:32,719 Speaker 1: banking industry whereas a confidence. Has this deal actually ruined 1617 01:23:32,760 --> 01:23:35,000 Speaker 1: confidence even further or has it propped it up? I 1618 01:23:35,040 --> 01:23:37,600 Speaker 1: don't think it's very clear at this stage. What do 1619 01:23:37,680 --> 01:23:40,880 Speaker 1: you think your view? How has it changed over the 1620 01:23:40,960 --> 01:23:42,840 Speaker 1: past couple of weeks. We were just talking oh with 1621 01:23:42,920 --> 01:23:46,040 Speaker 1: bad Michael Off Jpmorganizer Management. He was saying he's brought 1622 01:23:46,120 --> 01:23:49,479 Speaker 1: forward his expectation for how quickly recession will take hold 1623 01:23:49,840 --> 01:23:53,479 Speaker 1: what's your sense of what's changed. You know, we were 1624 01:23:53,600 --> 01:23:55,679 Speaker 1: negative coming into this year. I think like many people 1625 01:23:55,720 --> 01:23:57,800 Speaker 1: out there, we were expecting recession to come through in 1626 01:23:57,880 --> 01:24:00,800 Speaker 1: the second half of the year. We expected the FED 1627 01:24:00,880 --> 01:24:03,360 Speaker 1: and other central banks to continue raising rates then keep 1628 01:24:03,360 --> 01:24:05,519 Speaker 1: thee hold for the remainder of the year. Now there 1629 01:24:05,600 --> 01:24:08,320 Speaker 1: are certain segments of that have changed. We have, of course, 1630 01:24:08,360 --> 01:24:11,719 Speaker 1: become a lot more pessimistic. It does seem like recession 1631 01:24:12,320 --> 01:24:14,800 Speaker 1: potential has come forward a little bit. And in terms 1632 01:24:14,840 --> 01:24:16,639 Speaker 1: of FED tightening, you know, of course I don't think 1633 01:24:16,640 --> 01:24:18,759 Speaker 1: they're going to go as far as we had expected, 1634 01:24:18,800 --> 01:24:21,000 Speaker 1: but you have to think the reason for fad tightening 1635 01:24:21,320 --> 01:24:24,960 Speaker 1: was to tighten financial conditions. Whether the Fair Titans or not, 1636 01:24:26,439 --> 01:24:30,240 Speaker 1: financial conditions will tighten from here, the spanking crisis, a 1637 01:24:30,320 --> 01:24:32,639 Speaker 1: tightening lending standards, This is all going to feed through 1638 01:24:32,720 --> 01:24:34,920 Speaker 1: to the same end result. Whether the FED goes on 1639 01:24:35,360 --> 01:24:37,880 Speaker 1: Wednesday or if it doesn't go. I'm not saying with there, 1640 01:24:37,960 --> 01:24:40,240 Speaker 1: I'm not saying that this is a major crisis. Yeah, 1641 01:24:40,240 --> 01:24:42,120 Speaker 1: I'm not saying any of that, Seema. I just want 1642 01:24:42,160 --> 01:24:45,920 Speaker 1: to reflect on what's addressed crisis in our history, whether 1643 01:24:45,960 --> 01:24:48,839 Speaker 1: it was draggy, say whatever, it takes in the arizones 1644 01:24:48,840 --> 01:24:52,040 Speaker 1: A crisis ten years ago, back in twenty twelve, or 1645 01:24:52,120 --> 01:24:54,599 Speaker 1: whether it's the Federal Reserve and the pandemic coming out 1646 01:24:54,640 --> 01:24:57,960 Speaker 1: and pledging to buy credit both of them. The ECB, 1647 01:24:58,160 --> 01:25:01,679 Speaker 1: the Federal Reserve turns didn't actually have to follow through. 1648 01:25:01,840 --> 01:25:04,680 Speaker 1: They just had to say certain things. What needs to 1649 01:25:04,800 --> 01:25:07,160 Speaker 1: be said in the next week. What would you want 1650 01:25:07,200 --> 01:25:09,320 Speaker 1: to hear that would change your mind on your less 1651 01:25:09,360 --> 01:25:13,280 Speaker 1: constructive view on this market. So I think this is 1652 01:25:13,320 --> 01:25:15,840 Speaker 1: a really tough time actually, because you do the run 1653 01:25:15,920 --> 01:25:18,360 Speaker 1: the risk of the FED or central banks come out 1654 01:25:18,400 --> 01:25:20,160 Speaker 1: and say something about some kind of help they're going 1655 01:25:20,240 --> 01:25:22,679 Speaker 1: to provide. And I think, because the market is still 1656 01:25:22,720 --> 01:25:24,880 Speaker 1: in two minds about how this is going to pan out, 1657 01:25:24,880 --> 01:25:26,640 Speaker 1: you do run the risk about creating a little bit 1658 01:25:26,680 --> 01:25:28,880 Speaker 1: more panic and people start to think that actually the 1659 01:25:28,960 --> 01:25:32,200 Speaker 1: situation is worse than it is. I think at this stage, 1660 01:25:32,479 --> 01:25:35,360 Speaker 1: you know, as as Lisa was just saying, maybe something 1661 01:25:35,400 --> 01:25:38,360 Speaker 1: about the insurance of deposits, you know above, that two 1662 01:25:38,479 --> 01:25:40,920 Speaker 1: hundred and fifty K in the US would go some 1663 01:25:41,080 --> 01:25:43,360 Speaker 1: way to at least stemming a lot of the problems. 1664 01:25:44,360 --> 01:25:46,560 Speaker 1: I think that this is at the moment for policymakers 1665 01:25:46,680 --> 01:25:48,400 Speaker 1: is just wait and see it, because we're not quite, 1666 01:25:48,439 --> 01:25:50,559 Speaker 1: as you said, at the point where we can very 1667 01:25:50,640 --> 01:25:53,120 Speaker 1: clearly say this is going to be the next banking crisis. 1668 01:25:53,520 --> 01:25:56,000 Speaker 1: I think there's a wind of opportunity here, but a 1669 01:25:56,040 --> 01:25:57,760 Speaker 1: lot of it is just going to depends on regulators 1670 01:25:57,800 --> 01:26:00,280 Speaker 1: and of course how these various deals are. We need 1671 01:26:00,320 --> 01:26:02,120 Speaker 1: to know, of course, is that we're not going to 1672 01:26:02,200 --> 01:26:04,960 Speaker 1: unearth something else in the next week or two. You know, 1673 01:26:05,080 --> 01:26:07,800 Speaker 1: we're all saying that the three banks in the US, 1674 01:26:07,840 --> 01:26:10,519 Speaker 1: we're unique cases, credits sweets, very unique case as well. 1675 01:26:11,600 --> 01:26:13,680 Speaker 1: At some point people start to ask how many UK 1676 01:26:13,960 --> 01:26:16,920 Speaker 1: unique cases add up to contagion? So I think that's 1677 01:26:16,960 --> 01:26:18,240 Speaker 1: what we also need to see, is you know, a 1678 01:26:18,320 --> 01:26:21,680 Speaker 1: couple of weeks or no nothing being unearthed, and I 1679 01:26:21,760 --> 01:26:24,280 Speaker 1: think that would also reach your markets. Not do you 1680 01:26:24,360 --> 01:26:27,240 Speaker 1: think that on Wednesday a FED chair J. Powell raises 1681 01:26:27,280 --> 01:26:30,360 Speaker 1: raised by twenty five basis points he will help contribute 1682 01:26:30,439 --> 01:26:33,560 Speaker 1: to gaining confidence that there isn't another student drop or 1683 01:26:33,600 --> 01:26:36,000 Speaker 1: do you think that he will undermine whatever's been created. 1684 01:26:37,680 --> 01:26:39,360 Speaker 1: I think that if you were to raise by fifty 1685 01:26:39,400 --> 01:26:41,240 Speaker 1: basis points, if you were to stay up hold, I 1686 01:26:41,320 --> 01:26:44,479 Speaker 1: think that would undermine confidence going by twenty five basis 1687 01:26:44,520 --> 01:26:47,200 Speaker 1: points to me, just seemed like the right path at 1688 01:26:47,240 --> 01:26:50,799 Speaker 1: this stage. Turning markets are Look, yes things are difficult, 1689 01:26:51,200 --> 01:26:53,800 Speaker 1: but we are not overly concerned. We know that there's 1690 01:26:53,800 --> 01:26:55,559 Speaker 1: an inflation problem up this we're going to We think 1691 01:26:55,600 --> 01:26:58,400 Speaker 1: that we have the ability to contain financial instability and 1692 01:26:58,960 --> 01:27:01,240 Speaker 1: this price instability. I think that's what we need to 1693 01:27:01,280 --> 01:27:03,479 Speaker 1: hear from power. But look, so much depends over what 1694 01:27:03,640 --> 01:27:05,800 Speaker 1: happens over the next two days. How does the market 1695 01:27:05,920 --> 01:27:08,720 Speaker 1: respond to the needs that we've got over the last 1696 01:27:08,760 --> 01:27:11,599 Speaker 1: twenty four hours? That is really you know, we talk 1697 01:27:11,600 --> 01:27:14,559 Speaker 1: about data dependency, will you know? Really now central banks 1698 01:27:14,600 --> 01:27:18,799 Speaker 1: are incredibly data dependent. Sama, Thank you Samaha of Principal 1699 01:27:18,920 --> 01:27:21,560 Speaker 1: Asset Management. I go one further, data dependent, not just 1700 01:27:21,600 --> 01:27:24,000 Speaker 1: the economic data to stop prices of banks, isn't it? 1701 01:27:24,080 --> 01:27:25,400 Speaker 1: That's what I was going to happen with the debt. 1702 01:27:25,479 --> 01:27:26,840 Speaker 1: What data are we're going to get over the next 1703 01:27:26,880 --> 01:27:28,439 Speaker 1: couple of days, We're going to get the response in 1704 01:27:28,520 --> 01:27:30,200 Speaker 1: markets and how much are they going to trade off 1705 01:27:30,240 --> 01:27:33,080 Speaker 1: of that or basically, say, you know, twenty five or nothing? 1706 01:27:33,160 --> 01:27:35,840 Speaker 1: And then what kind of moral hazard does that raise 1707 01:27:36,080 --> 01:27:39,880 Speaker 1: when you're supposedly stripping out the supervisory function from the 1708 01:27:39,960 --> 01:27:43,400 Speaker 1: controlling inflation function, and you have to basically compromise the 1709 01:27:43,479 --> 01:27:47,120 Speaker 1: fighting inflation function to deal with the situations and pitfalls 1710 01:27:47,160 --> 01:27:49,200 Speaker 1: perhaps and the supervisory fact. People have lined up for 1711 01:27:49,240 --> 01:27:52,240 Speaker 1: twelve months saying that this chairman of this Fed does 1712 01:27:52,360 --> 01:27:55,519 Speaker 1: not want to be Burns, wants to be Volka. We've 1713 01:27:55,560 --> 01:27:58,200 Speaker 1: asked this week who wants to be treche and hike 1714 01:27:58,240 --> 01:28:01,599 Speaker 1: into a crisis? Who wants that? Well, Nil Ferguson basically 1715 01:28:01,640 --> 01:28:04,000 Speaker 1: wrote this column talking about how he is not Vulker 1716 01:28:04,200 --> 01:28:06,800 Speaker 1: and that he has not had that same kind of consistency, 1717 01:28:06,880 --> 01:28:09,920 Speaker 1: But he also has not seen inflation come down in 1718 01:28:10,000 --> 01:28:11,960 Speaker 1: the way that Vulker was able to see it come 1719 01:28:12,000 --> 01:28:13,960 Speaker 1: down before he stops. So you can play both sides 1720 01:28:14,000 --> 01:28:16,559 Speaker 1: of this. It's such a difficult moment and it's very 1721 01:28:16,600 --> 01:28:18,320 Speaker 1: hard to come up with the correct Historically, Anneal, I 1722 01:28:18,400 --> 01:28:20,280 Speaker 1: like how Ferguson opened that piece to break or not 1723 01:28:20,360 --> 01:28:22,559 Speaker 1: to break exactly. That was fantastic. Yeah, that's the question. 1724 01:28:22,680 --> 01:28:24,920 Speaker 1: This week, coming up six forty Eastern time, we'll catch 1725 01:28:25,040 --> 01:28:27,880 Speaker 1: up with Steve Paliuka, the senior advisor at Bain Capital 1726 01:28:27,960 --> 01:28:31,040 Speaker 1: Private Equity in the next hour. Greg Peters a PGIM, 1727 01:28:31,160 --> 01:28:40,280 Speaker 1: we'll talk about that in a moment, and about five 1728 01:28:40,320 --> 01:28:42,840 Speaker 1: minutes from now, US equity futures are going to open. 1729 01:28:42,920 --> 01:28:44,760 Speaker 1: We'll get to that open for you break down some 1730 01:28:44,840 --> 01:28:46,559 Speaker 1: of the price action. We'll do that with Greg Peters 1731 01:28:46,880 --> 01:28:49,519 Speaker 1: of PGIM, lisaor as we go through come through this 1732 01:28:49,720 --> 01:28:52,800 Speaker 1: three billion dollar deal three point two five billion US 1733 01:28:53,000 --> 01:28:55,720 Speaker 1: deal UBS credit suis, what's the big question for you? 1734 01:28:56,280 --> 01:28:58,320 Speaker 1: The big question for me really does stem from this 1735 01:28:58,439 --> 01:29:02,479 Speaker 1: sixteen billion francs of debt, this subordinated debt, just simply 1736 01:29:02,520 --> 01:29:05,000 Speaker 1: because it raises some serious questions for a two hundred 1737 01:29:05,000 --> 01:29:07,360 Speaker 1: and seventy five billion dollar market that hasn't really been 1738 01:29:07,400 --> 01:29:10,080 Speaker 1: tested before. That's my main one, and my other one 1739 01:29:10,280 --> 01:29:13,680 Speaker 1: is just what ad UBSC that we don't know to 1740 01:29:13,800 --> 01:29:15,560 Speaker 1: sort of draw the hard lines that they did on 1741 01:29:15,640 --> 01:29:17,120 Speaker 1: this deal. And how do you value a bank in 1742 01:29:17,200 --> 01:29:19,559 Speaker 1: Europe at the moment? This one closed at seven point 1743 01:29:19,600 --> 01:29:22,519 Speaker 1: four billion francs on Friday and there's a deal on 1744 01:29:22,600 --> 01:29:25,360 Speaker 1: Sunday for three billion what's your big question? My big 1745 01:29:25,479 --> 01:29:29,320 Speaker 1: question right now the US side of things, not the Europeans. 1746 01:29:29,560 --> 01:29:32,439 Speaker 1: Easy to take shots of the Europeans always is what 1747 01:29:32,600 --> 01:29:35,640 Speaker 1: are they going to do on the insurance limits of 1748 01:29:35,720 --> 01:29:37,880 Speaker 1: deposits in America? By the way, it's easy to take 1749 01:29:37,920 --> 01:29:39,640 Speaker 1: part shots in the US too, just saying that, and 1750 01:29:39,680 --> 01:29:41,040 Speaker 1: that's what I think a lot of people are doing. 1751 01:29:41,080 --> 01:29:42,240 Speaker 1: But you're right, that is gonna be a lot of 1752 01:29:42,280 --> 01:29:46,719 Speaker 1: questions career on taking shots at Europe's trying to shift 1753 01:29:46,760 --> 01:29:49,920 Speaker 1: the focus awhere from great pits a PGM. I'm next. 1754 01:29:55,080 --> 01:29:59,200 Speaker 1: This solution is the take or of great dispeason by UBS. Yeah, it' 1755 01:30:00,120 --> 01:30:07,080 Speaker 1: billion of continuency credit guarantees. There there's one hundred billion 1756 01:30:07,360 --> 01:30:10,519 Speaker 1: of liquidity support. I can reassure the members of the 1757 01:30:10,640 --> 01:30:13,720 Speaker 1: committee that our banking system is sound. I was a 1758 01:30:13,800 --> 01:30:15,720 Speaker 1: run in two thousand and eight. I think that the 1759 01:30:15,880 --> 01:30:19,000 Speaker 1: banking sector is currently in a much much stronger position 1760 01:30:19,439 --> 01:30:21,559 Speaker 1: than where it was back in two thousand and eight. 1761 01:30:21,720 --> 01:30:25,519 Speaker 1: Americans can rest assured that our banking system is saved. 1762 01:30:26,240 --> 01:30:30,320 Speaker 1: Your depositors say. This is a special edition of Bloomberg 1763 01:30:30,400 --> 01:30:35,760 Speaker 1: Surveillance with Jonathan Burrow and Lisa Runaways. A life from 1764 01:30:35,800 --> 01:30:38,680 Speaker 1: New York City coming up, avoiding a weekend cliff edge. 1765 01:30:38,840 --> 01:30:41,920 Speaker 1: UBS agreeing to buy a credit Suis the Swiss government 1766 01:30:41,960 --> 01:30:44,680 Speaker 1: broken a deal for more than three a billion as 1767 01:30:44,720 --> 01:30:48,320 Speaker 1: officials worldwide race to restore confidence. From New York City 1768 01:30:48,880 --> 01:30:52,240 Speaker 1: Good Evening alongside Lisa Brownt's I'm Jonathan Farrow, our special 1769 01:30:52,400 --> 01:30:55,759 Speaker 1: edition of Bloomberg Surveillance continues Bramo, let's talk about future 1770 01:30:55,760 --> 01:30:57,840 Speaker 1: as we open up positive a third or one percent. 1771 01:30:57,920 --> 01:30:59,880 Speaker 1: So we asked the question, was it enough right now? 1772 01:31:00,200 --> 01:31:03,960 Speaker 1: People are tentatively feeling enthusiastic. The night is young. We 1773 01:31:04,000 --> 01:31:06,120 Speaker 1: shall see how it goes. But there is this question 1774 01:31:06,240 --> 01:31:09,040 Speaker 1: of does this restore risk appetite given the fact that 1775 01:31:09,080 --> 01:31:12,880 Speaker 1: you are getting such significant intervention from federal authorities. I 1776 01:31:12,920 --> 01:31:14,640 Speaker 1: ask you at the top of the program, do we 1777 01:31:14,720 --> 01:31:17,200 Speaker 1: have a solution? Or if we created a monster and 1778 01:31:17,320 --> 01:31:19,759 Speaker 1: the monster is that we're talking about when we discussed 1779 01:31:19,800 --> 01:31:21,840 Speaker 1: what that was. Is it the moral hazard? Is it 1780 01:31:21,960 --> 01:31:24,120 Speaker 1: the perception that there's a bigger problem than perhaps people 1781 01:31:24,160 --> 01:31:28,200 Speaker 1: were aware of, or is there this larger banking crisis 1782 01:31:28,400 --> 01:31:32,160 Speaker 1: or a larger banking challenge that people haven't fully articulated 1783 01:31:32,400 --> 01:31:35,040 Speaker 1: that's underpinning some of the emergency steps. How much would 1784 01:31:35,040 --> 01:31:39,200 Speaker 1: you read into early futures pricing fare less evening on 1785 01:31:39,320 --> 01:31:42,120 Speaker 1: a Sunday off the back of this, you know very little. 1786 01:31:42,160 --> 01:31:43,439 Speaker 1: I think that what people are going to be looking 1787 01:31:43,439 --> 01:31:46,960 Speaker 1: for is Monday morning. In particular European banks, how do 1788 01:31:47,040 --> 01:31:49,840 Speaker 1: they trade? How much contagion risk is there? Or do 1789 01:31:49,960 --> 01:31:52,680 Speaker 1: people view this as a uniquely Credit Suiece issue that's 1790 01:31:52,720 --> 01:31:54,200 Speaker 1: been going on for quite a while. Let's get to 1791 01:31:54,240 --> 01:31:56,000 Speaker 1: the tame coverage. Do you want to get Shinali Bassak 1792 01:31:56,040 --> 01:31:59,280 Speaker 1: a Wall Street correspondent Mike McKay on the Central Bank response, 1793 01:31:59,360 --> 01:32:02,280 Speaker 1: candy lights and DACA another downgrade for First Republic will 1794 01:32:02,280 --> 01:32:04,960 Speaker 1: get to me just a moment, Chinali, talk me through 1795 01:32:05,040 --> 01:32:07,959 Speaker 1: the numbers for the people. Just tune again for ups 1796 01:32:08,240 --> 01:32:10,160 Speaker 1: take another Credit Swae. There are a few things to 1797 01:32:10,240 --> 01:32:12,200 Speaker 1: remember about this deal, and it tells you Jest how 1798 01:32:12,280 --> 01:32:14,720 Speaker 1: much a bank is worth under a time of stress, John, 1799 01:32:15,120 --> 01:32:17,519 Speaker 1: That is an asset to equity ratio of more than 1800 01:32:17,640 --> 01:32:20,719 Speaker 1: one hundred and seventy. This is a deal that brings 1801 01:32:20,800 --> 01:32:24,719 Speaker 1: you to the share price of less than nine percent 1802 01:32:24,880 --> 01:32:27,240 Speaker 1: less of what Credit sUAS is worth. That it's two 1803 01:32:27,280 --> 01:32:29,679 Speaker 1: thousand and seven peaks. This has been a slow decline 1804 01:32:30,000 --> 01:32:32,360 Speaker 1: and then an abrupt ending for Credit Suace. Now remember 1805 01:32:32,439 --> 01:32:34,880 Speaker 1: this is also difficult for ubs, and you will have 1806 01:32:35,040 --> 01:32:37,200 Speaker 1: some things to watch here. They are going to plan 1807 01:32:37,320 --> 01:32:39,640 Speaker 1: to cut eight billion dollars worth of costs. This is 1808 01:32:39,680 --> 01:32:43,800 Speaker 1: a tremendous impact on the job market, particularly investment banking 1809 01:32:44,080 --> 01:32:46,639 Speaker 1: and possibly wealth management, a cost of globe as well. 1810 01:32:46,760 --> 01:32:49,240 Speaker 1: Given that these firms will seek synergies, then there are 1811 01:32:49,280 --> 01:32:51,400 Speaker 1: the investors to think about. That's a lot of money 1812 01:32:51,439 --> 01:32:53,320 Speaker 1: at play there. You've been talking about it all evening, 1813 01:32:53,400 --> 01:32:56,000 Speaker 1: which is the fact that these at one bonds will 1814 01:32:56,040 --> 01:32:58,960 Speaker 1: be wiped out. And remember that makes you look at 1815 01:32:59,000 --> 01:33:03,120 Speaker 1: the entire market for European cocos. Remember when you think 1816 01:33:03,160 --> 01:33:04,840 Speaker 1: about that, when my switchers are saying, you have to 1817 01:33:04,880 --> 01:33:07,719 Speaker 1: think about how much this increases the cost of funding 1818 01:33:07,880 --> 01:33:10,560 Speaker 1: for the European bank market. And by the way, some 1819 01:33:10,720 --> 01:33:13,160 Speaker 1: of those are systemic global banks, so the cost of 1820 01:33:13,240 --> 01:33:17,200 Speaker 1: funding overall, that has a ripple effect to look at. Lastly, 1821 01:33:17,640 --> 01:33:19,880 Speaker 1: keep an eye on the CDs prices. They've already blown out. 1822 01:33:20,200 --> 01:33:23,479 Speaker 1: UBS is now acquiring an investment bank that it admits 1823 01:33:23,840 --> 01:33:27,639 Speaker 1: is a large liability, which means that government backstop taking 1824 01:33:27,680 --> 01:33:31,519 Speaker 1: on billion dollars worth of initial liabilities was needed before 1825 01:33:31,560 --> 01:33:34,280 Speaker 1: this kind of deal would happen, Kaylee. Meanwhile, when Schnelly 1826 01:33:34,360 --> 01:33:37,559 Speaker 1: talks about potential contagion. We have gotten some word about 1827 01:33:37,600 --> 01:33:40,000 Speaker 1: what the next steps could be for First Republic or 1828 01:33:40,040 --> 01:33:43,840 Speaker 1: what the potential risks are. What's the latest. Well, First 1829 01:33:43,880 --> 01:33:47,840 Speaker 1: Republic was downgraded again by SMP Global Ratings, getting cut 1830 01:33:47,920 --> 01:33:51,320 Speaker 1: even further into junk. Basically that ratings agency saying the 1831 01:33:51,439 --> 01:33:54,360 Speaker 1: thirty billion dollars in deposits it received from eleven large 1832 01:33:54,400 --> 01:33:57,440 Speaker 1: banks last week and an attempted and I stress attempted 1833 01:33:57,760 --> 01:34:00,280 Speaker 1: rescue is not going to be a longer term solution, 1834 01:34:00,360 --> 01:34:03,200 Speaker 1: SMP believing it will be difficult for them to attract 1835 01:34:03,320 --> 01:34:06,560 Speaker 1: meaningful deposits, which constrains the bank's business position. And this 1836 01:34:06,640 --> 01:34:09,960 Speaker 1: speaks more broadly to the issue of deposit outflows from 1837 01:34:10,080 --> 01:34:13,160 Speaker 1: mid size regional lenders too big to fail banks that 1838 01:34:13,240 --> 01:34:16,320 Speaker 1: everyone is concerned about because it is that deposit flight 1839 01:34:16,360 --> 01:34:18,960 Speaker 1: and the liquidity challenges that have led to the collapse 1840 01:34:19,040 --> 01:34:21,320 Speaker 1: of two banks already. We are still waiting to see 1841 01:34:21,360 --> 01:34:24,120 Speaker 1: if a deal can happen for Silicon Valley Bank and 1842 01:34:24,360 --> 01:34:27,640 Speaker 1: Signature Bank. We understand New York Community Bank Corps is 1843 01:34:27,720 --> 01:34:31,080 Speaker 1: looking potentially at pursuing Signature, though no guarantee that deal 1844 01:34:31,280 --> 01:34:34,519 Speaker 1: is done, and we remain on watch for these liquidity 1845 01:34:34,600 --> 01:34:36,519 Speaker 1: challenges that banks here in the US. It is so 1846 01:34:36,680 --> 01:34:39,160 Speaker 1: interesting though that in light of the deal between credit 1847 01:34:39,160 --> 01:34:41,400 Speaker 1: suites and ubs, we heard from the Treasury and Fed 1848 01:34:41,479 --> 01:34:45,040 Speaker 1: in a joint statement from Treasury Secretary Janet Yellen and 1849 01:34:45,120 --> 01:34:49,800 Speaker 1: Chairman Powell saying that they basically welcome what Switzerland did today, 1850 01:34:49,840 --> 01:34:52,479 Speaker 1: but they still are saying that the US financial system 1851 01:34:52,560 --> 01:34:55,719 Speaker 1: is resilient. Capital and liquidity positions of the US banking 1852 01:34:55,800 --> 01:34:58,800 Speaker 1: system are strong. We're probably going to see how strong 1853 01:34:59,040 --> 01:35:01,879 Speaker 1: over the coming days. Monika ke point of our coverage 1854 01:35:01,920 --> 01:35:04,240 Speaker 1: throughout the last week or so. What does all this 1855 01:35:04,360 --> 01:35:07,040 Speaker 1: mean for cham and Pal on Wednesday, Well, it really 1856 01:35:07,080 --> 01:35:09,680 Speaker 1: makes his job more difficult in a way because we're 1857 01:35:09,720 --> 01:35:11,479 Speaker 1: getting to that point where we have to have these 1858 01:35:11,520 --> 01:35:14,160 Speaker 1: Sunday night rescues, and so people don't know what is 1859 01:35:14,200 --> 01:35:16,680 Speaker 1: going to happen when the markets open on Monday. And 1860 01:35:17,040 --> 01:35:19,599 Speaker 1: in the past, we go back to two thousand and eight, 1861 01:35:19,680 --> 01:35:22,920 Speaker 1: two thousand and nine, Monday mornings were not always the best. 1862 01:35:23,280 --> 01:35:26,720 Speaker 1: We did get the statement, as Kaylee pointed out, from 1863 01:35:27,000 --> 01:35:29,919 Speaker 1: the Fed and Treasury saying they were in close contact 1864 01:35:30,000 --> 01:35:33,120 Speaker 1: with their European counterparts and they did increase the frequency 1865 01:35:33,160 --> 01:35:36,760 Speaker 1: of swap lines around the world, which we're probably going 1866 01:35:36,800 --> 01:35:39,920 Speaker 1: to be valuable to the Swiss and Europeans as they 1867 01:35:40,040 --> 01:35:42,639 Speaker 1: try to do some cross border payments over the next 1868 01:35:42,680 --> 01:35:45,439 Speaker 1: few days. But the only thing they said was about 1869 01:35:45,479 --> 01:35:48,240 Speaker 1: the US. The capital and liquidity positions of the US 1870 01:35:48,320 --> 01:35:51,879 Speaker 1: banking system are strong, and the US financial system is resilient, 1871 01:35:52,120 --> 01:35:55,280 Speaker 1: which raises questions about when the futures start training. What 1872 01:35:55,400 --> 01:35:57,400 Speaker 1: we're going to see happen with the smaller US banks 1873 01:35:57,439 --> 01:36:00,320 Speaker 1: that we went into Friday worried about and our still 1874 01:36:00,520 --> 01:36:03,080 Speaker 1: worried about as we come out of this weekend, because 1875 01:36:03,320 --> 01:36:06,640 Speaker 1: Credit Sweee and UBS didn't have anything to do with 1876 01:36:06,800 --> 01:36:11,160 Speaker 1: those banks, although the Europeans blamed their troubles on why 1877 01:36:11,280 --> 01:36:13,160 Speaker 1: Credit Sweee went bad. So it's going to be a 1878 01:36:13,280 --> 01:36:16,280 Speaker 1: very interesting morning tomorrow morning, and it will have a 1879 01:36:16,360 --> 01:36:19,000 Speaker 1: lot of influence on what happens with j Powell and 1880 01:36:19,200 --> 01:36:22,000 Speaker 1: the fan On Wednesday, everyone's looking at Someone asked the blind, Lisa, 1881 01:36:22,280 --> 01:36:24,280 Speaker 1: you know it's not okay. You know this is ludicrous. 1882 01:36:24,400 --> 01:36:25,920 Speaker 1: Let's just call it what it is. I've been saying, 1883 01:36:25,960 --> 01:36:29,240 Speaker 1: to call the demise of Credit Suee as a standalone entity, 1884 01:36:29,479 --> 01:36:32,519 Speaker 1: the fault of Silicon Valley Bank. I mean, that's nuts. 1885 01:36:32,560 --> 01:36:34,320 Speaker 1: If they were in the news conference a couple of 1886 01:36:34,360 --> 01:36:37,560 Speaker 1: asika and they also took shots at Twitter and what 1887 01:36:37,680 --> 01:36:39,280 Speaker 1: happened at the end of last year, it makes sense 1888 01:36:39,320 --> 01:36:42,479 Speaker 1: to that. So people are saying a sentiment accelerated the demise. 1889 01:36:42,520 --> 01:36:44,960 Speaker 1: But we also heard that they were talking about how 1890 01:36:45,000 --> 01:36:47,000 Speaker 1: to deal with some of the outflows from Credit SUEEE 1891 01:36:47,280 --> 01:36:50,080 Speaker 1: as recently as a week ago or two weeks ago, 1892 01:36:50,160 --> 01:36:52,880 Speaker 1: So this has clearly been in the discussions for quite 1893 01:36:52,920 --> 01:36:56,160 Speaker 1: a while. That said, this sort of sudden turn and 1894 01:36:56,240 --> 01:36:58,519 Speaker 1: sentiment around the banking industry has caused a lot of 1895 01:36:58,600 --> 01:37:01,799 Speaker 1: concern among regulators, and clearly that is what they're responding 1896 01:37:01,840 --> 01:37:04,680 Speaker 1: to to try to prevent some sort of run on 1897 01:37:04,800 --> 01:37:06,559 Speaker 1: the bank. What was this bank worth in the crisis? 1898 01:37:06,720 --> 01:37:09,759 Speaker 1: One hundred billion before the financial crisis at the closed 1899 01:37:09,760 --> 01:37:13,439 Speaker 1: on Friday seven point four and this weekend three billion. 1900 01:37:13,640 --> 01:37:17,799 Speaker 1: That's the deal. That's a massive change, Shinali, Kayleie, Michael McKee. 1901 01:37:17,920 --> 01:37:19,640 Speaker 1: That the three of you. Thank you if you are 1902 01:37:19,680 --> 01:37:22,160 Speaker 1: just tuning again. We do have a deal, UBS agreeing 1903 01:37:22,160 --> 01:37:25,160 Speaker 1: to buy Credit Suis for three billion Swiss francs. A 1904 01:37:25,280 --> 01:37:27,759 Speaker 1: lot to work through the SMB offering a one hundred 1905 01:37:27,800 --> 01:37:31,720 Speaker 1: billion franc liquidity assistant to UBS. Controversial part of this 1906 01:37:31,800 --> 01:37:34,040 Speaker 1: what happens with some of the riskier debt. The government 1907 01:37:34,120 --> 01:37:36,799 Speaker 1: is granting a nine billion frank guarantee for potential losses 1908 01:37:36,800 --> 01:37:39,000 Speaker 1: from assets. UBS is taken over and we'll talk about 1909 01:37:39,040 --> 01:37:40,400 Speaker 1: that through the hold of the week ahead of us, 1910 01:37:40,640 --> 01:37:42,160 Speaker 1: and please just say that joining us now it's Greg 1911 01:37:42,240 --> 01:37:46,080 Speaker 1: Peters Co, CIO of PGM Fixed Income. So Greg Leasa 1912 01:37:46,160 --> 01:37:47,760 Speaker 1: and I've touched on this over the last few hours, 1913 01:37:47,800 --> 01:37:49,960 Speaker 1: and thanks for being with us this afternoon, this evening. 1914 01:37:50,439 --> 01:37:53,639 Speaker 1: We said this last week SVB people just turned around 1915 01:37:53,680 --> 01:37:56,280 Speaker 1: and said it's just a bank for startups and venture capital. 1916 01:37:56,640 --> 01:38:02,360 Speaker 1: It's idiosyncretic signature bank, crypto, idio, syncratic, sway, idiot, socratic. 1917 01:38:02,439 --> 01:38:05,000 Speaker 1: It's been a story for the last decade. Is all 1918 01:38:05,040 --> 01:38:08,599 Speaker 1: of this idiosyncratic or do we have a bigger problem? Well, 1919 01:38:08,680 --> 01:38:11,600 Speaker 1: not anymore. I mean contagion is the spread of irrational, 1920 01:38:12,240 --> 01:38:15,439 Speaker 1: irrational fear right that hunts out the weakest links in 1921 01:38:15,520 --> 01:38:18,479 Speaker 1: the system. And right now that the markets are hunting 1922 01:38:18,880 --> 01:38:22,800 Speaker 1: right and so it's looking for any weakness across financials. 1923 01:38:23,880 --> 01:38:26,400 Speaker 1: And so whether it's rational or not doesn't really matter. 1924 01:38:26,560 --> 01:38:29,400 Speaker 1: This has a tendency of taking a life on its own, 1925 01:38:29,479 --> 01:38:32,240 Speaker 1: and that is where we're at right now. And it's 1926 01:38:32,280 --> 01:38:36,720 Speaker 1: also important to remember that ultimately, financials are a confidence game, 1927 01:38:36,800 --> 01:38:40,120 Speaker 1: and so there is a call the question around confidence 1928 01:38:40,680 --> 01:38:43,439 Speaker 1: and that's the state of play. Unfortunately, how has your 1929 01:38:43,520 --> 01:38:46,439 Speaker 1: view then changed, I mean, has your investment pieces changed 1930 01:38:46,840 --> 01:38:49,439 Speaker 1: given what's happened over the past couple of weeks, the 1931 01:38:49,520 --> 01:38:51,200 Speaker 1: fact that this does tend to take on a life 1932 01:38:51,200 --> 01:38:54,599 Speaker 1: of its own. Yeah, so it definitely makes this more 1933 01:38:54,720 --> 01:38:59,280 Speaker 1: caution more cautious. On the economic outlook, we thought there 1934 01:38:59,400 --> 01:39:02,960 Speaker 1: was a higher probability of a soft landing just the 1935 01:39:03,400 --> 01:39:07,799 Speaker 1: inherent underlying growth is really quite robust. That is definitely 1936 01:39:07,920 --> 01:39:10,879 Speaker 1: not the case today. I think the regional bank pullback 1937 01:39:11,080 --> 01:39:14,160 Speaker 1: manners and matters a lot. And then we've had a 1938 01:39:14,240 --> 01:39:17,599 Speaker 1: clear preference around the money center banks and they're getting 1939 01:39:17,680 --> 01:39:20,479 Speaker 1: kind of thrown in as well. So we still very 1940 01:39:20,560 --> 01:39:22,800 Speaker 1: much like that part of the market, but it's really 1941 01:39:22,840 --> 01:39:25,360 Speaker 1: hard to kind of step into the breach. I think 1942 01:39:25,400 --> 01:39:28,840 Speaker 1: the big thing that happened today though, was the at 1943 01:39:29,040 --> 01:39:31,200 Speaker 1: one market, So I know you talked about it, but 1944 01:39:31,280 --> 01:39:35,360 Speaker 1: it's a two hundred billion Euro market, and the fact 1945 01:39:35,439 --> 01:39:39,439 Speaker 1: that that entire part of the capital stack was wiped 1946 01:39:39,479 --> 01:39:42,679 Speaker 1: out and there was a small portion leftover for equity 1947 01:39:42,720 --> 01:39:46,760 Speaker 1: players goes against how it's supposed to work. So that 1948 01:39:47,080 --> 01:39:49,800 Speaker 1: is part of the market that has to really work 1949 01:39:49,840 --> 01:39:53,880 Speaker 1: itself out here over the next weeks or years. Can 1950 01:39:53,920 --> 01:39:56,639 Speaker 1: you build on work itself out? And what that means, 1951 01:39:56,720 --> 01:39:58,599 Speaker 1: in other words, is everyone just going to go through 1952 01:39:58,640 --> 01:40:04,080 Speaker 1: their A two one portfolios and press sell. Well. They 1953 01:40:04,640 --> 01:40:07,240 Speaker 1: definitely have to be repriced, right. The issue that we've 1954 01:40:07,240 --> 01:40:10,840 Speaker 1: always had that that market is that it's really hard 1955 01:40:10,880 --> 01:40:15,200 Speaker 1: to value, so we thought it was mispriced too much 1956 01:40:15,240 --> 01:40:20,479 Speaker 1: equity risk relative to what you're actually getting paid in 1957 01:40:20,640 --> 01:40:24,160 Speaker 1: terms of coupon and yield. So I think first order 1958 01:40:24,439 --> 01:40:28,000 Speaker 1: is that those yields have to go higher, those prices 1959 01:40:28,080 --> 01:40:32,560 Speaker 1: have to go lower as that equity option totally gets restruck, 1960 01:40:32,720 --> 01:40:36,719 Speaker 1: and I think that changes the whole dynamics of the market. 1961 01:40:36,880 --> 01:40:39,600 Speaker 1: And then I think there has to be some regulatory 1962 01:40:39,720 --> 01:40:44,840 Speaker 1: explaining as to why the waterfall wasn't the waterfall to 1963 01:40:45,000 --> 01:40:48,880 Speaker 1: assure that two hundred billion size market. Greg can might 1964 01:40:48,960 --> 01:40:51,080 Speaker 1: just come back to something you said, equity risk. I 1965 01:40:51,160 --> 01:40:53,280 Speaker 1: often heard them describe that way that they carry this 1966 01:40:53,360 --> 01:40:56,200 Speaker 1: equity like risk, but haven't we just figured out that 1967 01:40:56,280 --> 01:41:01,000 Speaker 1: they risk of than equities, which is why I have 1968 01:41:01,200 --> 01:41:05,439 Speaker 1: a problem with it, Jonathan, So a minute, it's actually 1969 01:41:05,560 --> 01:41:10,840 Speaker 1: okay for those securities of being wiped out. That's that 1970 01:41:11,160 --> 01:41:13,800 Speaker 1: was kind of part of the documentation and that's what 1971 01:41:13,920 --> 01:41:17,040 Speaker 1: we thought all along. What's less okay is that the 1972 01:41:17,160 --> 01:41:22,320 Speaker 1: stubequity is treated higher and so that just doesn't make 1973 01:41:22,360 --> 01:41:25,280 Speaker 1: a lot of sense to me. And I think there 1974 01:41:25,400 --> 01:41:30,000 Speaker 1: has to be some exclamation as to why that occurred. Greg. 1975 01:41:30,040 --> 01:41:32,040 Speaker 1: If you say there, we'll continue this conversation. I'm going 1976 01:41:32,080 --> 01:41:34,120 Speaker 1: to open up a political question, which I don't think 1977 01:41:34,120 --> 01:41:36,120 Speaker 1: you're gonna want. Part of Greg Pete is a page 1978 01:41:36,160 --> 01:41:38,200 Speaker 1: in fixed income. Greg, thank you, and they gonna turn 1979 01:41:38,240 --> 01:41:42,519 Speaker 1: to me fantazzic. Look, a lot of people are logged 1980 01:41:42,560 --> 01:41:44,880 Speaker 1: on to the Blomberg terminal this evening for good reason. 1981 01:41:44,960 --> 01:41:47,160 Speaker 1: There's a lot to discuss. And as soon as that 1982 01:41:47,200 --> 01:41:50,880 Speaker 1: headline dropped, Ping Ping, pink messages straight away about all 1983 01:41:50,920 --> 01:41:53,880 Speaker 1: of this. There are questions being asked about whether this 1984 01:41:54,000 --> 01:41:56,160 Speaker 1: was a political decision. So this is what we know 1985 01:41:56,320 --> 01:41:58,600 Speaker 1: so far. On the call on the analyst code, they 1986 01:41:58,640 --> 01:42:01,640 Speaker 1: were asked about why this happen. We've been told by 1987 01:42:01,760 --> 01:42:05,040 Speaker 1: the UBS leadership that this was a decision taken by 1988 01:42:05,080 --> 01:42:08,880 Speaker 1: the Swiss regulator. They cleared this up. The question that's 1989 01:42:08,920 --> 01:42:11,560 Speaker 1: being gasked, and I'm not implying that this is my 1990 01:42:11,720 --> 01:42:14,040 Speaker 1: judgment on the situation. This is just the question that's 1991 01:42:14,080 --> 01:42:15,519 Speaker 1: being gassed and it's out there at the moment, so 1992 01:42:15,560 --> 01:42:19,040 Speaker 1: we should address it. Was this a political decision because 1993 01:42:19,040 --> 01:42:21,720 Speaker 1: of the nature of the shareholders in this name and 1994 01:42:21,840 --> 01:42:24,760 Speaker 1: the assistance this name received only a few months ago 1995 01:42:24,920 --> 01:42:28,800 Speaker 1: in a capital race from the Saudis right? Is that 1996 01:42:28,960 --> 01:42:31,200 Speaker 1: why the equity portion of this has been protected to 1997 01:42:31,320 --> 01:42:33,479 Speaker 1: some extent. And I'm sure they're not happy with where 1998 01:42:33,520 --> 01:42:36,000 Speaker 1: this is. Think about where this priced today in this 1999 01:42:36,120 --> 01:42:38,080 Speaker 1: deal and it was when they offered that assistance. But 2000 01:42:38,479 --> 01:42:41,320 Speaker 1: that's a question people have asked today. It's a relevant question, 2001 01:42:41,479 --> 01:42:44,840 Speaker 1: especially given how vocal some of the assistant has been 2002 01:42:45,040 --> 01:42:47,880 Speaker 1: as people stepped up from the Middle East, different big 2003 01:42:47,960 --> 01:42:51,120 Speaker 1: funds to support Credit Suissen its time of need. All 2004 01:42:51,200 --> 01:42:53,439 Speaker 1: these questions will be hashed out. I think what Greg 2005 01:42:53,560 --> 01:42:56,720 Speaker 1: Peters is talking about right now is regardless, people are 2006 01:42:56,800 --> 01:43:00,639 Speaker 1: now understanding that perhaps in practice that has been established 2007 01:43:00,800 --> 01:43:04,839 Speaker 1: by the Swiss regulator that these particular instruments are riskier 2008 01:43:05,040 --> 01:43:07,639 Speaker 1: than equity and as a result, as he just said, 2009 01:43:07,840 --> 01:43:10,679 Speaker 1: the entire market will need to be repriced. Who holds 2010 01:43:10,720 --> 01:43:14,000 Speaker 1: those what kind of losses will look like on Monday 2011 01:43:14,080 --> 01:43:17,080 Speaker 1: morning when it starts really coming to four as people 2012 01:43:17,160 --> 01:43:20,400 Speaker 1: reassess the valuation. Will continue this conversation. Greg Patis is 2013 01:43:20,400 --> 01:43:22,040 Speaker 1: going to join us on the other side of a 2014 01:43:22,120 --> 01:43:24,960 Speaker 1: commercial break after that, Stephen Bigger six thirty as in time, 2015 01:43:24,960 --> 01:43:26,920 Speaker 1: about seventeen minutes from now, we'll catch up with a 2016 01:43:27,040 --> 01:43:31,160 Speaker 1: research director over at Argus. Equity futures open up positive 2017 01:43:31,240 --> 01:43:33,000 Speaker 1: by about a third or one percent from New York 2018 01:43:33,080 --> 01:43:42,640 Speaker 1: City this evening, good evening. I'm expecting the Fed to 2019 01:43:42,760 --> 01:43:46,120 Speaker 1: cut rates in September to stave off for session. And 2020 01:43:46,240 --> 01:43:48,160 Speaker 1: there are so many things you can look at. The 2021 01:43:49,360 --> 01:43:51,840 Speaker 1: inversion of the yel curve. You can go back and 2022 01:43:52,040 --> 01:43:54,360 Speaker 1: look at one of the things that j. Pale told us, 2023 01:43:54,400 --> 01:43:57,920 Speaker 1: where is their favorite indicator, the three month versus three 2024 01:43:58,000 --> 01:44:02,320 Speaker 1: months eighteen months forward. That inverted at the end of 2025 01:44:02,439 --> 01:44:06,240 Speaker 1: last year, and generally once that invert, you have recession 2026 01:44:06,680 --> 01:44:10,280 Speaker 1: about a year later. But Michael JP Morgan Asset management 2027 01:44:10,320 --> 01:44:13,480 Speaker 1: on this program in the last hour just absolutely fantastic. 2028 01:44:13,560 --> 01:44:15,680 Speaker 1: Off the back of this bank in turmoil over the 2029 01:44:15,760 --> 01:44:18,840 Speaker 1: last couple of weekends. He now believes LASA that we 2030 01:44:18,920 --> 01:44:21,720 Speaker 1: get a cup from the Federal Reserve in September. What's 2031 01:44:21,720 --> 01:44:23,720 Speaker 1: interesting about this call is because we started the year 2032 01:44:23,760 --> 01:44:27,080 Speaker 1: talking about cuts. In September, wipe them out, Priceton more hikes, 2033 01:44:27,120 --> 01:44:29,720 Speaker 1: took the hikes back, and Priceton cuts again. We haven't 2034 01:44:29,760 --> 01:44:32,080 Speaker 1: even got through Q one, So let's just see where 2035 01:44:32,080 --> 01:44:34,400 Speaker 1: we are in three weeks and then perhaps we can 2036 01:44:34,479 --> 01:44:37,919 Speaker 1: reprice them in there and talk about potential ongoing inflation 2037 01:44:38,000 --> 01:44:41,080 Speaker 1: that he counted out. Look, it all is moving so quickly, 2038 01:44:41,240 --> 01:44:43,960 Speaker 1: and when things move quickly in a vacuum, things break. 2039 01:44:44,120 --> 01:44:45,960 Speaker 1: And this really is one of the key questions and 2040 01:44:46,000 --> 01:44:48,559 Speaker 1: the reason why we're watching how the trading evolves heading 2041 01:44:48,600 --> 01:44:51,800 Speaker 1: into the opening tomorrow. How do things kind of shake 2042 01:44:51,880 --> 01:44:55,000 Speaker 1: out among a lot of investors who've gotten rather spooked 2043 01:44:55,200 --> 01:44:57,280 Speaker 1: by some of the emergency measures taken by a lot 2044 01:44:57,280 --> 01:45:00,160 Speaker 1: of regulators. Got another message across the Blimberg terminal say, 2045 01:45:00,240 --> 01:45:03,760 Speaker 1: former Credit Swiss employee can't help but feel emotional. I 2046 01:45:03,800 --> 01:45:06,000 Speaker 1: think a lot of people feel that ware about this institution. 2047 01:45:06,200 --> 01:45:08,680 Speaker 1: This is a one hundred and sixty six year old institution. 2048 01:45:09,080 --> 01:45:12,920 Speaker 1: It was one of the major banking institutions of the world, 2049 01:45:13,080 --> 01:45:16,320 Speaker 1: had a massive implication in the US as well, and 2050 01:45:16,439 --> 01:45:18,680 Speaker 1: that's really one of the big questions how that's going 2051 01:45:18,720 --> 01:45:21,559 Speaker 1: to evolve. It is an emotional moment for the thousands 2052 01:45:21,600 --> 01:45:24,120 Speaker 1: of employees also who work there, who now have a 2053 01:45:24,200 --> 01:45:26,880 Speaker 1: great uncertainty around their future employment, and some might argue 2054 01:45:26,880 --> 01:45:29,719 Speaker 1: have been let down repeatedly by leadership after the leadership, 2055 01:45:29,760 --> 01:45:31,840 Speaker 1: after the leadership, after the leadership for the best part 2056 01:45:31,880 --> 01:45:35,799 Speaker 1: of ten years. The legal questions, the oversight in issues 2057 01:45:35,880 --> 01:45:38,840 Speaker 1: like arcadis the questions of the businesses that they've gotten 2058 01:45:38,920 --> 01:45:41,240 Speaker 1: into and gotten out of and the people who they've 2059 01:45:41,320 --> 01:45:43,240 Speaker 1: lost along the way. There have been so many missed 2060 01:45:43,280 --> 01:45:47,160 Speaker 1: opportunities that have been highlighted with this rather dramatic Danuema 2061 01:45:47,280 --> 01:45:50,240 Speaker 1: today joining us now Greg Peters back with us COCO 2062 01:45:50,720 --> 01:45:54,599 Speaker 1: of PGIM Fixed Income. Greg, let's start here, what's changed 2063 01:45:54,680 --> 01:45:57,439 Speaker 1: for you in the last couple of weeks after let's 2064 01:45:57,479 --> 01:46:01,760 Speaker 1: call it the chaos that we've witnessed. Yeah, so I 2065 01:46:01,840 --> 01:46:05,800 Speaker 1: think what change is the economic outlook. So I do 2066 01:46:06,040 --> 01:46:11,320 Speaker 1: think that all the financial news that we're dealing with 2067 01:46:11,479 --> 01:46:13,479 Speaker 1: over the past week, and it's just been a week, 2068 01:46:14,320 --> 01:46:18,720 Speaker 1: has changed the outlook. What I think the possibility of 2069 01:46:19,280 --> 01:46:22,559 Speaker 1: soft landing is a much less today. I think probably 2070 01:46:22,720 --> 01:46:26,120 Speaker 1: of a recession much higher. I do think that changes 2071 01:46:26,600 --> 01:46:30,240 Speaker 1: the FED trajectory. But the one thing that we haven't 2072 01:46:30,280 --> 01:46:35,200 Speaker 1: talked about is inflation. So these FED cuts have to 2073 01:46:35,320 --> 01:46:39,040 Speaker 1: occur only and if only inflation comes down to a 2074 01:46:39,200 --> 01:46:43,000 Speaker 1: level that makes them comfortable, and we're not there yet. 2075 01:46:43,120 --> 01:46:48,240 Speaker 1: So everyone's expecting that this shake up will bring the 2076 01:46:48,320 --> 01:46:51,960 Speaker 1: economy down and inflation with it. But if that doesn't occur, 2077 01:46:52,400 --> 01:46:55,960 Speaker 1: then that is a whole different outlook, and that changes 2078 01:46:56,080 --> 01:47:00,920 Speaker 1: the entire trajectory of the FED curve. Delia Via, chief 2079 01:47:00,960 --> 01:47:03,920 Speaker 1: Global Economist over a PGM fixed income came out into 2080 01:47:03,960 --> 01:47:06,560 Speaker 1: the balance of risks have shifted. Your colleague, also the 2081 01:47:06,640 --> 01:47:10,639 Speaker 1: former the former markets chief at the New York Federal Reserve. 2082 01:47:10,840 --> 01:47:13,479 Speaker 1: I'm curious from your vantage point whether you see that 2083 01:47:13,640 --> 01:47:17,120 Speaker 1: reflected in your inflation expectations as well. To join with 2084 01:47:17,280 --> 01:47:19,160 Speaker 1: Bob Michael in saying that you could see the whole 2085 01:47:19,200 --> 01:47:24,200 Speaker 1: curve under three percent over the next year. Yeah, I'm 2086 01:47:24,240 --> 01:47:27,960 Speaker 1: not convinced to that. Actually, I still think there's a 2087 01:47:29,520 --> 01:47:33,639 Speaker 1: inflation in the system is much more embedded. I don't 2088 01:47:33,760 --> 01:47:37,040 Speaker 1: see us cutting rates in the same degree that we've 2089 01:47:37,120 --> 01:47:39,680 Speaker 1: witnessed before. I mean, I could be wrong around that, 2090 01:47:39,800 --> 01:47:44,160 Speaker 1: of course, but this all presupposes that inflation gets to 2091 01:47:44,360 --> 01:47:48,000 Speaker 1: two percent or below. But I think we're operating above 2092 01:47:48,080 --> 01:47:51,479 Speaker 1: that line, below that line, and I think the ability 2093 01:47:51,600 --> 01:47:56,240 Speaker 1: for central bankers to actually make that aggressive move cutting 2094 01:47:56,439 --> 01:48:00,880 Speaker 1: rates just we don't have that capacity today. Let's not forget. 2095 01:48:01,000 --> 01:48:04,400 Speaker 1: I thought at least we got the playbook from the 2096 01:48:05,680 --> 01:48:10,040 Speaker 1: ECB last week where financial stability was a concern, but 2097 01:48:10,120 --> 01:48:12,840 Speaker 1: they put that on the side and they said monetary 2098 01:48:12,960 --> 01:48:16,000 Speaker 1: policy on the other side. I'm not convinced the FED 2099 01:48:16,160 --> 01:48:19,160 Speaker 1: is going to have that quote unquote luxury that the 2100 01:48:19,240 --> 01:48:23,479 Speaker 1: ECB had. But still there's there's two tracks that they 2101 01:48:23,560 --> 01:48:26,840 Speaker 1: have to take, and they're battling each other. Would be 2102 01:48:27,320 --> 01:48:29,519 Speaker 1: would you be more confident in risk or less confident 2103 01:48:29,560 --> 01:48:31,679 Speaker 1: if the FED raised rates by twenty five basis points 2104 01:48:31,720 --> 01:48:36,560 Speaker 1: on Wednesday? I don't know. You know, I think the 2105 01:48:36,760 --> 01:48:40,680 Speaker 1: pause is probably the best outcome for that, But I'm 2106 01:48:40,720 --> 01:48:43,400 Speaker 1: not in the camp where, you know, what do they 2107 01:48:43,479 --> 01:48:45,439 Speaker 1: know that we don't know? So why did they cut 2108 01:48:46,000 --> 01:48:50,680 Speaker 1: I'm not convinced that makes sense, So um, I think 2109 01:48:50,720 --> 01:48:56,519 Speaker 1: a pause is probably the appropriate response. I think raising 2110 01:48:56,600 --> 01:49:01,479 Speaker 1: rates acts tone deaf, and I think hutting rates acts 2111 01:49:01,680 --> 01:49:06,080 Speaker 1: too suspicious that there is something going on. So I'm 2112 01:49:06,160 --> 01:49:08,680 Speaker 1: hoping for a pause. Greg. I'm with you when it 2113 01:49:08,760 --> 01:49:11,080 Speaker 1: comes to the economic this idea that the FED knows 2114 01:49:11,120 --> 01:49:14,679 Speaker 1: something we don't know. It's ridiculous and they've proven that themselves. 2115 01:49:15,200 --> 01:49:17,519 Speaker 1: But when it comes to the financial system to some extent, 2116 01:49:18,040 --> 01:49:22,240 Speaker 1: don't they know things right now that we don't. Well, 2117 01:49:22,280 --> 01:49:24,200 Speaker 1: you know, if they knew so much, maybe we wouldn't 2118 01:49:24,240 --> 01:49:27,000 Speaker 1: have the SPB problem and some other things right, So 2119 01:49:27,600 --> 01:49:30,439 Speaker 1: let's not give them too much credit as far as 2120 01:49:30,479 --> 01:49:34,360 Speaker 1: that's concerned. But I do think that central bankers globally 2121 01:49:34,560 --> 01:49:40,120 Speaker 1: are really focused on contagion risk and making the system function. 2122 01:49:40,240 --> 01:49:42,800 Speaker 1: So you saw that with a swap line. So I 2123 01:49:43,040 --> 01:49:46,880 Speaker 1: really believe that this is a very different response function 2124 01:49:47,120 --> 01:49:50,080 Speaker 1: out of the global center of banking community than what 2125 01:49:50,240 --> 01:49:52,719 Speaker 1: we've seen in the past. So I think that matters 2126 01:49:52,760 --> 01:49:58,840 Speaker 1: a lot. So there's a clear decisive view to make 2127 01:49:58,920 --> 01:50:04,240 Speaker 1: sure that we function and globally from a financial stability standpoint. 2128 01:50:04,280 --> 01:50:06,640 Speaker 1: So that gives me a lot of comfort. Whether that 2129 01:50:06,840 --> 01:50:09,880 Speaker 1: translates into a different rate policy, that's the question on 2130 01:50:10,000 --> 01:50:11,600 Speaker 1: the people. Hey, Greg, I think we're both on the 2131 01:50:11,640 --> 01:50:13,320 Speaker 1: same page here. We don't want to make a habit 2132 01:50:13,360 --> 01:50:15,680 Speaker 1: of this on a Sunday evening, do we? Thank you 2133 01:50:16,439 --> 01:50:18,439 Speaker 1: great creators and page and fixed income. Thank you sir, 2134 01:50:18,560 --> 01:50:22,360 Speaker 1: Thank you buddy. As always, the psychological question here Yan 2135 01:50:22,520 --> 01:50:24,599 Speaker 1: Randau here at Bloomberg with the team over in Frankfurt. 2136 01:50:24,800 --> 01:50:27,879 Speaker 1: After that ECB decision came out with a report. According 2137 01:50:27,960 --> 01:50:30,559 Speaker 1: to people familiar with the matter, those around the table 2138 01:50:30,680 --> 01:50:33,639 Speaker 1: making the decision, etc. They were worried about the signal 2139 01:50:33,680 --> 01:50:35,840 Speaker 1: that was send if they didn't hike. Now, whether you 2140 01:50:35,920 --> 01:50:37,479 Speaker 1: think that should be a thing or not, it's pretty 2141 01:50:37,479 --> 01:50:39,800 Speaker 1: clear that inside the ECB and the Government Council it was. 2142 01:50:40,240 --> 01:50:42,479 Speaker 1: Will the same be true for the FMC this Wednesday? 2143 01:50:42,640 --> 01:50:45,840 Speaker 1: People have tried to dry distinction between the FED situation 2144 01:50:46,120 --> 01:50:49,040 Speaker 1: and the ECB situation by saying the FED is dealing 2145 01:50:49,320 --> 01:50:51,839 Speaker 1: with a much later stage of the rate hiking cycle 2146 01:50:52,160 --> 01:50:55,360 Speaker 1: than the ECB. They're further along in their process of 2147 01:50:55,479 --> 01:50:57,720 Speaker 1: raising rates the federals or rather than the ECB, so 2148 01:50:58,080 --> 01:51:02,920 Speaker 1: they could potentially pause that's said other people, including the 2149 01:51:03,040 --> 01:51:06,640 Speaker 1: former Vice chair Rich Clarida of the Federal Reserve, so 2150 01:51:06,800 --> 01:51:08,200 Speaker 1: that the FED was going to take a sign off 2151 01:51:08,240 --> 01:51:10,599 Speaker 1: from the ECB. They're going to raise rates to sort 2152 01:51:10,640 --> 01:51:13,519 Speaker 1: of send the same signal. Do these events really change 2153 01:51:13,560 --> 01:51:16,240 Speaker 1: the scenario that much? We shall see? Should we do 2154 01:51:16,320 --> 01:51:19,160 Speaker 1: this all night? No? Do you want to do this? 2155 01:51:19,240 --> 01:51:21,040 Speaker 1: Almost well, I mean, do you want to do this 2156 01:51:21,080 --> 01:51:25,759 Speaker 1: all night? To this all night? Of course? No. Financial 2157 01:51:25,800 --> 01:51:29,880 Speaker 1: Institutions Recession director of argus that conversation is coming up shortly. 2158 01:51:39,280 --> 01:51:42,280 Speaker 1: I'm expecting the FED to cut rates in September to 2159 01:51:42,479 --> 01:51:45,240 Speaker 1: stave off for session. And there are so many things. 2160 01:51:45,360 --> 01:51:48,639 Speaker 1: You can look at. The inversion of the Yeel curve. 2161 01:51:48,880 --> 01:51:50,800 Speaker 1: You can go back and look at one of the 2162 01:51:50,960 --> 01:51:53,439 Speaker 1: things that J. Powe told us, where was their favorite 2163 01:51:53,520 --> 01:51:57,559 Speaker 1: indicator the three month versus three months eighteen months forward. 2164 01:51:58,200 --> 01:52:01,960 Speaker 1: That inverted at the end of last year, and generally 2165 01:52:02,120 --> 01:52:05,639 Speaker 1: once that invert, you have recession about a year later. 2166 01:52:06,120 --> 01:52:09,320 Speaker 1: But Michael JP Morgan Asset Management Wagon on the situation 2167 01:52:09,439 --> 01:52:11,400 Speaker 1: for the FED, Wagon on what he thinks is going 2168 01:52:11,439 --> 01:52:13,400 Speaker 1: to happen ultimately with monetary policy off the Bank of 2169 01:52:13,439 --> 01:52:16,920 Speaker 1: the banking failures we've seen over the last couple of weekends. Lisa, 2170 01:52:16,960 --> 01:52:19,519 Speaker 1: we're from here, We're from here for these central bankers. 2171 01:52:19,600 --> 01:52:22,400 Speaker 1: Now this is the question over do you J Powell? 2172 01:52:22,479 --> 01:52:24,160 Speaker 1: What do you have for us? And people are saying 2173 01:52:24,240 --> 01:52:26,599 Speaker 1: if he raises rates by twenty five basis points, he'll 2174 01:52:26,640 --> 01:52:29,320 Speaker 1: be toned deaf to the natural tightening in smaller and 2175 01:52:29,400 --> 01:52:31,400 Speaker 1: regional banks that now are going to have a harder 2176 01:52:31,479 --> 01:52:36,520 Speaker 1: time lending to commercial real estate advisors as well as individuals. 2177 01:52:36,560 --> 01:52:39,240 Speaker 1: And then you say, other people say hold even cut 2178 01:52:39,360 --> 01:52:41,759 Speaker 1: rates because right now we're dealing with a very different scenario. 2179 01:52:42,240 --> 01:52:45,519 Speaker 1: Lucky for us that this economy, relatively speaking, is in 2180 01:52:45,600 --> 01:52:48,160 Speaker 1: a position of strength, three point five percent in and 2181 01:52:48,240 --> 01:52:50,760 Speaker 1: around three and a half percent unemployment, three point four 2182 01:52:50,800 --> 01:52:53,519 Speaker 1: only a couple of months ago, Nominal GDP pretty high. 2183 01:52:53,680 --> 01:52:55,800 Speaker 1: That's going to be the bullish arguments still tomorrow morning 2184 01:52:56,000 --> 01:52:58,479 Speaker 1: against all of this, that'll be the pushback. And then 2185 01:52:58,720 --> 01:53:01,160 Speaker 1: if that's the case the Fed doesn't raise by twenty 2186 01:53:01,200 --> 01:53:04,160 Speaker 1: five basis points, what's the risk of inflation becoming more 2187 01:53:04,240 --> 01:53:07,000 Speaker 1: unmoored in a way that perhaps it's exactly empathetical to 2188 01:53:07,080 --> 01:53:09,080 Speaker 1: what the Fed would like. That's the dilemma, right now 2189 01:53:09,120 --> 01:53:11,160 Speaker 1: that they face. If you are just tuning again, welcome 2190 01:53:11,200 --> 01:53:14,080 Speaker 1: to the program. Equity futures opened up by about four 2191 01:53:14,120 --> 01:53:16,840 Speaker 1: tenths of one percent on SMP five hundred. UBS is 2192 01:53:16,880 --> 01:53:20,200 Speaker 1: closing a deal for Credit Suie for three billion Swiss 2193 01:53:20,240 --> 01:53:22,640 Speaker 1: francs coming up six forty About ten minutes from now, 2194 01:53:22,720 --> 01:53:32,320 Speaker 1: Steve Paliuca of Baine, we have a deal in Switzerland. 2195 01:53:32,640 --> 01:53:35,920 Speaker 1: The coverage continues. UBS agreeing to buy Credit Suite for 2196 01:53:36,080 --> 01:53:39,800 Speaker 1: three billion Swiss francs. Equity futures training underway about thirty 2197 01:53:39,840 --> 01:53:42,600 Speaker 1: minutes ago. Equity futures right now positive a half of 2198 01:53:42,680 --> 01:53:45,760 Speaker 1: one percent on a SMP five hundred at this time 2199 01:53:45,800 --> 01:53:48,280 Speaker 1: of the day Sunday evening, Stateside. I know not too 2200 01:53:48,360 --> 01:53:50,360 Speaker 1: much attention is paid to this. Now's that futures up 2201 01:53:50,360 --> 01:53:52,160 Speaker 1: a half of one percent at least A wow, what 2202 01:53:52,280 --> 01:53:54,839 Speaker 1: a week the NaSTA cat over the last week. Meanwhile, 2203 01:53:54,880 --> 01:53:57,360 Speaker 1: we are seeing some move in First Republic sures now 2204 01:53:57,439 --> 01:53:59,720 Speaker 1: now nineteen percent in pre market trading, So you are 2205 01:53:59,800 --> 01:54:03,400 Speaker 1: get a sense that there is some response in banks 2206 01:54:03,439 --> 01:54:05,920 Speaker 1: as people take a look at what the read through 2207 01:54:06,000 --> 01:54:08,960 Speaker 1: will be in the United States. Obviously we're looking at 2208 01:54:09,000 --> 01:54:12,240 Speaker 1: pretty thin trading at this point. But especially the second 2209 01:54:12,360 --> 01:54:15,960 Speaker 1: downgrade by SIPs and exactly revived confidence in some of 2210 01:54:16,040 --> 01:54:18,360 Speaker 1: these medium sized banks. We'll come back to that story 2211 01:54:18,360 --> 01:54:20,160 Speaker 1: in just a moment. I want to talk about the downgrade, 2212 01:54:20,520 --> 01:54:23,640 Speaker 1: the downgrade that we had on First Republic. This is 2213 01:54:23,680 --> 01:54:27,040 Speaker 1: what Standard and Pause had to say following Thursday's uninsured 2214 01:54:27,120 --> 01:54:31,160 Speaker 1: deposit of thirty billion by the eleven largest banks in 2215 01:54:31,200 --> 01:54:34,840 Speaker 1: the country. Together with cash on hand, First Republic is 2216 01:54:34,920 --> 01:54:38,400 Speaker 1: well positioned to manage short term deposit activity. This support 2217 01:54:38,480 --> 01:54:42,200 Speaker 1: reflects confidence in First Republic and its ability to continue 2218 01:54:42,200 --> 01:54:46,200 Speaker 1: to provide unwavering, exceptional service to its clients and communities. 2219 01:54:46,320 --> 01:54:49,200 Speaker 1: Kenny Lynce joins us now from DC Candy tell us 2220 01:54:49,240 --> 01:54:53,080 Speaker 1: the latest, Well, this is, as you say, the second 2221 01:54:53,160 --> 01:54:56,680 Speaker 1: downgrade in further interjunct territory that First Republic has gotten 2222 01:54:56,760 --> 01:54:59,440 Speaker 1: from S and P Global readings. That statement coming from 2223 01:55:00,040 --> 01:55:04,000 Speaker 1: First Republic, the company, the ratings agency, the analysts sounding 2224 01:55:04,080 --> 01:55:07,560 Speaker 1: much more vicious about the long term outlook for this bank. 2225 01:55:07,640 --> 01:55:10,200 Speaker 1: They said that those deposit inflows, the thirty billion dollars 2226 01:55:10,280 --> 01:55:13,200 Speaker 1: which you just mentioned, are not a longer term solution 2227 01:55:13,280 --> 01:55:15,640 Speaker 1: to the banks funding stress, and those analysts went on 2228 01:55:15,760 --> 01:55:19,920 Speaker 1: to stay attracting meaningful deposits will be difficult, constraining the 2229 01:55:20,000 --> 01:55:22,920 Speaker 1: bank's business position. This really comes down to the issue 2230 01:55:22,960 --> 01:55:26,440 Speaker 1: of the deposit outflows from these midsize regional banks into 2231 01:55:26,640 --> 01:55:29,800 Speaker 1: larger banks deemed too big to fail. And this really 2232 01:55:29,880 --> 01:55:31,880 Speaker 1: speaks to what we were hearing from over the weekend 2233 01:55:31,960 --> 01:55:36,440 Speaker 1: from midsize banks asking the FDIC to ensure all deposits 2234 01:55:36,640 --> 01:55:39,120 Speaker 1: for the next two years to prevent any kind of 2235 01:55:39,640 --> 01:55:43,120 Speaker 1: massive bank runs coming. For those banks. To quote that 2236 01:55:43,240 --> 01:55:45,120 Speaker 1: statement that they were sent to the FDC, they said, 2237 01:55:45,160 --> 01:55:47,760 Speaker 1: notwithstanding the overall health and safety of the banking industry, 2238 01:55:47,840 --> 01:55:51,040 Speaker 1: confidence has been eroded in all but the largest banks. 2239 01:55:51,160 --> 01:55:53,600 Speaker 1: Confidence in our banking system as a whole must be 2240 01:55:53,760 --> 01:55:58,200 Speaker 1: immediately restored. And of course talking about that lack of confidence, 2241 01:55:58,280 --> 01:56:01,880 Speaker 1: First Republic is just one primary example of that, John, 2242 01:56:01,920 --> 01:56:03,560 Speaker 1: and that is going to be the stock we are 2243 01:56:03,600 --> 01:56:06,680 Speaker 1: watching when the opening bell rings tomorrow morning and looking 2244 01:56:06,720 --> 01:56:09,400 Speaker 1: forward to that open Let's hope that we get the 2245 01:56:09,480 --> 01:56:11,520 Speaker 1: result that some of these lawmakers want to see, because 2246 01:56:11,600 --> 01:56:13,280 Speaker 1: right now we don't want things to get any worse, 2247 01:56:13,360 --> 01:56:15,960 Speaker 1: and arguaby, things aren't getting worse at the moment. Equity 2248 01:56:16,000 --> 01:56:18,520 Speaker 1: futures are getting better. They're positive on the SMP five 2249 01:56:18,600 --> 01:56:21,320 Speaker 1: hundred by three quarters one percent on this idea that 2250 01:56:21,400 --> 01:56:23,440 Speaker 1: we have a two tier banking system. There was this 2251 01:56:23,600 --> 01:56:26,880 Speaker 1: fascinating exchange last week when Secondary Yellow went to Capitol 2252 01:56:26,960 --> 01:56:29,800 Speaker 1: Hill to testify in front of the Senate Finance Committee. 2253 01:56:30,200 --> 01:56:33,240 Speaker 1: Take a listen to what she had to say. Every 2254 01:56:33,280 --> 01:56:36,600 Speaker 1: community bank, regardless of the size of the deposit, will 2255 01:56:36,720 --> 01:56:40,840 Speaker 1: they get the same treatment that SVBBP just got. A 2256 01:56:41,000 --> 01:56:46,959 Speaker 1: bank only gets that treatment if the failure to protect 2257 01:56:47,160 --> 01:56:52,720 Speaker 1: uninsured depositors would create systemic risk, And that right there 2258 01:56:53,120 --> 01:56:56,400 Speaker 1: is the problem. Stephen Bigger, Financial Institutions Research director at 2259 01:56:56,520 --> 01:56:58,720 Speaker 1: Arcus joins us right now. Stephen, thanks for being with 2260 01:56:58,840 --> 01:57:01,080 Speaker 1: us late into the evening, say late six thirties, late 2261 01:57:01,080 --> 01:57:02,400 Speaker 1: for me because you usually have to get up on 2262 01:57:02,440 --> 01:57:05,760 Speaker 1: a Monday morning very early. Let's move past that, Stephen, 2263 01:57:05,840 --> 01:57:07,640 Speaker 1: thank you for being with us. Stephen. What do you 2264 01:57:07,680 --> 01:57:09,960 Speaker 1: make of what Secondary Ellen just had to say that 2265 01:57:10,320 --> 01:57:14,040 Speaker 1: on the Capitol Hill just early this week to Senate lawmakers, 2266 01:57:14,360 --> 01:57:16,480 Speaker 1: this idea that we have this two tier banking system. 2267 01:57:16,520 --> 01:57:19,720 Speaker 1: How do we address that this week? Well, I think 2268 01:57:19,760 --> 01:57:22,879 Speaker 1: that's actually been the case right with the systemically important 2269 01:57:22,920 --> 01:57:26,480 Speaker 1: financial institutions. These SAPHI banks that have operated by a 2270 01:57:26,520 --> 01:57:29,960 Speaker 1: different set of standards and have greater backstops and so forth, 2271 01:57:30,240 --> 01:57:34,120 Speaker 1: because they're deemed to be systemically important by virtue of 2272 01:57:34,160 --> 01:57:36,800 Speaker 1: the name. So I you know, it just means that 2273 01:57:36,880 --> 01:57:40,720 Speaker 1: banks a little farther down the asset curve may not 2274 01:57:40,880 --> 01:57:43,440 Speaker 1: have the same type of protections. They aren't regulated in 2275 01:57:43,600 --> 01:57:47,200 Speaker 1: quite the same way, and they're not viewed as having, 2276 01:57:47,600 --> 01:57:50,320 Speaker 1: you know, the chance to disrupt in a huge way 2277 01:57:50,440 --> 01:57:54,800 Speaker 1: the American economy. And so it's interesting I think that, 2278 01:57:55,760 --> 01:57:58,000 Speaker 1: you know, at the same time, they're talking about raising 2279 01:57:58,480 --> 01:58:01,720 Speaker 1: deposit insurance and so forth to get a little bit 2280 01:58:01,800 --> 01:58:05,960 Speaker 1: more confidence restored in the deposit. You know, I think 2281 01:58:05,960 --> 01:58:08,520 Speaker 1: we have a kind of a deposit catharsis going on today, 2282 01:58:09,120 --> 01:58:12,800 Speaker 1: and it's more money is going to continue to leak 2283 01:58:12,840 --> 01:58:16,080 Speaker 1: out of smaller banks and in too large institutions that 2284 01:58:16,120 --> 01:58:18,960 Speaker 1: are deemed systemically important. So it's it's an interesting concept. 2285 01:58:19,080 --> 01:58:22,720 Speaker 1: This phrase systemically important is becoming somewhat confusing right now, 2286 01:58:22,920 --> 01:58:26,360 Speaker 1: especially since some of the measures taken for US banks 2287 01:58:26,680 --> 01:58:31,200 Speaker 1: we're under a systemically important provision. How can we determine 2288 01:58:31,520 --> 01:58:35,120 Speaker 1: one a bank is systemically important or not not only 2289 01:58:35,200 --> 01:58:38,680 Speaker 1: for the whole financial system, but for particular sectors that 2290 01:58:38,800 --> 01:58:43,520 Speaker 1: are very exposed to that particular bank. Well, today it's 2291 01:58:43,600 --> 01:58:46,600 Speaker 1: it's just asset size, right, And I think that that 2292 01:58:46,840 --> 01:58:49,920 Speaker 1: probably does get extended out. I think, you know, we're 2293 01:58:50,000 --> 01:58:53,520 Speaker 1: bound to get some greater rules and regulations here, and 2294 01:58:54,120 --> 01:58:56,200 Speaker 1: most easily of which is that you go back down 2295 01:58:56,280 --> 01:59:00,560 Speaker 1: to a lower asset size that would constitute systemic important. 2296 01:59:00,600 --> 01:59:03,120 Speaker 1: So I think that's one thing that is likely to 2297 01:59:03,200 --> 01:59:05,160 Speaker 1: come out of this. And of course the rules were relaxed, 2298 01:59:05,200 --> 01:59:08,080 Speaker 1: and you know, we can debate that even if a 2299 01:59:08,120 --> 01:59:13,240 Speaker 1: Silicon Valley bank was in the systemically important category, the 2300 01:59:13,360 --> 01:59:17,360 Speaker 1: still would have been missed because the interest rate duration 2301 01:59:17,520 --> 01:59:20,360 Speaker 1: risk was not factored into the stress test equation. So 2302 01:59:22,640 --> 01:59:24,800 Speaker 1: I think, yeah, the regulators have to do a lot 2303 01:59:24,960 --> 01:59:28,600 Speaker 1: more in terms of looking at a bank's underlying structure, 2304 01:59:28,680 --> 01:59:33,000 Speaker 1: looking at the deposit structure in particular, seeing where they have, 2305 01:59:33,400 --> 01:59:38,520 Speaker 1: where their tentacles are in the economy, and creating regulations 2306 01:59:38,680 --> 01:59:41,680 Speaker 1: around that to product try to prevent this in the future. 2307 01:59:41,760 --> 01:59:44,440 Speaker 1: In the meantime, you talked about a deposit catharsis that 2308 01:59:44,480 --> 01:59:46,280 Speaker 1: we're seeing take hold in a lot of smaller and 2309 01:59:46,360 --> 01:59:49,240 Speaker 1: medium sized banks. What is this region going to look 2310 01:59:49,320 --> 01:59:52,160 Speaker 1: like this particular asset class going to look like in 2311 01:59:52,280 --> 01:59:54,360 Speaker 1: a year, two years time. Is it going to be 2312 01:59:54,520 --> 01:59:57,440 Speaker 1: highly consolidated, Is it going to be highly regulated? How 2313 01:59:57,560 --> 01:59:59,720 Speaker 1: is it going to change in the face of this 2314 02:00:00,000 --> 02:00:04,400 Speaker 1: A tarsis So I think, yeah, you know, this, this 2315 02:00:04,600 --> 02:00:08,160 Speaker 1: is just a long running uh type of consolidation in 2316 02:00:08,200 --> 02:00:11,200 Speaker 1: the banking industry. Uh. You know, what we don't hear 2317 02:00:11,600 --> 02:00:13,880 Speaker 1: often enough is that there were there were actually ten 2318 02:00:14,000 --> 02:00:18,560 Speaker 1: thousand FDIC insured banks going back to nineteen ninety four 2319 02:00:18,800 --> 02:00:21,920 Speaker 1: ninety five, we drop a low ten thousand. Today we 2320 02:00:22,000 --> 02:00:24,480 Speaker 1: have forty seven hundred, having dropped alow five thousand and 2321 02:00:24,520 --> 02:00:27,240 Speaker 1: twenty twenty one. So that's that's a having of the 2322 02:00:27,360 --> 02:00:30,840 Speaker 1: number of banks in the US. So that just gives 2323 02:00:31,240 --> 02:00:33,920 Speaker 1: depositors a fewer and fewer places to put the money. 2324 02:00:34,000 --> 02:00:36,120 Speaker 1: So the large get larger and the small get smaller. 2325 02:00:36,240 --> 02:00:38,720 Speaker 1: Here and I think we continue out this trend, and 2326 02:00:39,600 --> 02:00:42,200 Speaker 1: you know, as far as regulations go, I think you'll 2327 02:00:42,240 --> 02:00:45,400 Speaker 1: probably see higher deposit insurance costs. I think that's that's 2328 02:00:45,440 --> 02:00:47,600 Speaker 1: a given, particularly if they you know, if they do 2329 02:00:47,760 --> 02:00:50,720 Speaker 1: plan to raise it to five hundred or or a million. 2330 02:00:50,840 --> 02:00:54,200 Speaker 1: In terms of individual depositors. The last time we got 2331 02:00:54,240 --> 02:00:56,920 Speaker 1: an increase was after the financial crisis of two thousand 2332 02:00:56,920 --> 02:00:59,040 Speaker 1: and eight, went from one hundred thousand to two hundred 2333 02:00:59,040 --> 02:01:01,280 Speaker 1: and fifty. So I think bound to see that new 2334 02:01:01,360 --> 02:01:05,640 Speaker 1: stress testing regarding the interest rate risk, particularly now you know, 2335 02:01:05,720 --> 02:01:07,960 Speaker 1: the stress test is all about what happens when when 2336 02:01:08,080 --> 02:01:11,160 Speaker 1: interest rates bottom out, when they when they dropped the 2337 02:01:11,240 --> 02:01:13,200 Speaker 1: below one percent point seventy five in the case of 2338 02:01:13,240 --> 02:01:15,640 Speaker 1: the last year's stress test, So I think we'll have 2339 02:01:15,920 --> 02:01:20,840 Speaker 1: the reverse of that testing higher capital cushions. And you know, 2340 02:01:21,040 --> 02:01:23,080 Speaker 1: the thing I worry about is not for the large banks, 2341 02:01:23,120 --> 02:01:26,960 Speaker 1: because they can handle this, but the what happens to 2342 02:01:27,040 --> 02:01:31,080 Speaker 1: the profitability of banks as it continued to be eroded 2343 02:01:31,640 --> 02:01:34,640 Speaker 1: from from just additional regulation and the need to maintain 2344 02:01:35,080 --> 02:01:38,440 Speaker 1: much higher capital levels. It's steven after this ubs credit suite, 2345 02:01:38,640 --> 02:01:40,680 Speaker 1: take out, take under court, or whatever you want. There 2346 02:01:40,760 --> 02:01:43,080 Speaker 1: was this news conference, I'm sure you watched it. In 2347 02:01:43,120 --> 02:01:44,800 Speaker 1: the news conference that we're keen to point out this 2348 02:01:44,960 --> 02:01:47,960 Speaker 1: is not a bailout. We heard that from the President too. Now, 2349 02:01:48,040 --> 02:01:52,360 Speaker 1: if the insurance premiums go up to cover basically unlimited 2350 02:01:52,480 --> 02:01:59,120 Speaker 1: deposit insurance, who ultimately bears that cost? Depositors will obviously 2351 02:01:59,240 --> 02:02:02,280 Speaker 1: the banks will try to try to, you know, squeeze 2352 02:02:02,360 --> 02:02:04,520 Speaker 1: what they can. It just means lower interest rates for 2353 02:02:04,600 --> 02:02:06,920 Speaker 1: them if they have to, uh, if banks have to 2354 02:02:07,040 --> 02:02:11,200 Speaker 1: kick in more deposit insurance fees for them. So so yeah, 2355 02:02:11,280 --> 02:02:13,320 Speaker 1: and as far as the bail out goes, it's hard 2356 02:02:13,360 --> 02:02:15,800 Speaker 1: to see how it is not a bailout. I mean, 2357 02:02:15,840 --> 02:02:20,480 Speaker 1: you can call it something different or recapitalization or or 2358 02:02:20,760 --> 02:02:22,960 Speaker 1: or something, but you know, these these are mergers that 2359 02:02:23,000 --> 02:02:25,240 Speaker 1: are they're happening in the case of a Swiss at 2360 02:02:25,320 --> 02:02:28,400 Speaker 1: lightning speed and you know, over a weekend kind of thing. 2361 02:02:28,880 --> 02:02:32,640 Speaker 1: And certainly the credits stories. I don't cover it personally, 2362 02:02:32,720 --> 02:02:36,200 Speaker 1: but it has been unwinding we know for some time. Um, 2363 02:02:36,360 --> 02:02:38,240 Speaker 1: and this was maybe just the final nail in the 2364 02:02:38,320 --> 02:02:39,960 Speaker 1: coffin to do it a deal like this over a 2365 02:02:40,000 --> 02:02:42,240 Speaker 1: weekend and after the troubles they had last week. So 2366 02:02:43,360 --> 02:02:45,720 Speaker 1: a bailout, yeah, I would, I would use that, Steven. 2367 02:02:45,760 --> 02:02:48,440 Speaker 1: There are some general assumptions being made now. One is 2368 02:02:48,520 --> 02:02:51,400 Speaker 1: that we're going to see tighter lending standards try of 2369 02:02:51,440 --> 02:02:54,080 Speaker 1: financial conditions off the back of that, and the second 2370 02:02:54,200 --> 02:02:56,440 Speaker 1: is that profits are going to be challenged the banks 2371 02:02:56,480 --> 02:02:58,360 Speaker 1: coming for which we would you agree with both those 2372 02:02:58,360 --> 02:03:01,640 Speaker 1: assumptions at the moment definitely. Uh, you know, I think 2373 02:03:01,720 --> 02:03:04,280 Speaker 1: the yeah, the removal of liquidity. What the Fed is doing, 2374 02:03:04,320 --> 02:03:06,960 Speaker 1: I mean just by raising rates, and they seem to 2375 02:03:07,000 --> 02:03:09,080 Speaker 1: be head strong and our house views that they'll continue 2376 02:03:09,080 --> 02:03:12,520 Speaker 1: to do it again this week. Uh. And that's that's 2377 02:03:12,600 --> 02:03:16,400 Speaker 1: removing demand from from loans and it's slowing things down 2378 02:03:16,520 --> 02:03:18,920 Speaker 1: so banks. Add to that, the banks will be a 2379 02:03:19,000 --> 02:03:21,400 Speaker 1: little bit more cautious with their capital now. Uh. And 2380 02:03:21,640 --> 02:03:25,640 Speaker 1: not you know, lower their lending standards at all, in fact, 2381 02:03:25,680 --> 02:03:30,040 Speaker 1: probably increase them. And uh. And in terms of bank profitability, 2382 02:03:30,040 --> 02:03:31,960 Speaker 1: I mean that's one way. That'll mean lesser loan growth 2383 02:03:32,040 --> 02:03:37,200 Speaker 1: and probably less margin expansion, higher costs related to regulation. 2384 02:03:37,800 --> 02:03:42,400 Speaker 1: So yeah, the picture is not particularly good for bank profitability. 2385 02:03:42,480 --> 02:03:44,520 Speaker 1: I don't think it's a it's a big step down. 2386 02:03:45,320 --> 02:03:48,160 Speaker 1: But at the margin, yeah, you'll have higher costs here 2387 02:03:48,240 --> 02:03:50,440 Speaker 1: and lesser demand. Nice stated, thanks for being with us 2388 02:03:50,560 --> 02:03:52,840 Speaker 1: on a Sunday evening, Stephen Big of that avocus on 2389 02:03:52,920 --> 02:03:55,880 Speaker 1: a situation with the financials. Those two assumptions One you're 2390 02:03:55,920 --> 02:03:59,320 Speaker 1: going to see title leending, title leending standards and ultimately 2391 02:04:00,080 --> 02:04:03,760 Speaker 1: financial conditions and then two, what's going to happen? Profits 2392 02:04:03,760 --> 02:04:05,600 Speaker 1: get hit and GROW's going to hurt. We've seen that 2393 02:04:05,640 --> 02:04:08,320 Speaker 1: from Wells, Fargo, from JP Morgan, from Goldman, Morgan, Stanley, 2394 02:04:08,320 --> 02:04:10,680 Speaker 1: all talking about the same thing. This was Will's on Friday. 2395 02:04:10,960 --> 02:04:12,760 Speaker 1: If you missed the program on Friday, we were talking 2396 02:04:12,760 --> 02:04:15,880 Speaker 1: about this, whilst Fargo essentially saying the following, I'll read 2397 02:04:15,880 --> 02:04:18,960 Speaker 1: the quote with you. Recent developments in financial markets are 2398 02:04:19,000 --> 02:04:21,800 Speaker 1: compounding the Fed's efforts to slow the pace of economic activity, 2399 02:04:21,840 --> 02:04:25,640 Speaker 1: which raises the probability of recession by Michael JP Morgan 2400 02:04:25,960 --> 02:04:28,920 Speaker 1: just an arrow subago saying that's it one way trip 2401 02:04:29,240 --> 02:04:31,920 Speaker 1: to that destination, whilst Fargo went on to say, we 2402 02:04:32,080 --> 02:04:34,920 Speaker 1: look for real GDP in the US to contract one 2403 02:04:34,960 --> 02:04:38,120 Speaker 1: point two percent LISA later this year and into early 2404 02:04:38,200 --> 02:04:40,360 Speaker 1: twenty twenty four. And this is a reason why people 2405 02:04:40,360 --> 02:04:43,440 Speaker 1: are reassessing their view on risk assets as well as 2406 02:04:43,560 --> 02:04:45,640 Speaker 1: the interest rate path. I mean Bob Michael saying that 2407 02:04:45,640 --> 02:04:48,040 Speaker 1: he could see as soon as September rate cuts. I 2408 02:04:48,120 --> 02:04:51,600 Speaker 1: mean that sort of specter raises a question, Okay, what 2409 02:04:51,680 --> 02:04:54,360 Speaker 1: about inflation. As we heard from Greg Peters, these are 2410 02:04:54,440 --> 02:04:57,400 Speaker 1: some of the ways that the landscape has dramatically changed 2411 02:04:57,440 --> 02:04:58,760 Speaker 1: for a lot of people. We can just want a 2412 02:04:58,800 --> 02:05:01,920 Speaker 1: massive change. Toss this slock Apollo, good friend of this program, 2413 02:05:02,240 --> 02:05:05,680 Speaker 1: no landing, hard landing, just like that. And how about 2414 02:05:06,000 --> 02:05:08,360 Speaker 1: the big banks getting bigger? We haven't even talked about that. 2415 02:05:08,480 --> 02:05:10,280 Speaker 1: That was something that I keep thinking about, is Stephen 2416 02:05:10,320 --> 02:05:13,320 Speaker 1: Bigger was talking, you know to Honestly, the consolidation that 2417 02:05:13,400 --> 02:05:17,640 Speaker 1: everyone was hoping to avoid is only accelerating at this point. 2418 02:05:17,720 --> 02:05:20,040 Speaker 1: I'm part of the market that regional and small banks, 2419 02:05:20,120 --> 02:05:23,080 Speaker 1: medium sized banks dominate. They pulled back. Who steps in correct? 2420 02:05:23,160 --> 02:05:24,880 Speaker 1: That is one of the key questions. And perhaps the 2421 02:05:24,960 --> 02:05:29,720 Speaker 1: next guest that we have coming up that was good definitely. 2422 02:05:30,760 --> 02:05:33,320 Speaker 1: Senior advisor at Bain Capital was going to join us 2423 02:05:33,400 --> 02:05:35,360 Speaker 1: very shortly. If you are just tuning in, welcome to 2424 02:05:35,440 --> 02:05:39,240 Speaker 1: the program. UBS agreeing to buy Credit Suiss for three 2425 02:05:39,400 --> 02:05:49,520 Speaker 1: billion Swiss franks. Yeah, it is a bailout, and it's 2426 02:05:49,520 --> 02:05:52,640 Speaker 1: a bailout and you heard the minister say it's a 2427 02:05:52,720 --> 02:05:56,760 Speaker 1: bailout because they're dealing was systemically important bank at the 2428 02:05:56,880 --> 02:05:58,840 Speaker 1: time of market Turmo. Now, of course you've got to 2429 02:05:58,920 --> 02:06:01,120 Speaker 1: always be dealing with this chemically important back at the 2430 02:06:01,280 --> 02:06:05,520 Speaker 1: time of market termal that that's by definition what happens 2431 02:06:05,520 --> 02:06:08,720 Speaker 1: when I have a systemically important bank in trouble. But 2432 02:06:08,880 --> 02:06:11,000 Speaker 1: they does don't want to use that phrase. That was 2433 02:06:11,080 --> 02:06:13,920 Speaker 1: Mohammed al Arian there wagon on the latest situation with 2434 02:06:14,040 --> 02:06:16,960 Speaker 1: credit suits being taken out, taken unders a phrase. I 2435 02:06:17,080 --> 02:06:24,520 Speaker 1: keep hearing this evening three billion Swiss I'm leasing track. Yeah, 2436 02:06:24,680 --> 02:06:26,960 Speaker 1: but it's a messy one one hundred billion Swiss frank 2437 02:06:27,000 --> 02:06:31,440 Speaker 1: liquidity assistance from the SMB, a government grant of nine billion. 2438 02:06:31,760 --> 02:06:33,280 Speaker 1: And then the other story, and we've talked about it 2439 02:06:33,320 --> 02:06:36,480 Speaker 1: all day, seventeen billion dollars worth of risky bonds wiped 2440 02:06:36,520 --> 02:06:39,600 Speaker 1: out and taken down to zero. What I find really controversial, 2441 02:06:39,640 --> 02:06:41,360 Speaker 1: and it will be a point of discussion, is how 2442 02:06:41,400 --> 02:06:44,720 Speaker 1: the Swiss regulator single handedly wiped out more than a 2443 02:06:44,800 --> 02:06:47,360 Speaker 1: two hundred and fifty billion dollar market out there of 2444 02:06:47,520 --> 02:06:50,839 Speaker 1: these particular bonds, because essentially everything has to be rerated 2445 02:06:50,880 --> 02:06:53,480 Speaker 1: on these new assumptions that were decided in the first 2446 02:06:53,560 --> 02:06:56,520 Speaker 1: example by Swiss regulators. Evidently we need to talk about 2447 02:06:56,600 --> 02:06:59,800 Speaker 1: US banks take yes, pulling back mid sized banks of 2448 02:07:00,040 --> 02:07:04,800 Speaker 1: the weekend, pleading with officials to ensure le deposits. What 2449 02:07:04,920 --> 02:07:07,200 Speaker 1: was it for two years for two years for the FDIC. 2450 02:07:07,520 --> 02:07:09,800 Speaker 1: There's a larger question, which is how do they fill 2451 02:07:09,880 --> 02:07:12,520 Speaker 1: the role of the credit impulse that they've provided. They 2452 02:07:12,560 --> 02:07:17,360 Speaker 1: accounted for sixty seven percent of commercial real estate loans, Yes, 2453 02:07:17,640 --> 02:07:20,640 Speaker 1: they accounted this according I'll get the exact data source 2454 02:07:20,960 --> 02:07:23,560 Speaker 1: coming up. But this is exactly why people are concerned. 2455 02:07:23,800 --> 02:07:27,800 Speaker 1: They accounted for almost forty percent of loans to smaller businesses. 2456 02:07:27,880 --> 02:07:30,879 Speaker 1: This is one of the big mainstays of credit impulse 2457 02:07:31,000 --> 02:07:33,320 Speaker 1: in the US. What happens when they go away and 2458 02:07:33,440 --> 02:07:35,520 Speaker 1: joining us now a man who should be watching the basketball, 2459 02:07:35,600 --> 02:07:37,680 Speaker 1: as Lasa mentioned in the commercial break, But it's nice 2460 02:07:37,720 --> 02:07:40,640 Speaker 1: joining us and we're grateful for it. Steve Paliuca, senior 2461 02:07:40,680 --> 02:07:43,040 Speaker 1: advisor at Bank Capital. Steve wanted for to catch up 2462 02:07:43,080 --> 02:07:45,520 Speaker 1: with you, Sir, I asked this question earlier. I really 2463 02:07:45,560 --> 02:07:47,920 Speaker 1: want you to respond to it as well. What's changed 2464 02:07:47,920 --> 02:07:52,600 Speaker 1: in our financial system in the last couple of weeks. Well, 2465 02:07:52,640 --> 02:07:56,120 Speaker 1: we've had a recognition that the inverted yield curve has 2466 02:07:56,960 --> 02:08:00,360 Speaker 1: hampered the balance sheet on a paper basis of some 2467 02:08:00,560 --> 02:08:04,760 Speaker 1: niche banks. And when the first crisis happened in two 2468 02:08:04,760 --> 02:08:07,520 Speaker 1: thousand and eight, the whole issue was systemic collapse. We 2469 02:08:07,560 --> 02:08:10,000 Speaker 1: don't have a systemic collapse. Now we have a crisis 2470 02:08:10,040 --> 02:08:13,000 Speaker 1: of confidence, and that crisis of confidence can ratchet into 2471 02:08:13,040 --> 02:08:15,959 Speaker 1: a bad economy, and I think the regulators and they 2472 02:08:16,160 --> 02:08:19,600 Speaker 1: are trying to stop that. When you step back, all 2473 02:08:19,640 --> 02:08:23,440 Speaker 1: the focus was, oddly enough on inappropriately on systemic risk. 2474 02:08:24,120 --> 02:08:27,080 Speaker 1: This is not a situation. CSFB is a large bank, 2475 02:08:27,120 --> 02:08:33,600 Speaker 1: but it's controllable. First Republic and Silicon Valley Bank. We're 2476 02:08:33,640 --> 02:08:37,320 Speaker 1: banks focused on a certain area, and when those customers 2477 02:08:38,440 --> 02:08:41,040 Speaker 1: lost confidence, they started pulling capital out, which brought those 2478 02:08:41,160 --> 02:08:43,600 Speaker 1: brought those banks down. I think people are doing the 2479 02:08:43,760 --> 02:08:45,640 Speaker 1: right thing and leaking in. I wouldn't call it a bailout. 2480 02:08:45,680 --> 02:08:47,960 Speaker 1: They're using insurance right now, and it's the right thing 2481 02:08:48,000 --> 02:08:51,120 Speaker 1: to do for the economy because, as Lisa said, something 2482 02:08:51,200 --> 02:08:53,480 Speaker 1: like forty five percent consumer loans are from these small 2483 02:08:53,520 --> 02:08:55,600 Speaker 1: banks banks less than two hundred and fifty billion assets, 2484 02:08:56,360 --> 02:08:59,400 Speaker 1: sixty percent of residential real estate, eighty percent a virtual 2485 02:08:59,440 --> 02:09:03,240 Speaker 1: real estate. So if those banks are having issues because 2486 02:09:03,240 --> 02:09:05,600 Speaker 1: of crisis is confidence, not not because they have band loans, 2487 02:09:06,040 --> 02:09:09,760 Speaker 1: not because they brought derivatives that are worthless, just because 2488 02:09:09,800 --> 02:09:13,200 Speaker 1: there is a crisis of confidence in a flight. Oddly 2489 02:09:13,320 --> 02:09:16,400 Speaker 1: enough to the larger systemic banks, because people perceive those 2490 02:09:16,840 --> 02:09:20,120 Speaker 1: as money good that will cause a ration into a 2491 02:09:20,160 --> 02:09:22,160 Speaker 1: problem for the first small business, for the economy. So 2492 02:09:22,240 --> 02:09:23,840 Speaker 1: that's what we're trying to prevent here. We want to 2493 02:09:23,840 --> 02:09:25,920 Speaker 1: get out of what I'll call a vicious cycle into 2494 02:09:25,920 --> 02:09:28,880 Speaker 1: a virtuous cycle. So people are looking to you, Steve 2495 02:09:29,360 --> 02:09:33,280 Speaker 1: as perhaps the voice of private equity and private debt. 2496 02:09:33,560 --> 02:09:35,680 Speaker 1: Are you the ones to step in when some of 2497 02:09:35,760 --> 02:09:40,560 Speaker 1: these regional banks pull back well, private private debt, private 2498 02:09:40,600 --> 02:09:44,560 Speaker 1: equity debt has been growing dramatically in the last twenty years. 2499 02:09:44,560 --> 02:09:48,520 Speaker 1: When I when I started in private equity, there is 2500 02:09:48,640 --> 02:09:51,560 Speaker 1: very virtually none of it. It's a really good model. 2501 02:09:52,120 --> 02:09:55,440 Speaker 1: They use private equity concepts, evaluate the strength of a 2502 02:09:55,480 --> 02:09:57,680 Speaker 1: company and loan directly privately, and you don't have the 2503 02:09:57,720 --> 02:10:01,080 Speaker 1: issue of losing to positives moneies. You haven't and you're 2504 02:10:01,120 --> 02:10:04,000 Speaker 1: responsible to those investors. But you don't have the risk 2505 02:10:04,080 --> 02:10:07,480 Speaker 1: of bringing depositors down and having reaking economic havocs. So 2506 02:10:08,280 --> 02:10:10,560 Speaker 1: private capital is taking a large share, will continue to 2507 02:10:10,600 --> 02:10:13,520 Speaker 1: take a share from the banks. I think the banks 2508 02:10:13,560 --> 02:10:15,920 Speaker 1: will still play an important role. I think it's a 2509 02:10:16,080 --> 02:10:18,680 Speaker 1: very fixable problem and they're doing the right things. And 2510 02:10:19,360 --> 02:10:22,680 Speaker 1: hopefully these guarantees of deposits will make people comfortable that 2511 02:10:22,720 --> 02:10:24,320 Speaker 1: they can leave money in those banks. They play a 2512 02:10:24,360 --> 02:10:26,560 Speaker 1: bible role in each community. But you said some things 2513 02:10:26,560 --> 02:10:27,880 Speaker 1: there that see that I want to pick up on 2514 02:10:28,320 --> 02:10:32,320 Speaker 1: about this mismatch in liability time frames. They get solved 2515 02:10:32,440 --> 02:10:34,760 Speaker 1: in the private equity private debt model. Do you think 2516 02:10:34,840 --> 02:10:37,320 Speaker 1: that it's inappropriate to make some of these longer term 2517 02:10:37,400 --> 02:10:40,840 Speaker 1: loans with deposits as these regional banks do. I mean, yes, 2518 02:10:40,880 --> 02:10:42,320 Speaker 1: they fill a void, but do you think that there 2519 02:10:42,400 --> 02:10:45,480 Speaker 1: is an inherent risk that can get bandated over but 2520 02:10:45,560 --> 02:10:49,560 Speaker 1: it's not solved by some of the measures we've seen. Well, 2521 02:10:50,040 --> 02:10:54,520 Speaker 1: it's interesting, ironically, diversification as your friend, and if you're 2522 02:10:54,520 --> 02:10:58,760 Speaker 1: a local bank, or if you're a specific verbal industry bank, 2523 02:10:59,360 --> 02:11:01,520 Speaker 1: or your bank has the same kind of customer, you 2524 02:11:01,560 --> 02:11:06,600 Speaker 1: don't have diversification. So diversification large banks create systemic risk, 2525 02:11:06,880 --> 02:11:10,120 Speaker 1: but they're actually more diversified and less likely to have 2526 02:11:10,360 --> 02:11:14,680 Speaker 1: issues because they can invest in a broader swath. I 2527 02:11:14,800 --> 02:11:17,840 Speaker 1: do think there are models that will work. With regulation 2528 02:11:17,920 --> 02:11:21,280 Speaker 1: where you pay attention to making sure you're matching liabilities, 2529 02:11:21,680 --> 02:11:25,520 Speaker 1: and with changing the guarantee deposit rules. I think there'll 2530 02:11:25,520 --> 02:11:28,160 Speaker 1: be a bible role for local banks. How concerned are 2531 02:11:28,240 --> 02:11:31,080 Speaker 1: you about a more market aterioration in the credit worthiness 2532 02:11:31,160 --> 02:11:32,880 Speaker 1: of companies? And I say this as we hear a 2533 02:11:32,920 --> 02:11:35,240 Speaker 1: host of people, whether it's Bob Michael or Greg Peters, 2534 02:11:35,280 --> 02:11:38,120 Speaker 1: saying suddenly their view of recession was brought forward, that 2535 02:11:38,200 --> 02:11:40,440 Speaker 1: base c is suddenly the lack of loans from some 2536 02:11:40,560 --> 02:11:43,600 Speaker 1: of these institutions will accelerate a downturn that a lot 2537 02:11:43,640 --> 02:11:45,680 Speaker 1: of people have been expecting. Are you seeing that on 2538 02:11:45,800 --> 02:11:50,840 Speaker 1: the ground with dealmaking with your portfolio companies, We've been 2539 02:11:50,880 --> 02:11:52,720 Speaker 1: fortunate bank capital, we hedged a lot of the debt, 2540 02:11:52,760 --> 02:11:55,440 Speaker 1: and I think nine companies for ahead, So so we're 2541 02:11:55,480 --> 02:11:58,400 Speaker 1: not experiencing issues of the point, the economy has still 2542 02:11:58,440 --> 02:12:02,760 Speaker 1: been strong. If you have flown I've flown many flights, 2543 02:12:03,320 --> 02:12:05,200 Speaker 1: probably twenty flights in the last month, they were all 2544 02:12:05,200 --> 02:12:09,120 Speaker 1: been full. Restaurants are full. So the real economy has 2545 02:12:09,120 --> 02:12:13,440 Speaker 1: an inflation problem, but it's still very active. So I 2546 02:12:14,400 --> 02:12:17,160 Speaker 1: think that there was a recession coming one way or another. 2547 02:12:17,480 --> 02:12:20,280 Speaker 1: There's always a catalytic avenge, and there's always something you 2548 02:12:20,360 --> 02:12:24,280 Speaker 1: don't expect. So Silicon Valley Bank, maybe the harbaguer To 2549 02:12:24,440 --> 02:12:27,080 Speaker 1: kind of crystallize this recession and hopefully we'll get through it. 2550 02:12:27,840 --> 02:12:29,920 Speaker 1: It'll get stabilized, and then we can move back forward. 2551 02:12:30,160 --> 02:12:32,120 Speaker 1: Stay forgive me for asking a personal question and by 2552 02:12:32,120 --> 02:12:33,880 Speaker 1: will make you don't have to answer it. But you're 2553 02:12:33,920 --> 02:12:37,280 Speaker 1: a successful individual. I imagine there are some holdings about 2554 02:12:37,280 --> 02:12:40,200 Speaker 1: the FDIC limit that you have. Just I imagine have 2555 02:12:40,360 --> 02:12:43,440 Speaker 1: you changed how you bank personally over the last few weeks. 2556 02:12:45,040 --> 02:12:48,920 Speaker 1: I have not, but probably by pure luck I had. 2557 02:12:48,960 --> 02:12:50,920 Speaker 1: I had no banking relationships with any of these banks 2558 02:12:51,000 --> 02:12:54,560 Speaker 1: that are trouble. And again, the US banking system, the 2559 02:12:54,680 --> 02:12:56,960 Speaker 1: large banks are a strong Bank of America, Ferry run 2560 02:12:57,040 --> 02:13:00,960 Speaker 1: will run, JP, Morgan's very well run. You know, we 2561 02:13:01,040 --> 02:13:03,320 Speaker 1: do business with them all the time, and they are 2562 02:13:03,440 --> 02:13:06,920 Speaker 1: they are very well run banks, and the regulators have 2563 02:13:07,000 --> 02:13:10,440 Speaker 1: been on top of them at infinite so so again, 2564 02:13:11,160 --> 02:13:15,280 Speaker 1: this right now is as a crisis and confidence. It's 2565 02:13:15,520 --> 02:13:18,640 Speaker 1: a containable problem in my view. Um, it could still 2566 02:13:18,840 --> 02:13:21,680 Speaker 1: go awry if we don't do the right things. But 2567 02:13:22,160 --> 02:13:25,480 Speaker 1: there is not a fundamental issue with these banks, which 2568 02:13:25,560 --> 02:13:28,800 Speaker 1: there was in two thousand and eight. Banks had fundamental issues. 2569 02:13:28,840 --> 02:13:33,480 Speaker 1: They have bought trunches of mortgage backed security trunches that 2570 02:13:33,560 --> 02:13:36,240 Speaker 1: were not in the money and they've lost billions of 2571 02:13:36,320 --> 02:13:39,160 Speaker 1: dollars and that put them in jeopardy. That is, that 2572 02:13:39,320 --> 02:13:41,640 Speaker 1: is not is what happening right now. Csf B. There's 2573 02:13:41,680 --> 02:13:43,800 Speaker 1: more of that model, but they're fixing that. These are 2574 02:13:43,920 --> 02:13:46,600 Speaker 1: these are more specialist banks that had a liquidity problem. 2575 02:13:47,240 --> 02:13:49,360 Speaker 1: They have not lost hundreds of billions of dollars and 2576 02:13:49,520 --> 02:13:51,560 Speaker 1: they have not made as far as I know, they 2577 02:13:51,600 --> 02:13:54,880 Speaker 1: have not made really imprudent and risky loans that put 2578 02:13:55,040 --> 02:13:57,680 Speaker 1: put depositors of the risk. So we've got to stop this. 2579 02:13:58,200 --> 02:14:00,120 Speaker 1: We've got to put confidence back in the system. And 2580 02:14:00,200 --> 02:14:02,800 Speaker 1: that's what the ft is working in Pali, working undoing. 2581 02:14:03,120 --> 02:14:05,440 Speaker 1: And once we do that, we can get the economy 2582 02:14:05,520 --> 02:14:08,200 Speaker 1: going back again. And there is there is there. There's 2583 02:14:08,240 --> 02:14:12,520 Speaker 1: billions of dollars of a private capital, private private credit 2584 02:14:12,600 --> 02:14:15,400 Speaker 1: capital out there that I think we'll fill this way, 2585 02:14:15,840 --> 02:14:17,760 Speaker 1: I imagine. And that's what least when I talked about 2586 02:14:18,280 --> 02:14:20,640 Speaker 1: the idea that the bins of this world might be 2587 02:14:20,720 --> 02:14:24,200 Speaker 1: step in Bramo, I'll take on some of this. They 2588 02:14:24,280 --> 02:14:27,080 Speaker 1: have the cash evidently, right they've had the dry powder. 2589 02:14:27,320 --> 02:14:29,840 Speaker 1: And suddenly, if you have a lot of companies and 2590 02:14:30,240 --> 02:14:33,640 Speaker 1: individuals and commercial real estate developers that need cash, Well, 2591 02:14:33,880 --> 02:14:36,080 Speaker 1: where does it go? Hey, Steve, thanks for asking answering 2592 02:14:36,120 --> 02:14:38,480 Speaker 1: that question in the spirit in which it was intended. 2593 02:14:38,520 --> 02:14:42,080 Speaker 1: Thank you, Sir Steve Paluka of Bank Capital, Bramo. These 2594 02:14:42,120 --> 02:14:44,800 Speaker 1: are questions were all confronting as individuals as well over 2595 02:14:44,840 --> 02:14:46,520 Speaker 1: the last couple of weeks, and some people will come 2596 02:14:46,520 --> 02:14:49,840 Speaker 1: out on those questions differently. Banking is a game of confidence, 2597 02:14:50,080 --> 02:14:52,200 Speaker 1: and the confidence has been breached at a lot of 2598 02:14:52,240 --> 02:14:54,720 Speaker 1: the smaller and medium sized businesses. People talk about the 2599 02:14:54,800 --> 02:14:57,240 Speaker 1: open window, the discount window at the photo Reserve and 2600 02:14:57,320 --> 02:14:59,840 Speaker 1: how much was used of it, a record amount of bar. 2601 02:15:00,520 --> 02:15:02,240 Speaker 1: The question now is how do you revive it? As 2602 02:15:02,240 --> 02:15:05,400 Speaker 1: you asked earlier this morning, this morning, this evening, how 2603 02:15:05,440 --> 02:15:10,280 Speaker 1: do we look at a situation where potentially this doesn't 2604 02:15:10,440 --> 02:15:12,800 Speaker 1: end in the way that we needed to end. Coming up, 2605 02:15:12,840 --> 02:15:15,080 Speaker 1: we'll catch up with Bloomberg David Inglis and guide you 2606 02:15:15,160 --> 02:15:18,520 Speaker 1: towards the Asian session. Equity features right now positive half 2607 02:15:18,520 --> 02:15:27,640 Speaker 1: of one percent. Far from New York equity features positive 2608 02:15:27,800 --> 02:15:32,320 Speaker 1: half of one percent. David Inglis, what's coming up? Yeah, John, 2609 02:15:32,440 --> 02:15:33,760 Speaker 1: I mean we could have been in a much worse 2610 02:15:33,800 --> 02:15:36,640 Speaker 1: situation right now, going into this Monday. It's not a 2611 02:15:36,720 --> 02:15:39,400 Speaker 1: normal day. Is certainly a very dependable gage of risk 2612 02:15:39,480 --> 02:15:42,000 Speaker 1: appetite pointing higher an OUSI end. But that means that 2613 02:15:42,040 --> 02:15:45,120 Speaker 1: I'll leave you with this SMP future weakness right now 2614 02:15:45,200 --> 02:15:47,640 Speaker 1: coming through Australia. Open to up top of the next hour, 2615 02:15:47,720 --> 02:15:50,320 Speaker 1: back you go, looking forward to your coverage, sir. Thank you, Bramo, 2616 02:15:50,440 --> 02:15:52,920 Speaker 1: thank you, thank you. We're doing this tomorrow morning. We are. 2617 02:15:52,960 --> 02:15:54,440 Speaker 1: I'll see you in a couple of hours, if you 2618 02:15:54,520 --> 02:15:57,560 Speaker 1: say so. From New York City. This evening, good evening.