Speaker 1: From Mark hard of We're Innovation Money Empower Collie in
Speaker 1: Silicon Valley, NBR. This is Bloomberg Technology with Caroline Hide
Speaker 1: and Ed Ludlow. I'm Caroline Hide of Bloomberg's World headquarters
Speaker 1: in New York, and I'med Lovelow in San Francisco. This
Speaker 1: is a special edition of Bloomberg Technology because Ed throughout
Speaker 1: the show will cover all the market chaos that's spreading
Speaker 1: from Europe to the US and beyond. Elaine stokes some
Speaker 1: lumas sales hits fixed income. John Roe of el JIM
Speaker 1: covers the macro picture and how it affects your tech exposure,
Speaker 1: plus how the SVB collapse and bank crisis contagion could
Speaker 1: lead to the unraveling of fintech liquidity. We'll discuss with
Speaker 1: Jojau of Millennia Capital and we'll get the outlook on
Speaker 1: risk sentiment. Broadly, We're going to dive into the state
Speaker 1: e venture capital investor as clouds loom over the industry,
Speaker 1: so a constan CLEO Capital Managing directs there. So let's
Speaker 1: turn back to credit Swiss shares record drop hitting a
Speaker 1: record low credit default swaps or insurance against the fault
Speaker 1: also trading above financial crisis levels. Let's bring in Bloomberg's
Speaker 1: Marry and Half Tameya from Zerich for more on this.
Speaker 1: What are the latest moves when it comes to Credit
Speaker 1: Swiss and what do we know about the health of
Speaker 1: this bank. So we've got about half an hour until
Speaker 1: the market closes, so we'll see where the stock ends
Speaker 1: up then. But it has been plummeting today and that's
Speaker 1: off the back of some comments from one of their
Speaker 1: anchor investors in the Saudi National Bank earlier today talking
Speaker 1: about their stake in the bank and their ability their
Speaker 1: non ability to increase it more than ten percent. But
Speaker 1: in reality, what we're seeing is is a broad reaction
Speaker 1: across the European banking sector, with all stocks down off
Speaker 1: the back of someone certainty with what happened with Silicon
Speaker 1: Valley Bank in the US and someone certainty around what
Speaker 1: you know, how stable European banks are, And of course
Speaker 1: with Credit Suiss, you always have to add a layer
Speaker 1: to that with the fact that it's going through a
Speaker 1: very difficult restructuring right now and has lost a lot
Speaker 1: of confidence of its investors and clients. Marion Great Reporting
Speaker 1: matt a course US felled in bringing that exclusive which
Speaker 1: sparked the whole concern over Credit sus Marian half Toman,
Speaker 1: We thank you very much. Indeed, let's warn it out.
Speaker 1: Let's bring in EMOTIONALI Bassak who well, maybe yesterday we
Speaker 1: thought had maybe the past was worse behind us when
Speaker 1: it came to Silicon Valley Bank, and now we into
Speaker 1: yet a further bit of contagion when it comes to
Speaker 1: europeying financial it certainly does. And the thing it's important
Speaker 1: here is this is not a bank far far away.
Speaker 1: This is a globally systemic financial institution with big presence
Speaker 1: in the United States, with counterparties across the world and
Speaker 1: clients across the world. So seriously, this is a very
Speaker 1: serious situation to see a bank under this kind of stress,
Speaker 1: because anyway you cut the pie here, you have the
Speaker 1: shares trading out record lows, you have the bonds really
Speaker 1: trading very low for again, a globally systemic institution, and
Speaker 1: the credit default to ops so widening out to levels
Speaker 1: on scene before. So a lot of records being faced
Speaker 1: by Credit Suez and therefore causing concerns in the market
Speaker 1: about it. There are sources of mind that say that
Speaker 1: this feels worse than Silicon Valley Bank in a lot
Speaker 1: of ways. Remember, for a globally systemic financial institution, there
Speaker 1: are backstops here. But there's some really interesting color that's
Speaker 1: worth noting, Caroline, And it's this my sources say, for
Speaker 1: Silicon Valley Bank, for example, if things kind of moved
Speaker 1: quickly in the pursuit of a sale before the deposit
Speaker 1: or flight, it would have been easier to get the
Speaker 1: job done. But you know, you have to wonder about
Speaker 1: what that looks like for credit, Sueeze. At what point
Speaker 1: do you reach a point where things get so bad
Speaker 1: that they're so hard to turn around? Right now, they
Speaker 1: are still obviously fine when it comes to their own liquidity,
Speaker 1: So we have to keep an eye on what the
Speaker 1: depositors do at the end of the day, given their
Speaker 1: capital sources here look very strained. And I mean when
Speaker 1: the readacross is for the tech community US well, and
Speaker 1: that the idea that everyone was sort of too concentrated
Speaker 1: a risk. What's the read across when it comes to
Speaker 1: credit sweets And indeed for our own technology community, well,
Speaker 1: we know that venture firms large and small, and the
Speaker 1: number of tech companies are still trying to finalize their banking.
Speaker 1: The read through from what's happened with SPB to Credit
Speaker 1: Suite now is deposit outflow risk, right, Shinali. That is
Speaker 1: still where we're looking, whether it's Europe or First Republic
Speaker 1: here in the States. You want to hear something crazy too,
Speaker 1: But people forget this. Credit sweet was one of the
Speaker 1: biggest members of the market when it came to financing,
Speaker 1: so to the extent people were worried about Silicon Valley
Speaker 1: Bank and the exit for the market, Credit Swiez was
Speaker 1: one of the biggest underwriters of spacks in a hot market.
Speaker 1: They were a banker to a lot of the world's
Speaker 1: wealthy technology firms. They helped disseminate those pre IPO shares
Speaker 1: that pre IPO equity two founders across the world to
Speaker 1: billionaires across the world that we're able to get in
Speaker 1: early on a lot of these trades. It has a
Speaker 1: huge ramification to financing markets with an exit of a
Speaker 1: bank like this and ed I mean also, we just
Speaker 1: had the CEO of Credit Smison yesterday saying that they
Speaker 1: did well from some of the deposits coming from Silicon
Speaker 1: Valley Bank to their own lender. Right. But what you
Speaker 1: need to realize on credit sweet and we'll get to
Speaker 1: this later in the show. All of this started happening
Speaker 1: back in the fourth quarter or sooner when it came
Speaker 1: to client assets and liquidity concerns. It's just the last
Speaker 1: five days have been astonishing. Bloomberg Scenali Bassack, you are
Speaker 1: coming back later in the hour. I want to bring
Speaker 1: in John row Though, head of multi asset funds at
Speaker 1: Legal and General Investment Management LGYM, multi asset fund with
Speaker 1: eighty five billion dollars in AUM. John, let's start here.
Speaker 1: Are we seeing a de facto tightening in this market?
Speaker 1: Is that what the concern is? Yeah, we're definitely seeing Kara,
Speaker 1: I think we lost John. So I'm going to jump
Speaker 1: in here and just say, you know, John, I think
Speaker 1: you're back. Please carry on. Sorry. Oh yeah, and so yeah,
Speaker 1: I think we are seeing a tightening and little feat
Speaker 1: three for several quarters. So we're seeing not just in
Speaker 1: the American market, but we're going to see it in
Speaker 1: Europe as well. I mean that there are less kind
Speaker 1: of US and European rate hikes because more of the
Speaker 1: tightening can be done through a tighter financial conditions and
Speaker 1: learning standards. The issue the handwringing is that the Federal
Speaker 1: Reserve is having to hike rates and it's going to
Speaker 1: break things. Ultimately, How bad would a credit squeeze breakage?
Speaker 1: B Yeah, I think on the inflation side, that's actually
Speaker 1: been starting to look a bit better. We've had improved
Speaker 1: participation in the US, so the US labor market datas
Speaker 1: look quite good, and there's been some softening in some
Speaker 1: of the inflation data before today, which was clear in this.
Speaker 1: On the upside, I think though that oh, we're having
Speaker 1: some technical difficulties with John at the moment. We'll go
Speaker 1: get back to him in a moment. I think one
Speaker 1: of the key issues for me ED is thinking about
Speaker 1: the broader impact across asset is the bond market move.
Speaker 1: We know that John has exposure not only to now
Speaker 1: stack futures but also within his multi asset funds. He
Speaker 1: looks particularly at the bond market when we're seeing yules
Speaker 1: move so much. Yes, this is about contagiu risk when
Speaker 1: it comes to banks, but it's also been in a
Speaker 1: large part about some of the PPI reading that we
Speaker 1: got today. The macro data points we still get and
Speaker 1: it all goes back to the FED. That's why the
Speaker 1: reset on expectations was so important. Yes, it's a really
Speaker 1: basic idea, higher rates discount pres eventually of cash flows.
Speaker 1: But actually I think we're really focused on the short
Speaker 1: end when it comes to policy sensaive stocks. Sharlie Bassek,
Speaker 1: I think you're still with us out in New York.
Speaker 1: What are you watching right now? Broadly in the sexes
Speaker 1: you covered? Forget credit Swiss is an isolated incident. But
Speaker 1: what are we hearing from the US banking sector in particular?
Speaker 1: I'm glad you asked this because I asked, what are
Speaker 1: the pain trades right now? Is there anything that you
Speaker 1: could buy in this market? And I'm hearing things like
Speaker 1: gold ed You know, this is how tough this market
Speaker 1: is that even safe doesn't feel that safe right now.
Speaker 1: Credit trades, investment grade trades, are these under pressure in
Speaker 1: a market like this, Even some of the big regional
Speaker 1: banks here. Remember we face that downgrade for a First Republic.
Speaker 1: We've been talking about this a lot. First Republic was
Speaker 1: also a bank that many people move money to in
Speaker 1: the wake of Silicon Valley Bank. But the pressure on
Speaker 1: deposits here is what caused that downgrade. So the bonds
Speaker 1: had been trading lower. The stock had been trading lower
Speaker 1: after those rebounds we saw yesterday, So again, what is
Speaker 1: safe is a huge question in this market. I think
Speaker 1: one other thing I'm very curious about is the pain
Speaker 1: that might be felt. They call it the carry trade,
Speaker 1: and that is remember at the end of last year,
Speaker 1: we saw all the tech community feel a lot of
Speaker 1: pain in the hedge fund world, but the macro traders
Speaker 1: had come roaring bath because of the volatility and interest
Speaker 1: rates and commodities in asset classes around the macro world. However,
Speaker 1: now it looks like some of those trades are unwinding,
Speaker 1: and by the way, they're levered trades, which means they're
Speaker 1: used often on borrowed funds. So we are expecting a
Speaker 1: little bit more pain among investors and a broader set
Speaker 1: of investors, even the ones that had one out last year.
Speaker 1: To what extent that pain could be is a huge
Speaker 1: question mark. And Shannani hindsight's a beautiful thing. What we've
Speaker 1: had some of the biggest names in finance way, and
Speaker 1: you've heard from Larry Fink today talking about some of
Speaker 1: the domino effects, the worries about financial crisis. More broadly,
Speaker 1: you've heard of course, from the likes of Bridgewater Associates
Speaker 1: founder as well Ray Dalio talking about how maybe indeed
Speaker 1: SVB was some sort of canary in a coal mine.
Speaker 1: Interesting me. Kathy Wood weighing in on Twitter, of course yesterday,
Speaker 1: of course, she says, now it is obviously glaringly clear
Speaker 1: that some sort of bank crisis was coming our way.
Speaker 1: But ultimately, did you feel that it was so hard
Speaker 1: to tell because people got so complacent with the market.
Speaker 1: If you took a look at how many banks had
Speaker 1: taken advances, for example, from the federal home loan banks,
Speaker 1: which is not you know, standard behavior to see in
Speaker 1: the billions as done in the last year or so,
Speaker 1: there was a lot of it, and it's really hard
Speaker 1: to calculate. You would have to go through the regulatorial
Speaker 1: filings of each of those banks separately to really get
Speaker 1: a sense of how much was borrowed at the end
Speaker 1: of the day and which banks were really borrowing to
Speaker 1: that extent to make sure that they had liquidity on
Speaker 1: hand here in the case of a dire moment. These
Speaker 1: are dire moments. Again, I think what's hard for me
Speaker 1: and I got a little criticism for this, this idea
Speaker 1: here that this is not two thousand and eight. Well,
Speaker 1: because there have been so many micro crashes leading up
Speaker 1: to this moment, and there has already been federal intervention.
Speaker 1: Remind you in the United States what that looks like
Speaker 1: in Europe as well, and how much half global leaders
Speaker 1: have to kind of step up and stem some of
Speaker 1: these concerns. That creates a rock and a hard place
Speaker 1: when the market is still worried about the FED and
Speaker 1: in the inflation and the trajectory of interest rates. So
Speaker 1: everywhere you look there are kind of issues to go around. Wow.
Speaker 1: We heard, of course from Cliff Fastness, who was saying,
Speaker 1: if you look at the ball market, that's showing GFC
Speaker 1: two thousand and eight warriors, Maybe the equity market not
Speaker 1: so much. Shinale. We are so thankful for your expertise
Speaker 1: day and day out. Welcome back to a special edition
Speaker 1: of Bloomberg Technology. I'm at Ludlow in San Francisco, and
Speaker 1: I'm Karine Hyde in New York. We are markets through
Speaker 1: and through. Just before the market opened, we had that knock,
Speaker 1: that repercussion of a debt cut from SMP over to
Speaker 1: the likes of First Republic Bank. We want to get
Speaker 1: into that with cutting gook to joining us for more
Speaker 1: on well that has implied for the equity market too. Yeah,
Speaker 1: a lot of pain at Caroline, and you're seeing this
Speaker 1: across the board for regional banks. I should mention in
Speaker 1: the pre market, all of these names were higher by
Speaker 1: eight to ten percent, and now you've completely seen the
Speaker 1: credit sweet story turn it around. First Republic is, of
Speaker 1: course our poster child for some of the pain in
Speaker 1: the regional banks, just given how similar of a profile
Speaker 1: it has to the signature bank story, and that really
Speaker 1: puts it in the focus when it comes to where
Speaker 1: the regulatory concern might line next. Nevertheless, you are seeing
Speaker 1: a move about eighteen percent lower on that stock, really
Speaker 1: leading the charge lower. The one stock you want to
Speaker 1: keep in mind that's in the green is Western Alliance.
Speaker 1: That's really coming off of a stake, a five point
Speaker 1: three percent stake coming from Ken Griffin over at Citadel.
Speaker 1: It's the only reason that stock is in the green
Speaker 1: and not following the trend. But again, I want to
Speaker 1: go back to our poster child of First Republic, because
Speaker 1: take a look at just what it's done in the
Speaker 1: last year or so. The dramatic drop of down about
Speaker 1: eighty percent a lot of that loss is really just
Speaker 1: coming in the last week or so, once again really
Speaker 1: showing just how much it's fallen from grace, and especially
Speaker 1: when it comes to their price to book ratios, even
Speaker 1: with that cheapness, still not catching a bid for that reason. Now,
Speaker 1: to add a little bit of salt to the wound,
Speaker 1: you are starting to see that down grade now cut
Speaker 1: to junk over at S ANDP. I had an A
Speaker 1: rating now to a double B plus and is still
Speaker 1: on credit watch negative. The reasoning here is they're worried
Speaker 1: about outflows, kind of this mass bank run First Republic
Speaker 1: getting hit next after some of the chaos you've seen
Speaker 1: in SVP and signature. They're also pointing out that there's
Speaker 1: a little bit more dependency in terms of their structure
Speaker 1: on net interest income in instead of their fee income
Speaker 1: from their wealth management business. That is something that sets
Speaker 1: First Republic apart from some of its peers and perhaps
Speaker 1: why it's getting hurt just a little extra when it
Speaker 1: comes to the scrutiny from regulators and of course from
Speaker 1: these credit agencies. Yeah, outflow risk at the core of
Speaker 1: that story. Numbers will continue to track this out. Bloom
Speaker 1: Bows pretty good to thank you so much. Let's keep
Speaker 1: it going and bring in Elaine Stokes, executive VP and
Speaker 1: portfolio manager at Loo Miss Sales and Company in LA
Speaker 1: and I'll ask you the question we tried to pose earlier.
Speaker 1: Is this just broadly a de facto tightening that we're
Speaker 1: seeing play out in front of us? Yeah, I mean,
Speaker 1: I think that's exactly what we're seeing it where we
Speaker 1: are finally getting proof, right, the FED is finally getting
Speaker 1: proof that they are affecting more than just the housing market.
Speaker 1: They are affecting the lending markets across the board. You know,
Speaker 1: Credit Swiss we still have to deal with over the
Speaker 1: next couple of days to find out just how far
Speaker 1: that contagion goes. But what has happened within the US
Speaker 1: away from Credit Swiss had already proved that point that
Speaker 1: lending has changed. People are not as willing to be
Speaker 1: in private equity, venture capital in lend to they don't
Speaker 1: need to yields and hit a point that they don't
Speaker 1: need to. So therefore, Lane, what have you been doing
Speaker 1: when you've seen the enormous volatility not just incorporate debt,
Speaker 1: but my goodness, in US treasuries when we have on
Speaker 1: one day a more than twenty five basis point move
Speaker 1: that has then become a four day straight from the
Speaker 1: upside to the downside in terms of boring costs. Yeah,
Speaker 1: you know, it's it's funny. In times like this, we
Speaker 1: expect to be really, really active, and it's been a
Speaker 1: little bit disappointing within the treasury market. We were running
Speaker 1: neutral in our funds and now it hit a point
Speaker 1: where we went from we went to an overdone place
Speaker 1: so quickly that I don't I don't necessarily think that
Speaker 1: what the market, the treasuring market is pricing into the
Speaker 1: market is reality. Do we really think that there are
Speaker 1: going to be one hundred and twenty five basis points
Speaker 1: of cuts by January? That seems a little overdone, But
Speaker 1: then that's a exactly what our technology viewer is trying
Speaker 1: to get to grips with. For our viewing, the context is,
Speaker 1: you know, Loomis Sales has a storied history in bond management,
Speaker 1: You've got hundreds of billions in assets under management, and
Speaker 1: you're trying to read the tea leaves of ultimately, what
Speaker 1: the Fed does in this scenario. Does the Federal Reserve
Speaker 1: focus more of financial issues contagion bank risk, or does
Speaker 1: it focus more on inflation and some of the concerns
Speaker 1: there that ultimately means they have to hike rates. Yeah,
Speaker 1: I do think that the Fed probably hasn't made a decision,
Speaker 1: and the Fed is going to watch what happens over
Speaker 1: the next couple of days and does credit Swiss and
Speaker 1: what's happening there take us to right. They know more
Speaker 1: than we do, but they don't know what the markets
Speaker 1: are going to do here. I think if they were
Speaker 1: to be making a decision today with what they know,
Speaker 1: economic numbers that they don't lie but are definitely distorted
Speaker 1: by weather, distorted by some other exogenous factors, and the
Speaker 1: amount of fear that's in the market right now, I
Speaker 1: think that they would hold off. But we could see
Speaker 1: something happen in the next couple of days that settles
Speaker 1: the markets down and allows them to do that twenty
Speaker 1: five basis points. I mean, the market right now is
Speaker 1: saying it's a fifty fifty chance, at least that's what
Speaker 1: the treasury market is saying, it's a fifty fifty chance.
Speaker 1: Reply that the Fed is going to cut twenty five
Speaker 1: business points. I do think something that's pretty oh, go ahead,
Speaker 1: Well no, no, I want to tie this together. I
Speaker 1: want to understand why this is happening right now. Let's
Speaker 1: go to the Bloomberg terminal. I look at Credit Swiss CDs,
Speaker 1: credit default swaps trading at financial crisis above financial crisis
Speaker 1: levels to ensure against the fault. This was happening at
Speaker 1: Credit Swiss in the fourth quarter in terms of client
Speaker 1: asset outflows, liquidity metrics dropping, SVB happened, and it seems
Speaker 1: as if everyone suddenly realize again that bank liquidity is important.
Speaker 1: Why are we sort of happening Why is this happening
Speaker 1: Wednesday right now? What's the catalyst for you? Well, clearly,
Speaker 1: when the largest shareholder comes out and says there's no
Speaker 1: way I'll put another sentence, and you fear that they
Speaker 1: know something you don't know, right, That's that, I think
Speaker 1: is the fear that's going through the market. Everything we
Speaker 1: know is that, you know, Credit Swiss is a bank
Speaker 1: that had a different type of regulation than what we
Speaker 1: then SVP it. It seems to me to be a
Speaker 1: very different situation, and it was really all about that
Speaker 1: Lacke's confidence. It was all about a lack of confidence
Speaker 1: for the banking system and if that reverberates We're going
Speaker 1: to see more credit Swiss, more First Republics. Now, the
Speaker 1: credit markets don't seem to be saying deep dark recession
Speaker 1: in its app and right away. Yeah, very different signals
Speaker 1: coming from very different asset classes. And Lane Stokes, you're
Speaker 1: a cross of course, the corporate credit world and the
Speaker 1: government bond world. And we want to thank you so much.
Speaker 1: We're spending some time with us exactly p portfolio manager
Speaker 1: over at Looma Sales. We thank you. Stay well, let's
Speaker 1: take a quick look at the macro picture, the repercussions
Speaker 1: of well, an investor that won't put an extra cent
Speaker 1: into credit suite. The context to the SVB crisis and
Speaker 1: the market contagion means Europe the stock six hundred having
Speaker 1: its worst day in a year, but the euro having
Speaker 1: its worst day in two years. We're off by almost
Speaker 1: two percent overall that we're lowest levels in two months.
Speaker 1: The flight to quality, the Bloomberg dollext sows up a
Speaker 1: percentage point. Sovereign bonds they outperform d Yeah, in the
Speaker 1: tech sector and equity market, it's really interesting, like risk off,
Speaker 1: but no obvious move to safety. Gorman Sachs profitless tech
Speaker 1: only down nine tenths of a percent outperform really what
Speaker 1: we see in the equity space, in the tech sector,
Speaker 1: the underperformance really in your semiconductors, the socks down more
Speaker 1: than three percent at this point. Caroline, Yeah, and I
Speaker 1: think the repercussions are far and wide. It's interesting that
Speaker 1: actually the NASDAC the technology sector somewhat outperforms the flight
Speaker 1: to the bond market. I think the volatility there is
Speaker 1: one that you have to keep an eye on. And
Speaker 1: this is a context in which this affects every risk
Speaker 1: taker out there. What does this mean for future deal
Speaker 1: flu What does this mean for investing in technology? More broadly,
Speaker 1: It's notable that some of the key tech stocks do
Speaker 1: outperformed to a semi excent a Bitcoin actually remarkable amid
Speaker 1: the dollar strength and tight of financial conditions. They don't
Speaker 1: hit megacats, they hit small or keep tracking. That's all. Next.
Speaker 1: This is Bloomberg. Welcome back to a special markets edition
Speaker 1: of Bloomberg Technology. I'm Caroline Hyde in New York in
Speaker 1: his fourth thirty PM in London. And of course we've
Speaker 1: got to keep a keen eye on the European ripple effects,
Speaker 1: the credit swee concerns it has been in a remarkable
Speaker 1: day of trading in European assets. Ed, you've got the latest. Yeah, look,
Speaker 1: banks the main driver the eurostocks Banks index down eight
Speaker 1: point five percent, biggest drop for the banks collectively since
Speaker 1: March of twenty twenty when the pandemic hit. But Credit suis,
Speaker 1: of course not traded within that index. It is swift,
Speaker 1: but down twenty one percent, biggest drop on record. Stock
Speaker 1: trading at its lowest level on record. Also movement in
Speaker 1: currency markets euro dollar one oh five, but we're off
Speaker 1: by two cents or two percentage points. Almost what a
Speaker 1: volatile week it's actually been in eurodollar if you think
Speaker 1: about it, and then we're debating on the show whether
Speaker 1: there's this flight to safety or not. But you look
Speaker 1: at the short end on the German two year burned,
Speaker 1: we're off by five basis points two point three eight
Speaker 1: percent banks, banks and more banks Caroline. What's remarkable is
Speaker 1: also the relative strength of technology. Off by the least
Speaker 1: in terms of benchmarks. We're off only by one point
Speaker 1: one percent on the NASDAK. But let's broaden it out
Speaker 1: to the movement in European assets. The read across to
Speaker 1: the US and global financial sector. I'm pleased to say
Speaker 1: Guy Johnson working late for US in London, Shinali Bassak
Speaker 1: on overtime here in New York, Guy in London. First
Speaker 1: and four, just the contagion concerns around Credit Suis. It
Speaker 1: felt as though it's a Bloomberg interview that sparked this
Speaker 1: this morning. It was USAF Gamnel didn't interview in this morning,
Speaker 1: certainly sparking the latest crisis for Credit Swee. But if
Speaker 1: somebody put it to me earlier, this has been a
Speaker 1: slow train wreck. Credit Suiss has been having problems for
Speaker 1: a really long time. And you've got to remember as
Speaker 1: well that this is a globally systemically important bank. The
Speaker 1: liquidity concerns that we've seen, for instance, in Cilicon Valley
Speaker 1: aren't there. So this is a crisis of confidence that
Speaker 1: has been emerging here. But I think what it's doing, Caroline,
Speaker 1: is forcing European investors to rethink what is happening more broadly,
Speaker 1: looking at the ECB tomorrow, thinking about the possibility of
Speaker 1: whether or not the DCB is going to go by
Speaker 1: fifty basis points, talking about tin nye of credit standards
Speaker 1: and economic slowdown. I think the ripple effects you're seeing
Speaker 1: into other banks. Maybe less to do with contagion and
Speaker 1: more to do with the fact that maybe there's just
Speaker 1: a repricing of potential earnings going on here. Take a
Speaker 1: look at what is happening in europe bank bonds, and
Speaker 1: there's less of a ripple effect, which tells you maybe
Speaker 1: that story as well. So, yes, the credit sweet story
Speaker 1: has been significant today, but it's having a wider effect.
Speaker 1: Maybe I'll kind of wake up call as to the
Speaker 1: ultimate impacts of this incredibly fast paced rate cycle that
Speaker 1: we're currently seeing. What I'm hearing and I read the
Speaker 1: Bloomberg Top Live blog as well, is whether you're in Europe,
Speaker 1: you're in the United States, liquidity for banks is important.
Speaker 1: We should start talking about that again, Shnalie, How is
Speaker 1: this playing out on Wall Street? How is this playing
Speaker 1: out in US financial markets? Do you remember just a
Speaker 1: couple of days ago, ed we were very worried about
Speaker 1: the health of a lot of banks because they were
Speaker 1: facing deposit or runs. And remember that was even after
Speaker 1: this idea here you saw a sell off, I mean
Speaker 1: after the idea that Sunday night you saw that FDIC rescue.
Speaker 1: When we're seeing these kinds of strains again, there is
Speaker 1: certainly a worry about the funding and liquidity behind these
Speaker 1: smaller banks. In particular. I think Alan Blinder, when he
Speaker 1: spoke to Guy Johnson earlier today in Bloomberg's programming, this
Speaker 1: very interesting point that, of course this is already problematic
Speaker 1: when you see a globally systemic financial institution go through
Speaker 1: this kind of strain, But the big strain would really be,
Speaker 1: and this is what we're not seeing very very importantly,
Speaker 1: is that same kind of strain go over to the
Speaker 1: other globally systemic financial institutions. Well, well, you've see in
Speaker 1: so far until now, and what we are still hearing
Speaker 1: very very much so is that though there's been a
Speaker 1: flight to safety, that those big banks have been taking
Speaker 1: in so many deposits that they often can't even tell
Speaker 1: us how many they have because things are moving so
Speaker 1: quickly here now, I think that leaves questions about everybody else. Yeah,
Speaker 1: but the important things you not to here is that
Speaker 1: you are not seeing liquidity as a concern for Credit Suiee.
Speaker 1: And this is confidence. It's interesting. Credit Suite is basically,
Speaker 1: we understand from the Financial Times gone to the Swiss
Speaker 1: National Bank and said we need to vote of confidence.
Speaker 1: This is about shoring up confidence. It's about buying this
Speaker 1: bank time maybe to execute its plans. The rules are
Speaker 1: in place for a reason, and we're not seeing that.
Speaker 1: The difference between Silicon Valley Bank and what's happening with
Speaker 1: Credit Sweets is that you're not seeing that liquidity pressure.
Speaker 1: Maybe there this is a bank that is still able
Speaker 1: to function with the liquidity that it has, and maybe
Speaker 1: that is the big difference here. But what it does
Speaker 1: tell you is that there may be a bigger effect
Speaker 1: on financial conditions. And this is maybe this is what
Speaker 1: the wider market reaction is all about. Banks are going
Speaker 1: to tighten lending standards. They are going to be potentially
Speaker 1: spooked by this, and potentially that leads to the lower
Speaker 1: earnings which may be being priced in today. And this
Speaker 1: is what systemically important means. And they might not have
Speaker 1: the wall of support coming on Twitter from big vcs,
Speaker 1: but there's certainly behind the scenes trying to get a
Speaker 1: wall of support from certain regulators. And I think, Shannali,
Speaker 1: what next therefore, in the world reporting, the world of disclosure,
Speaker 1: are we waiting for to push this story forward? I
Speaker 1: think a few things to watch for and guys, point
Speaker 1: is very very important that this is a bank that
Speaker 1: has money and it has a lot of clients, and
Speaker 1: those clients there are are a lot of sticky clients
Speaker 1: because remember there are not a lot of wealth managers
Speaker 1: around the world that are this big. I think that
Speaker 1: is very important. They have loans tied to assets around
Speaker 1: the globe. That is all very very important. But to
Speaker 1: Guy's point as well, these kinds of strange do tighten
Speaker 1: financial conditions very severely. And that is the commonality between
Speaker 1: both credit suites and what's happening here in the United States.
Speaker 1: There's a worry about extending credit, there's a worry about
Speaker 1: where people keep their money, and what we're saying before,
Speaker 1: there is a rewriting of what is a safe asset.
Speaker 1: And you tweeted earlier, we're all bank reporters now. But
Speaker 1: ultimately this does have ripple effects to the world of technology. Yeah,
Speaker 1: why do we care about tied to financial conditions. It's
Speaker 1: not the megacat tech that gets hit look at their
Speaker 1: balance sheet. But everyone keeps telling us this comes out
Speaker 1: of SVB. We will see failures in startups. They will
Speaker 1: have a working capital crunch, and so you have to
Speaker 1: look at the private markets as well, and say, how
Speaker 1: is this playing out on Main Street or Silicon Valley
Speaker 1: out here in San Francisco. Bloomberg's Johnson Shnali Bassak team effort.
Speaker 1: Thank you very much. Now, how could the SVB collapse
Speaker 1: in current global lender concerns unravel fintech liquidity? Let's bring
Speaker 1: in Bloomberg Intelligences Diet Shigera yesterday, Ui, baby, I've got
Speaker 1: my research out. You scrambled. You're basically looking at the
Speaker 1: funding environment now as a result of what's happening. What's
Speaker 1: your conclusion? So ed the first part, Like, I am
Speaker 1: kind of surprised people are talking about contation in the
Speaker 1: banking sector and how undermined or how invisible the valley's
Speaker 1: concerns are at the moment. For what SBB has done right,
Speaker 1: I was amazed. Until Sunday evening, I did not know
Speaker 1: whether deposit holders were protected. We were waiting and we
Speaker 1: were watching what it does. SBB leaves a huge hole
Speaker 1: in the valley, sixty five thousand startups. Finally on Sunday
Speaker 1: we heard about deposits that they were taken care of,
Speaker 1: and then what about credit? So I don't think people
Speaker 1: appreciate what a big gap this is, and how few
Speaker 1: alternatives the valley has to kind of replace it. You're
Speaker 1: covering fintech now with us in San Francisco, but you
Speaker 1: actually spent a long time looking at the banks. And
Speaker 1: I'm trying to get the read through from what happened
Speaker 1: with SVB through to what's playing out credit sueees today.
Speaker 1: What do you make of it all? It hit a
Speaker 1: bit closer to home for me. I was at Lehman
Speaker 1: when the bank went under, and I am again amazed
Speaker 1: at how little we've learned over the years. We thought
Speaker 1: that by Sunday, if you come in and say all
Speaker 1: deposits are protected, we are good. This is not Lehman,
Speaker 1: this is not going to have any contagion impact. Did
Speaker 1: we really think and what are we really that short sighted?
Speaker 1: At Leman? Me thought, o Gate, let's make an example
Speaker 1: out of this one bank, and then we'll see how
Speaker 1: this goes. Right with SPB, this is one bank. You're
Speaker 1: discussing moral hazard, like should we be using taxpayers money
Speaker 1: to build this build this one bank out? When you
Speaker 1: have a fire in your house, ed, what do you
Speaker 1: do do you think, Well, hope, I don't have a
Speaker 1: fire in my house. But I get your point. How
Speaker 1: do you think about it? Do you think, okay, let
Speaker 1: me put out that fire first, or do you actually
Speaker 1: go and think, oh, if I put this fire out,
Speaker 1: the person who let the fire will never realize what
Speaker 1: mistake they made. That is the discussion they had on Sunday.
Speaker 1: And I was amazed at how little we learned with
Speaker 1: what happened with Lemon, and how little we learned that
Speaker 1: in this environment, any confidence crisis, the way it can
Speaker 1: blow up, I'm at short of words, like loss of words.
Speaker 1: It becomes then a lesson for regulators too, Disha. And
Speaker 1: at the moment this is a difference. SVB not systemically
Speaker 1: important but was too big to ignore, whereas many are
Speaker 1: now wondering whether Credit Suace is too big to bail out.
Speaker 1: In many ways, it's certainly too big to fail. I'm
Speaker 1: interested in the repercussions from your perspective, from a regulatory
Speaker 1: perspective when it comes to banks, but also those FinTechs too.
Speaker 1: So very simple, Carolyn, like, first things first, these companies,
Speaker 1: these partups. There's a reason why this bank grew to
Speaker 1: the scale that it grew, right, It's not like city
Speaker 1: was sitting there with open arms and banking all these startups,
Speaker 1: and while Silicon Value was poaching them away, it's very
Speaker 1: hard for big banks to bank the startups. This is
Speaker 1: one bank that understood the value, that understood the VCS,
Speaker 1: that understood the companies they were banking, and they were
Speaker 1: supporting for forty years. Operationally risk appetite wise, there are
Speaker 1: very few companies who can actually come in and fill
Speaker 1: in that gap. Now, talking about the systemic impact of this, right,
Speaker 1: if I'm not sure whether my deposits are safe, people
Speaker 1: we're thinking that Silicon Valleys deposits will probably move to
Speaker 1: FRB or other banks. But do you think that as
Speaker 1: a startup founder, I'm comfortable putting my money else where
Speaker 1: when I'm not even sure whether I'm going to get
Speaker 1: that back from the first bank that we had. So
Speaker 1: obviously there's a confidence crisis and I think it'll be
Speaker 1: a while before we can fix this problem convenance crisis
Speaker 1: that we see reflected in equity markets. With the biggest
Speaker 1: fool on record for credit space in Europe. It continues
Speaker 1: to trade over here in the US on its ADLs
Speaker 1: and take Sagure is going to be looking all at
Speaker 1: some of the publicly trade of FinTechs and privately owned
Speaker 1: ones with Bloomberg Intelligence. We thank us so much bringing
Speaker 1: in her history a context of Lehman there as well.
Speaker 1: I'm pleased to say we can do yet further into
Speaker 1: the world of private money allocation, but also a history
Speaker 1: of someone who worked at the Federal Reserve at itself.
Speaker 1: Let's go to Joe's ou founder and partner over at
Speaker 1: Millennia Capital. Eventually, fun focused on tech in private markets.
Speaker 1: You've got EXX, including FinTechs like Robin Hood MARKETA. You've
Speaker 1: got money and huge juggernauts in the private space like SpaceX. Joe,
Speaker 1: your perspective right now on the regulatory repercussions of what's
Speaker 1: happening with Credit Suite in Europe, in Switzerland, but also
Speaker 1: what happened with SVB here in the US. Yeah, what
Speaker 1: answers the Fed begin taking our fincial conditions about a
Speaker 1: year ago, I think in the Valley, at least in
Speaker 1: the private markets, many companies have began to readjust their
Speaker 1: oppruning class. For those that haven't, I think will happened
Speaker 1: in the last week. It's sort of a rakup car.
Speaker 1: So I think by now almost I would argue most
Speaker 1: of the companies in private markets are now our prepared
Speaker 1: for a slow down late in the markets and the economy.
Speaker 1: So now, I think in a short term many founders,
Speaker 1: you know, the one I've seen in a profoil in
Speaker 1: their network, have been opening new accounts, getting new acts
Speaker 1: to learn a credit, extending as capt runway and cutting cost.
Speaker 1: But I think in the long long term year remains
Speaker 1: to be seeing what the remiflications are. But ever huw users,
Speaker 1: I think one is that there's definitely going to be
Speaker 1: a new relatory actions coming from the fact of the
Speaker 1: trickery to further kind of typen kind of thing operations. Yeah,
Speaker 1: I think, I think for fintech liquidity, um, you know,
Speaker 1: I would say this year will be a test of
Speaker 1: what companies are going to survive at this point in
Speaker 1: the business cycle. And in my in my view, the
Speaker 1: ones that will survive will be will come out fine.
Speaker 1: And you know, I think, uh, you know, at least
Speaker 1: you know, conversational founders, most cup founders are on top
Speaker 1: of what's going on. Joe, you say that there was
Speaker 1: a sudden need to diversify where your money is kept.
Speaker 1: When I'm talking to founders, when I'm talking to vcs.
Speaker 1: They're saying the issue it's not as easy for a
Speaker 1: founder of a company to walk into JP Morgan and say, hey,
Speaker 1: I used to buck a Simil combounity bank. I need
Speaker 1: to put some of my funds into you. They have
Speaker 1: two higher thresholds. How difficult is it to diversify in
Speaker 1: terms of where you put your money, whether it's a
Speaker 1: credit suite or and looking outside of there, or whether
Speaker 1: it Silicon Valley Bank. It's a great point. So across
Speaker 1: a portfolio, you know, we've run an analysis. The larger
Speaker 1: unicorn is the one that have fifty million dollars or
Speaker 1: more in cash. They've been banking with Shapen Boarding, the
Speaker 1: HSBC and your Life at City Bank even before a
Speaker 1: SPS incident. The smaller companies, that's pretty see the series Day,
Speaker 1: the series PS. They've been banking with SVP, which tend
Speaker 1: to have and the Life which tend to have kind
Speaker 1: of a lower threshold for a minimum assets. So the
Speaker 1: later stage companies, you know, actually weren't as exposed to
Speaker 1: SPOB versus the earlier stage companies. But a lot of
Speaker 1: the earlier stage companies, you know, have been trying to
Speaker 1: open the accounts now to your point, it is not
Speaker 1: easy to open an account with JAVEN some of the
Speaker 1: larger banks which have a higher sort of ELS threshold,
Speaker 1: And so as a result, you're seeing some of the
Speaker 1: earlier stage companies going to be away approach of public
Speaker 1: and even blanks. But you've been reporting day in day out,
Speaker 1: not only the impact on the startups, but the venture
Speaker 1: funds themselves well. As Joe knows, if you're a firm
Speaker 1: sizeable funds, you've got more than one bank account per fund,
Speaker 1: you've got an operating cash flow fund, you've got d
Speaker 1: risk or side bank accounts for side initiatives and funds.
Speaker 1: And Joe, what we've been talking about all show long,
Speaker 1: a tighter financial conditions. How does that impact venture firms
Speaker 1: and their ability to move? Yeah, so you know we've
Speaker 1: seen this as early as a euro guy. You've a
Speaker 1: little longer art than a year ago. Aware you have
Speaker 1: a few channels of the first kind of transmiption. Man
Speaker 1: is hitting the real ecomony in a last year or so.
Speaker 1: One is that LPs elimited partners investors in BCP funds.
Speaker 1: They've been autocating way more until fixed income spense of
Speaker 1: equities just goes is a higher guaranteed the rate of return,
Speaker 1: assuming that there's will risk, and so that the second
Speaker 1: thing is that I think the decrease in evaluations and
Speaker 1: market prices have also heard some of the kind of
Speaker 1: the return profiles. So I think the last thing is
Speaker 1: um if this is sort of most LPs, like pension funds,
Speaker 1: have like a budget for what goes into equity, fixed income,
Speaker 1: real estate, et cetera. So Biga's venture and tech have
Speaker 1: been performing in the last ten years that they've gone
Speaker 1: over the budget. So even sounds the recent market correction,
Speaker 1: they were pulling back on allocating that equity. So with
Speaker 1: what's happened last year, they've cut back. So LB capital
Speaker 1: in VC funds have slowed down, which is why you're
Speaker 1: seeing a slow in funding. You know, last week some
Speaker 1: of the VC funds that had their funds tied up
Speaker 1: absolutely Valley Band. You know, they would even have trouble
Speaker 1: funding start, yes, because their own funds were tied in SVV.
Speaker 1: So it's been a really interesting year for investors. Joe
Speaker 1: Zau found a partner Millennia Capital. Thank you so much
Speaker 1: for you're insight and how this is played out over
Speaker 1: the last five days. A more coming up will continue
Speaker 1: the conversation around venture and private markets. A lot happening
Speaker 1: also in the public sector and public markets as well.
Speaker 1: This is Bloomberg. Welcome back to a special markets edition
Speaker 1: of About Technology. I'm Caroline Hyde in New York and
Speaker 1: I'm at a Budbow in San Francisco. Let's get to
Speaker 1: bloombows Katie Greifeld with the market is Katie. All of
Speaker 1: the action is centered in the bond market. You have
Speaker 1: the SMP five hundred down about half a percenter, so,
Speaker 1: but then you look at the treasury market. Behave an
Speaker 1: asset of the world. I'm going to steal a phrase
Speaker 1: from John Farrell. It's been trading like a penny stock
Speaker 1: for the past week. You look at the two year
Speaker 1: treasury yield, that is just an expectation on where the
Speaker 1: Fed is going to go. It's down forty one basis
Speaker 1: points today. It was up twenty seven basis points yesterday.
Speaker 1: What that tells you is that all of the attention
Speaker 1: is on next Wednesday. What is your rome pal going
Speaker 1: to do? And it feels like no one exactly knows?
Speaker 1: All right, bloom Is Katy ry felt across the numbers.
Speaker 1: Thank you. Let's keep the conversation with Cleo Capital managing
Speaker 1: director Sara Kuntz, who joins me here in San Francisco.
Speaker 1: You are one of many that breathed a collective side
Speaker 1: of relief Sunday night. But you must be quite worried
Speaker 1: still about what's happening in the banking sector. This is
Speaker 1: not good, right, you know, you don't want to wake
Speaker 1: up after sort of hey, s Phoebe's a little bit
Speaker 1: back on track. People are getting money out. First, Republic
Speaker 1: has stabilized, you know, and then you wake up to
Speaker 1: this news out of Credit Suez and hearing that, you
Speaker 1: know that they don't really have another place to go
Speaker 1: to get more capital. That's not good in the market's
Speaker 1: reflecting that that that's been the conversation of the last
Speaker 1: Now a tighter financial conditions, how does that impact early
Speaker 1: stage companies in particular? Basically has the funding dried up
Speaker 1: from where whichever source? It's a hard It's going to
Speaker 1: be a hard quarter to pitch in, you know, getting
Speaker 1: net new capital lot of vcs who don't already have
Speaker 1: an obligation, you know, to the money they've put with
Speaker 1: you is going to be harder than ever. And it
Speaker 1: doesn't mean it's totally dried up, and there will be
Speaker 1: tons of people starting great new companies, but this is
Speaker 1: going to be a much different fundraising environment than even
Speaker 1: a few months ago. Wolf been remarkable amid dollar out
Speaker 1: performance on the day. Is actually resilience of crypto of bitcoin. Sarah,
Speaker 1: you're in Gemini, You're in full connect, your portfolio is
Speaker 1: looking at crypto. Is this still going to weather the storm?
Speaker 1: You know, crypto is a hedge that doesn't always act
Speaker 1: like one. But I think in these moments when people
Speaker 1: are looking around for yield, looking around for you know,
Speaker 1: what's uncorrelated to these larger market moves, bitcoin does get
Speaker 1: popular again. And I think that you know, there's also
Speaker 1: been a flight to bitcoin, you know, away from some
Speaker 1: of the stable coins after the circle debacco last week.
Speaker 1: And also what's of interesting is the resilience is some
Speaker 1: big cat names like Microsoft now many wondering whether that's
Speaker 1: the chat GPT four announcement yesterday. The focus on artificial intelligence.
Speaker 1: I know that you're in forethought for example an AI company.
Speaker 1: Do we have time to think about AI at the moment?
Speaker 1: You know, we do have time to think about AI, right,
Speaker 1: you know? Alphabet Google announced some really cool innovation and
Speaker 1: they're barely down today, you know, and same with Microsoft.
Speaker 1: I do think that these new technologies that have a
Speaker 1: ton of potential are going to be the bright spot
Speaker 1: for a little while moving forward. We were talking at
Speaker 1: the start of this year about checks being written. There
Speaker 1: was a momentum behind AI. Similar question, but does that
Speaker 1: continue despite the environment we're in. I think that people
Speaker 1: are going to continue to write checks in the companies
Speaker 1: that are doing well, and I think that AI is
Speaker 1: a space that is feeling like it's doing well, and
Speaker 1: people want bright spots. You know, these vcs do have
Speaker 1: dry powder to deploy, and they're going to go after
Speaker 1: the things that feel like, you know, the highest potential
Speaker 1: return bets. Sarah Cleo Capital, have you thought about your
Speaker 1: banking relationships of late? Just to bring it full circle,
Speaker 1: I'm looking at headline. Treasury Department here in the US
Speaker 1: is reviewing US banks exposure to Credit Suite, and the
Speaker 1: officials are in touch with European regulators as well. We understand.
Speaker 1: I think that everybody, you know, learn what a sweep
Speaker 1: account was and then jump to them. You know, we'd
Speaker 1: already been utilizing a lot of those things at Cleocapital,
Speaker 1: and certainly, like everybody, we're paying a little bit more
Speaker 1: attention to diversifying our banking relationships because it doesn't hurt,
Speaker 1: and in situations like the last couple of weeks, it
Speaker 1: can very much help. Right Clear Capital Managing Directors Sarakin's
Speaker 1: Caroline one of the many people that jumped in a
Speaker 1: cab and raced across town to join us for this
Speaker 1: special program. An extraordinary amount of information managed to Gardner
Speaker 1: from her from a private perspective, a public perspective, perhaps
Speaker 1: even some resilience in crypto overall, but at the moment,
Speaker 1: the resilience is in the safety of the US dollar
Speaker 1: and US treasuries today. H Yeah, and this is why
Speaker 1: you have the private market participants in right. We see
Speaker 1: how it plays out in the public markets, but the
Speaker 1: real terms impact it's on the founders on the tech companies,
Speaker 1: and we're having all of those on this show. Fantastic
Speaker 1: what day three of our new time change or one
Speaker 1: another extraordinary day for a special markets edition of Bloomberg Technology.
Speaker 1: Don't forget so much to recap We have a podcast
Speaker 1: and you can find it on the Bloomberg terminal as
Speaker 1: well as Apple Spotify, iHeart, wherever you get your podcasts
Speaker 1: will continue to track tech and these markets. This is
Speaker 1: Bloomberg