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Speaker 1: This is Bloomberg day Break Asia for this Monday, March

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Speaker 1: twentieth in Hong Kong, Sunday March nineteenth in New York

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Speaker 1: and coming up today, Ubs buys Credit Suee and a

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Speaker 1: historic deal worth three and a quarter billion dollars. How

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Speaker 1: will crisis in the banking system affect the FED as

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Speaker 1: it meets this week, and what's the future of what

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Speaker 1: remains of SVB. Chinese President Shi Jianping beginning a three

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Speaker 1: day state visit to Moscow. Former President Donald Trump claims

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Speaker 1: he will be arrested on Tuesday. While in sports, Barcelona

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Speaker 1: Ox off Real Madrid in a El Classico. That's all

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Speaker 1: straight ahead on Bloomberg day Break Asia, the business news

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Speaker 1: you need to start your day, and just one fifteen

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Speaker 1: minute podcast available on Apples, Spotify, the Bloomberg Business app

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Speaker 1: and everywhere you get your podcasts. Good morning, I'm Brian

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Speaker 1: Curtis and I'm dot Krisner. Here are the stories we're

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Speaker 1: following today. Switzerland's Ubs by its main rival Credit suiz.

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Speaker 1: It's an all stock deal valued at three and a

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Speaker 1: quarter billion dollars. Let's get the story from Bloomberg. Susannah

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Speaker 1: Palmer success for the Swiss UBS Group agreed to buy

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Speaker 1: Credit Suie Group in a historic Swiss government broker deal

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Speaker 1: aimed at containing a crisis of confidence that threatened to

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Speaker 1: spread across global financial markets. We're hearing UBS is paying

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Speaker 1: more than two billion dollars for Credit Suie. It'll be

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Speaker 1: an all share deal and priced at a fraction of

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Speaker 1: Credit Suiss price at the close on Friday, when the

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Speaker 1: bank was valued at about eight billion dollars. The plan

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Speaker 1: struck up in crisis talks over the weekend. Had to

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Speaker 1: be done to address a massive route in Credit Suite

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Speaker 1: stock and bonds over the past week following the collapse

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Speaker 1: of smaller US lenders. A liquidity backstop by this Swiss

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Speaker 1: central Bank couldn't calm fears of problems spreading to the

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Speaker 1: broader industry. US authorities were working with their Swiss counterparts

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Speaker 1: because both lenders have operations in the US and are

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Speaker 1: considered systemically important in Switzerland, and all is ahead of

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Speaker 1: the markets open and from Monday trading Susannah Palmer Bloomberg

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Speaker 1: Daybreak Asia Well. Needless to say, the stakes could not

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Speaker 1: be any higher for the FED is it prepares for

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Speaker 1: a policy meeting this week. The Central Bank is caught

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Speaker 1: between on one hand, high inflation and on the other

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Speaker 1: a crisis of confidence within the banking system. Here is

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Speaker 1: Bloomberg Opinion columnist Mohammed el Arian, speaking earlier to Fox

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Speaker 1: News Sunday, they should do two things. One they should

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Speaker 1: raise interest rates by twenty five basis points or quarter

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Speaker 1: of a percentage points, because we have an inflation problem

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Speaker 1: and we need to get over this inflation problem. And second,

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Speaker 1: they need to remind people credibly, which is going to

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Speaker 1: be hard, credibly that we have multiple tools interest rate

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Speaker 1: policy to deal with inflation and other tools to deal

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Speaker 1: with financial instability. Now. El Arion went on to say,

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Speaker 1: the worst thing the FED can do is blink in

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Speaker 1: the eye in front of financial instability. However, not everyone agrees.

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Speaker 1: Former Goldman Saxy EO Lloyd blank find says the Fed

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Speaker 1: should pause here. He spoke earlier with CNNs Farid Zakaria.

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Speaker 1: I personally think it would be okay to stop here.

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Speaker 1: It is a certainty that this will that this situation

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Speaker 1: will act in a way that's similar to a rate

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Speaker 1: rise in some ways. Blank Find also urged protection of

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Speaker 1: deposits at smaller and regional banks. He said consumers may

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Speaker 1: come to rely only on the biggest banks, and that

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Speaker 1: he said could lead to consolidation in the financial sector.

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Speaker 1: Blank find said that that would be a negative development

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Speaker 1: for America's large and growing economy. Meantime, a coalition of

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Speaker 1: those midsized US banks they want federal regulators to extend

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Speaker 1: FDIC insurance to all deposits for the next two years. Now,

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Speaker 1: these banks are arguing the guarantee beyond the current quarter

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Speaker 1: of a million cap is necessary to avoid a wider

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Speaker 1: run on the banks. At the same time, Senator Elizabeth

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Speaker 1: Warren is favoring an increase in the FDIC insurance cap.

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Speaker 1: Here she is speaking earlier on CBS Face the Nation.

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Speaker 1: I think that lifting the FDIC insurance cap is a

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Speaker 1: good move. Now the question is where's the right number.

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Speaker 1: But recognize that we have to do this because these

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Speaker 1: banks are underregulated, and if we lift the cap, we

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Speaker 1: are relying even more heavily on the regulators to do

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Speaker 1: their jobs. That is Senator Elizabeth Warren. Now other lawmakers

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Speaker 1: are voicing a bit of caution. One is the Republican

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Speaker 1: chair of the House Financial Services Committee. He is Patrick mckenry.

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Speaker 1: He is saying that he has not had a single

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Speaker 1: conversation with a White House or the Administration about deposit insurance. Bran. Okay,

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Speaker 1: I'm Bryan Curtis, along with Doug Krisner. Paul Allen will

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Speaker 1: be joining us, and again just mentioned that the former

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Speaker 1: FED Bank of Atlanta President Dennis Lockhart is with us

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Speaker 1: A little bit later, So Doug, both the equity and

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Speaker 1: bond investors get killed in this CS deal. So the

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Speaker 1: world word bailout doesn't really have a whole lot of meaning,

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Speaker 1: but to a degree, it does stanch the flow of blood.

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Speaker 1: But I think you have to say, and this is

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Speaker 1: something we can put to Dennis Lockhart. I think we

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Speaker 1: have to say that confidence in both the US and

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Speaker 1: European banking systems is kind of hanging in the balance

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Speaker 1: a little bit here. And that's even with CS not

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Speaker 1: being the poster boy for what's currently happening. They've been

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Speaker 1: under trouble since the global financial crisis. But it does

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Speaker 1: seem to indicate a weakening of confidence most definitely. And

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Speaker 1: then it secondarily puts the inflation fight that the FED

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Speaker 1: has been having basically up for grabs. I mean, whether

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Speaker 1: or not the FED does capitulate in the week ahead,

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Speaker 1: and maybe pause its path of rate hikes as a

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Speaker 1: way of taking some of the stress out of the

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Speaker 1: financial system. I think that's an important question to ask,

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Speaker 1: I think for the market right now to get a

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Speaker 1: sense of what's happening and to begin to evaluate risk.

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Speaker 1: Where a lot of the banking stocks are concerned. A

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Speaker 1: lot of their pain right now has been inflicted as

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Speaker 1: a result the drop in their equity, and that has

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Speaker 1: negatively impacted their balance sheets. So I think it's going

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Speaker 1: to be very interesting to see how the banks trade

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Speaker 1: in Europe later and how the banks trade here in

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Speaker 1: the US. It was quite unusual this deal with Credit Suis,

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Speaker 1: and normally the shareholders the first to take a hit.

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Speaker 1: This time it was flipped and all the bondholders had losses.

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Speaker 1: It's something that angered some of Credit Suie as bondholders,

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Speaker 1: and I wonder whether or not you know, this is

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Speaker 1: something that when we get a bank specialist on we

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Speaker 1: can talk a little bit about this. It seems like

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Speaker 1: they wanted to ensure that everybody paid a price. You're

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Speaker 1: both the bondholders and the equity holders. We know the

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Speaker 1: equity has already been down about ninety percent in the

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Speaker 1: past two years or so, well there is that special

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Speaker 1: convertible security. I think the acronym is Coco Coco, and

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Speaker 1: it's a part of the additional Tier one capital structure.

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Speaker 1: So it amounts to a credit instrument that is convertible

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Speaker 1: into equity and that is being basically wiped out. I

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Speaker 1: think the value is over seventeen billion, but essentially it

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Speaker 1: also wipes out the equity at the same time. So

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Speaker 1: you're right, there's been an enormous amount of destruction on

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Speaker 1: the credit side as well. Oh sharing of the pain.

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Speaker 1: All right again, our guest coming up, But now it's

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Speaker 1: time for Global news. China and Russia getting ready for

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Speaker 1: a big summit this week. Dan Schwartzman has more in

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Speaker 1: the Bloomberg Newsroom. Dan Yeah, Brian. Chinese President Shijimping arrives

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Speaker 1: in Moscow Monday to begin a three day state visit.

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Speaker 1: Beijing has tried to characterize the trip as a quote

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Speaker 1: visit for peace. She will meet with Russian President Vladimir

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Speaker 1: Putting in his first visit to the country since Russia's

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Speaker 1: invasion of Ukraine began last February. The Coleman says the

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Speaker 1: two leaders will sign declarations strengthening the relationship of the

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Speaker 1: two countries along with their strategic partnership. Representative Seth Bolton,

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Speaker 1: Democrat from Massachusetts, has concerns regarding the visit. The reality

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Speaker 1: is that as long as Sieging Pain is aligning himself

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Speaker 1: with autocrats, dictators, and war from then he's not being

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Speaker 1: the kind of international leader that he aspires to be. Yea,

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Speaker 1: China says they're going to be the next superpower to

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Speaker 1: supplan at the United States. I don't think that's true,

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Speaker 1: but if he wants to be, he's got to start

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Speaker 1: acting like a responsible world leader, and a responsible world

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Speaker 1: leader does not support a war, criminals, illegal war. Malton

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Speaker 1: was speaking earlier today on MSNBC President. She is expected

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Speaker 1: to hold a video conference with Ukrainian President vladimir's Lensky

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Speaker 1: after meeting with Putin. Donald Trump claims he will be

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Speaker 1: arrested on Tuesday, the former president calling for protests on

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Speaker 1: social media as he claims Manhattan District Attorney Alvin Bragg

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Speaker 1: will have him arrested. A potential arrest will be in

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Speaker 1: connection with Trump's alleged hush money payment to Poor and

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Speaker 1: star Stormy Daniels to cover up an alleged affair. Reports

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Speaker 1: say that City State and federal officials have been meeting

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Speaker 1: in regards to security measures if Trump is indicted and

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Speaker 1: brought to New York. Jan happ News reporting that the

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Speaker 1: leader of South Korea's opposition Democratic Party could be indicted

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Speaker 1: this week. Lee Jam young, could face prosecute on charges

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Speaker 1: related to bribery and alleged land scandal. Lea denies wrong

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Speaker 1: doing and says he is a victim of a witch

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Speaker 1: hunt meant to remove the rival of the current president.

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Speaker 1: Prosecutors have been investigating Lee's time as mayor of sung Nam,

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Speaker 1: a city South The soul protests and strikes continuing around

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Speaker 1: France in response to President Emmanuel McCrone lifting the retirement

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Speaker 1: age from sixty two to sixty four. Garbage continues to

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Speaker 1: pile up on the streets of major cities, including Paris,

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Speaker 1: as sanitation workers continue their strike. Mccron pushed through his

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Speaker 1: pension reform bill without a vote by the parliament, angering

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Speaker 1: the political opposition as well as people on the streets.

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Speaker 1: The Penzagon revealing that military pilots and ground crew have

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Speaker 1: a significantly higher cancer rate than the general population in

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Speaker 1: a study of almost nine hundred thousand pilots and grounds

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Speaker 1: crew between nineteen ninety two and two seventeen, the military

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Speaker 1: found that the service members suffered a twenty four percent

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Speaker 1: higher rate of all types of cancer. The study was

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Speaker 1: commissioned by Congress in the twenty twenty one Defense Bill.

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Speaker 1: It will now require a view to see why service

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Speaker 1: members are getting sick. Global News twenty four hours a day,

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Speaker 1: powered by more than twenty seven hundred journalists and analysts

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Speaker 1: in over one hundred and twenty countries. I'm Dan Schwartzman,

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Speaker 1: and this is Bloomberg. This is Bloomberg Daybreakcasia. I'm Brian

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Speaker 1: Curtis here in Hong Kong along with Paul Allen, and

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Speaker 1: we'll get a closer look at markets coming up. Our

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Speaker 1: guest is Dennis Lockhart, chief executive officer at Navigation Capital Acquisition,

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Speaker 1: and again the former Fed Bank of Atlanta President. Mister Lockart,

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Speaker 1: thanks very much for joining us. A lot of idiosyncratic

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Speaker 1: stories here. I'm sure that credit suis is not something

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Speaker 1: that applies directly to the US banking system, But let

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Speaker 1: me just put this question to you. Does the resolution

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Speaker 1: here that we solve the weekend does it shore up

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Speaker 1: confidence or just the reverse. Well, I think it should

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Speaker 1: show up confidence. That we don't have a global event developing.

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Speaker 1: As you said, it's not directly related to the United States,

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Speaker 1: although Kraty Swiss of course has big activities in the

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Speaker 1: United States. But the banking system in the United States is,

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Speaker 1: let's say, affected by problems that may develop in Europe

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Speaker 1: and elsewhere around the world. So you know, I do

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Speaker 1: think everyone is taking heart on the resolution. How about though,

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Speaker 1: if you happen to be holding eighty one bonds, additional

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Speaker 1: te bonds or contingent convertible bonds, and this morning you're

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Speaker 1: looking at what you're holding and thinking it might be

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Speaker 1: time to get rid of those, is there still a

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Speaker 1: risk that we could see the spread feather. I'm not

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Speaker 1: sure we can know, as as I look at the

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Speaker 1: week coming when the FED has its two day meetings

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Speaker 1: starting Tuesday. Unlike other situations where I've had a pretty

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Speaker 1: good sense of what they're going to do, this time,

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Speaker 1: what I really don't know and why why it's not

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Speaker 1: easy to read the FED is likely to decide is

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Speaker 1: because we don't really know their assessment of the severity

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Speaker 1: of the financial stability risk they're facing, and that is

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Speaker 1: based on information, much of which is confidential related to

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Speaker 1: individual banks. So unless we know that, it's really hard

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Speaker 1: to sell what they're going to do this week. I

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Speaker 1: think there are two options. Twenty five basis point increase

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Speaker 1: in policy rate, that's one option. The other option is

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Speaker 1: a pause. You know, we had a guest on the

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Speaker 1: program on Friday who said, Janet Yellen, the Treasury Secretary,

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Speaker 1: said the US banking system was healthy. So if the

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Speaker 1: FED pauses, that's a direct contradiction of what the US

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Speaker 1: government is saying. I scoffed at it a little bit.

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Speaker 1: But does she have a point? Well, I think you

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Speaker 1: have a point. Quite Frankly, I would expect a Treasury

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Speaker 1: secretary to speak in confident tones and to try to

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Speaker 1: restore stability by showing confidence in the banking system. That's

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Speaker 1: what I think anyone would do with her responsibilities. I

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Speaker 1: have to say, I'm worry. I share your worry that

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Speaker 1: the interpretation of a pause could be that the FIT

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Speaker 1: is deeply concerned, and that could lead to adverse circumstances developing.

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Speaker 1: We're dealing with market and depositors, psychology. It's no longer

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Speaker 1: really related entirely on the facts of each bank's condition.

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Speaker 1: I'm wondering to what degree the nervousness, the loss of

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Speaker 1: confidence out there. How much of a sort of proxy

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Speaker 1: tightening is that in a way, and could the Fit

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Speaker 1: perhaps structure communications around that As a case for a pause,

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Speaker 1: There certainly has been some tightening of financial conditions recently

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Speaker 1: just because of market turmoil. In my experience, it's very

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Speaker 1: hard for the FED to set policy policy that cannot

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Speaker 1: be or will not be addressed again for another six

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Speaker 1: seven weeks based on some kind of a minuet with

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Speaker 1: the markets. The markets can change very rapidly, and we

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Speaker 1: can see bond rates, for example, and equity market levels

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Speaker 1: move very quickly. So it's just probably not good policy

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Speaker 1: making to try to build your policy decision around recent

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Speaker 1: moves in the markets. Dennis, when this got started, really

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Speaker 1: with fury was on the Silicon Valley bank story, and

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Speaker 1: at that point people were making the case that this

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Speaker 1: is an interest rate issue being caught out, it's not

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Speaker 1: really a credit one. But I think now people are

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Speaker 1: making the point that it leads to a credit crisis.

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Speaker 1: Interest rates this high for this long well, certainly, if

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Speaker 1: the if the let's say, the series of bank runs

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Speaker 1: or the threat of bank runs continues, the whole banking

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Speaker 1: system will be probably preserving liquidity, and that couldn't translate

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Speaker 1: into the let's just say, the shrinking of credit availability

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Speaker 1: throughout the economy, and the shrinking of credit availability can

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Speaker 1: lead to credit problems, meaning of companies that end up

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Speaker 1: in trouble in some form or another. So it's very

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Speaker 1: definitely a risk the you you refer to Silicon Valley Bank,

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Speaker 1: of course, which is the trigger of all of these events.

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Speaker 1: You know, I think there's a reasonable argument that their

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Speaker 1: conditions and their circumstances were quite unique, and therefore Janet

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Speaker 1: Yellen is accurate in saying that the manking system overall

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Speaker 1: is quite sound. But can I can I just do

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Speaker 1: a quick follow One of the other points made was

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Speaker 1: that pensions and endowments we're probably doing the same thing

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Speaker 1: as SVB. I mean, they were loading up on what

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Speaker 1: was seemed to be very safe long term US treasury

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Speaker 1: securities and mortgage backed securities. And is it inevitable that

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Speaker 1: they have to mark those things down and lose a

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Speaker 1: lot of money or are we just thinking well, they'll

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Speaker 1: hold it till maturity. I think that's going to depend

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Speaker 1: on each pension and endowments financial situation. What are the

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Speaker 1: demands for liquidity in the near term. You know, they

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Speaker 1: can affect have bad years and and survive them. It's

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Speaker 1: not quite like the trust is associated with a bank.

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Speaker 1: But since you brought up the subject, I think insurance

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Speaker 1: companies have to be added to the mix as well.

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Speaker 1: And insurance companies do have to go through some of

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Speaker 1: the same the same reporting and the same kind of

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Speaker 1: market confidence regime that banks do. So there are broad

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Speaker 1: system concerns beyond banks. I would not put pensions and

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Speaker 1: endowments quite as high as I would put the insurance industry.

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Speaker 1: So you mentioned a shrinking of credit availability, a general

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Speaker 1: loss of confidence. These factors going to be disinflationary. Certainly

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Speaker 1: they could if the economy slows down. That's disinflationary in

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Speaker 1: broadly speaking. And the credit is sort of the what

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Speaker 1: should I call it? Credit is the fuel for the economy,

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Speaker 1: and when it gets withdrawn because of caution on the

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Speaker 1: part of banks in this case, caution to preserve their

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Speaker 1: liquidity or to make sure they don't overreach, you're going

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Speaker 1: to end up with a slowing economy and that should

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Speaker 1: bring price pressure downward. And so yes, it should be disinflationary. Yeah,

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Speaker 1: I would certainly seem that the banks will real things

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Speaker 1: in now. They want to protect their capital having seen

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Speaker 1: what happens, and it would seem almost inevitable that they

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Speaker 1: would that they would be lending less. Dennis, thank you

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Speaker 1: very much for joining us. Dennis Lockhart, the chief executive

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Speaker 1: officer at Navigation Capital Acquisition. This is Bloomberg Daybreak Asia,

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