1 00:00:03,160 --> 00:00:05,840 Speaker 1: This is Bloomberg Daybreak here for this Tuesday, the twenty 2 00:00:05,840 --> 00:00:08,880 Speaker 1: first of March in London. Coming up today, One for 3 00:00:09,000 --> 00:00:11,440 Speaker 1: All and All for one. The US looks of ways 4 00:00:11,480 --> 00:00:15,760 Speaker 1: to guarantee all bank deposits. The lender of second to 5 00:00:15,920 --> 00:00:20,200 Speaker 1: last resort liquidity. Hungry banks tap a key US backs 6 00:00:20,239 --> 00:00:23,560 Speaker 1: DOT bond for more than three hundred billion dollars. A 7 00:00:23,720 --> 00:00:27,280 Speaker 1: negative outlook. UBS sees its prospects den graded after the 8 00:00:27,320 --> 00:00:31,000 Speaker 1: takeover of its trouble Drival. Plus the CBS stack up 9 00:00:31,080 --> 00:00:43,239 Speaker 1: credit sweet bankers, flood headhunters with calls as job cuts loom. 10 00:00:43,280 --> 00:00:47,120 Speaker 1: That's all straight ahead on Bloomberg Daybreak Europe. The business 11 00:00:47,159 --> 00:00:49,320 Speaker 1: news you need to start your day in just one 12 00:00:49,479 --> 00:00:53,880 Speaker 1: fifteen minute podcast on Apple, Spotify, the Bloomberg Business App, 13 00:00:54,000 --> 00:01:01,080 Speaker 1: and everywhere you get your podcasts. Good morning, I'm Stephen 14 00:01:01,120 --> 00:01:03,800 Speaker 1: Carroll and I'm Caroline Hitke. Hear all the stories that 15 00:01:03,800 --> 00:01:07,440 Speaker 1: we're following today. US officials are studying ways they might 16 00:01:07,480 --> 00:01:12,360 Speaker 1: temporarily guarantee all bank deposits. Bloomberg understands that Treasury staff 17 00:01:12,400 --> 00:01:16,600 Speaker 1: are reviewing whether federal regulators have authority to temporarily ensure 18 00:01:16,680 --> 00:01:19,880 Speaker 1: deposits greater than the current level of two hundred and 19 00:01:19,880 --> 00:01:23,640 Speaker 1: fifty thousand dollars. Senate Banking Committee member Mark Warner says 20 00:01:23,680 --> 00:01:27,120 Speaker 1: caution is needed and I'm open to it, but I 21 00:01:27,160 --> 00:01:29,560 Speaker 1: want to get the facts first on what caused this. 22 00:01:29,920 --> 00:01:32,360 Speaker 1: In my gut, I believe this was a basic banking 23 00:01:32,400 --> 00:01:35,840 Speaker 1: regulator one on one failure and a management failure, but 24 00:01:35,880 --> 00:01:38,240 Speaker 1: I want to confirm that when you start rating the caps, 25 00:01:38,800 --> 00:01:42,640 Speaker 1: I don't know where were you top it off. Senator 26 00:01:42,680 --> 00:01:45,399 Speaker 1: Warner was speaking to Bloomberg as midsize banks continue to 27 00:01:45,440 --> 00:01:49,520 Speaker 1: lobby for broader government intervention after three lenders collapsed in 28 00:01:49,600 --> 00:01:53,600 Speaker 1: a matter of weeks after uninsured depositors pulled their money. Meanwhile, 29 00:01:53,600 --> 00:01:56,840 Speaker 1: shares in First Republic Bank dropped by forty seven percent 30 00:01:56,920 --> 00:01:59,880 Speaker 1: on Monday after SMP Global lowered its credit rating for 31 00:02:00,040 --> 00:02:03,280 Speaker 1: a second time in a week. Well this as Bloomberg 32 00:02:03,400 --> 00:02:07,000 Speaker 1: learned that the Federal Home Loan Bank System issued three 33 00:02:07,080 --> 00:02:10,079 Speaker 1: hundred and four billion dollars in debt last week. Now, 34 00:02:10,080 --> 00:02:14,360 Speaker 1: the appetite for so called fhlbs, known as the lender 35 00:02:14,440 --> 00:02:18,320 Speaker 1: of next to last resort, reflects an intense demand for 36 00:02:18,400 --> 00:02:21,720 Speaker 1: cash across the US banking sector, But the Federals, a 37 00:02:21,800 --> 00:02:24,960 Speaker 1: bank of New York President William Dudley doesn't think that 38 00:02:25,000 --> 00:02:28,760 Speaker 1: the appetite for liquidity will lead the FED to pause 39 00:02:28,840 --> 00:02:32,080 Speaker 1: when it comes to quantitative tightening. I think this is 40 00:02:32,120 --> 00:02:36,280 Speaker 1: about exceptional liquidity. Lender of letteries were provision to support 41 00:02:36,360 --> 00:02:39,520 Speaker 1: the banking system. I think quantity obtaining the runoff of 42 00:02:39,560 --> 00:02:43,360 Speaker 1: the Treasury portfolio and the Agency Marriage Backed Security PORTFOIL 43 00:02:43,680 --> 00:02:47,280 Speaker 1: is going to continue unabated. I see these tools are 44 00:02:47,360 --> 00:02:50,640 Speaker 1: very separate and different, so I expect that the quantitative 45 00:02:50,720 --> 00:02:55,280 Speaker 1: training will continue. Dudley spoke to Bloomberg as FED policymakers 46 00:02:55,320 --> 00:02:58,120 Speaker 1: started two day meetings to decide whether or not to 47 00:02:58,200 --> 00:03:02,360 Speaker 1: keep raising interest rates Pershing squares at Bill Ackman says 48 00:03:02,360 --> 00:03:05,000 Speaker 1: that they should hold them where they are, writing on 49 00:03:05,040 --> 00:03:07,840 Speaker 1: Twitter that the banking crisis has already had the effect 50 00:03:07,919 --> 00:03:12,040 Speaker 1: of a meaningful tightening of financial conditions. We're starting to 51 00:03:12,080 --> 00:03:14,440 Speaker 1: find out. Some of the biggest losers from credit suices 52 00:03:14,480 --> 00:03:18,440 Speaker 1: takeover are Pemco and Investco, among the largest holders of 53 00:03:18,440 --> 00:03:21,960 Speaker 1: the lenders at one bonds, Pimco held eight hundred and 54 00:03:21,960 --> 00:03:24,440 Speaker 1: seven million dollars in the debt, which was written off 55 00:03:24,440 --> 00:03:27,000 Speaker 1: when the bank was taken over, but the founder of 56 00:03:27,040 --> 00:03:30,359 Speaker 1: Devlin Capital at Devlin says fears this write down will 57 00:03:30,360 --> 00:03:34,400 Speaker 1: crash the wider market are unfounded. People have to recognize 58 00:03:34,400 --> 00:03:38,160 Speaker 1: as this at one, this new market for deeply subordinated 59 00:03:38,200 --> 00:03:41,960 Speaker 1: debt just after the or financial crisis, your peanut crisis. 60 00:03:42,160 --> 00:03:44,400 Speaker 1: They all were done in a very ad hoc way, 61 00:03:44,600 --> 00:03:47,400 Speaker 1: so you can't generalize this is going to happen all 62 00:03:47,440 --> 00:03:50,120 Speaker 1: the way across. You have to really read each security, 63 00:03:50,480 --> 00:03:54,320 Speaker 1: understand how they're structured. These particular securities were very mechanical 64 00:03:54,360 --> 00:03:56,480 Speaker 1: in terms of the write doown, so once the government 65 00:03:56,520 --> 00:03:58,960 Speaker 1: got involved, they had to be wiped out. Other ones 66 00:03:59,000 --> 00:04:01,960 Speaker 1: convert into equity, other ones have different triggers, so you 67 00:04:02,000 --> 00:04:05,480 Speaker 1: can't say this is bad for everything. That's Ad Davlin, 68 00:04:05,520 --> 00:04:09,680 Speaker 1: who previously founded Pemco Canada, speaking to Bloomberg. Some holders 69 00:04:09,680 --> 00:04:12,400 Speaker 1: of Credit SWACES eighty one bonds are reportedly preparing to 70 00:04:12,520 --> 00:04:16,960 Speaker 1: legally challenge the write down. UBS's credit outlook, who was 71 00:04:17,080 --> 00:04:20,440 Speaker 1: lowered to negative by both SMP and Moody's, and lists 72 00:04:20,480 --> 00:04:24,120 Speaker 1: are predicting choppy waters ahead as the Swiss lander attempts 73 00:04:24,200 --> 00:04:28,279 Speaker 1: to integrate credit suie ECB pres and Christine Lagard told 74 00:04:28,279 --> 00:04:33,279 Speaker 1: EU lawmakers yesterday that European banks are shielded from any fallout. 75 00:04:33,480 --> 00:04:36,559 Speaker 1: On the assessment of exposures in particular of the euro 76 00:04:36,720 --> 00:04:42,240 Speaker 1: Area banks to the credit Swiss risk, the feedback and 77 00:04:42,320 --> 00:04:45,160 Speaker 1: the assessment that has been produced indicates that it's a 78 00:04:45,279 --> 00:04:52,080 Speaker 1: very limited exposure to particularly in relation to the eighty ones. 79 00:04:54,040 --> 00:04:58,080 Speaker 1: Very limited. We're not talking billions. Who are talking millions here? 80 00:04:59,240 --> 00:05:02,320 Speaker 1: La god add that she welcomed the swift action by 81 00:05:02,320 --> 00:05:06,200 Speaker 1: Swiss authorities restoring order to the markets. US asset management 82 00:05:06,200 --> 00:05:09,919 Speaker 1: giant Vanguard is exiting from China, sources tell Bloomberg. The 83 00:05:10,040 --> 00:05:13,880 Speaker 1: seven point one trillion dollar firm has notified China intends 84 00:05:13,880 --> 00:05:17,640 Speaker 1: to close its officers and ventures in the country. International 85 00:05:17,680 --> 00:05:20,200 Speaker 1: funds are competing for an edge in China's growing four 86 00:05:20,360 --> 00:05:24,599 Speaker 1: trillion dollar fund market, with profits hard to find. And 87 00:05:24,760 --> 00:05:28,000 Speaker 1: in other news, Russian leader Vladimir Putin has welcomed his 88 00:05:28,240 --> 00:05:31,680 Speaker 1: Chinese counterpart, Shijing Ping to Moscow and says that he's 89 00:05:31,680 --> 00:05:35,880 Speaker 1: ready to discuss Beijing's peace plan. However, Ukraine's leaders have 90 00:05:36,000 --> 00:05:38,840 Speaker 1: been cool on the Chinese roadmap to peace, whilst the 91 00:05:38,920 --> 00:05:42,560 Speaker 1: United States and its allies have rejected it outright. Speaking 92 00:05:42,560 --> 00:05:47,760 Speaker 1: to Bloomberg, Alexandra Korlev, author of China Russia Strategic Alignment 93 00:05:47,839 --> 00:05:51,760 Speaker 1: in International Politics, says that this is not a peace plan. 94 00:05:52,279 --> 00:05:55,000 Speaker 1: It's not a kind of step by step plan how 95 00:05:55,040 --> 00:05:57,880 Speaker 1: to end the war. It's more of a position paper. 96 00:05:58,080 --> 00:06:02,080 Speaker 1: So this visit is really demonstration of the fact that 97 00:06:02,520 --> 00:06:05,120 Speaker 1: China stands with Russia. China is not going to turn 98 00:06:05,160 --> 00:06:09,680 Speaker 1: its back towards Russia. That was Alexander Kolev speaking to 99 00:06:09,800 --> 00:06:13,240 Speaker 1: Bloomberg after his three day trip. She is expected to 100 00:06:13,279 --> 00:06:16,720 Speaker 1: speak via video link with the Ukrainian leader, vladimiz A 101 00:06:16,800 --> 00:06:20,360 Speaker 1: Lenski for the first time since the invasion. Those are 102 00:06:20,360 --> 00:06:22,920 Speaker 1: our top stories this morning, Carolina. Was interesting to see 103 00:06:22,920 --> 00:06:25,919 Speaker 1: some more of the reporting around the takeover Credit Suite 104 00:06:26,040 --> 00:06:28,440 Speaker 1: as well. Particularly we've talked a lot about the flood 105 00:06:28,480 --> 00:06:30,920 Speaker 1: of talent out of the bank. Now we have reporting 106 00:06:30,960 --> 00:06:34,960 Speaker 1: today about how headhunters are being flooded with calls from 107 00:06:35,000 --> 00:06:39,000 Speaker 1: Credit Suite bankers after the rescue. Perhaps unsurprising with the 108 00:06:39,080 --> 00:06:42,800 Speaker 1: detail of this is interesting. A headhunter in London, where 109 00:06:42,839 --> 00:06:45,159 Speaker 1: Credit Sweez employees about five and a half thousand people, 110 00:06:45,480 --> 00:06:48,200 Speaker 1: said he was fielding calls all weekend, particularly from those 111 00:06:48,240 --> 00:06:50,000 Speaker 1: in the equities division, because that's one of the parts 112 00:06:50,000 --> 00:06:51,360 Speaker 1: of the business has felt there could be quite a 113 00:06:51,360 --> 00:06:53,160 Speaker 1: lot of overlap with ubs, So those are people that 114 00:06:53,200 --> 00:06:56,840 Speaker 1: are particularly worried about their future with the company as 115 00:06:56,880 --> 00:07:00,360 Speaker 1: well are reporting. They're pointing out the prospect of firms 116 00:07:00,360 --> 00:07:02,440 Speaker 1: going on sort of a hiring binge of people from 117 00:07:02,440 --> 00:07:05,680 Speaker 1: credit sweees that was quite limited too, because generally speaking, 118 00:07:05,720 --> 00:07:08,680 Speaker 1: the situation doesn't look that bright. Yeah. No, absolutely, You've 119 00:07:08,680 --> 00:07:11,760 Speaker 1: got some of the big names actually downsizing and shrinking 120 00:07:11,800 --> 00:07:14,880 Speaker 1: their workforce, think Goldman, Sacks and NEMU. They're cutting roles. 121 00:07:14,880 --> 00:07:17,680 Speaker 1: So yes, I think it's a really, really difficult moment, 122 00:07:17,680 --> 00:07:21,360 Speaker 1: but it is excellent reporting to understand what the future 123 00:07:21,920 --> 00:07:25,680 Speaker 1: is going to look like for those bankers and the overlap. Look, 124 00:07:26,440 --> 00:07:30,920 Speaker 1: it's always thought at the kind of most difficult moments 125 00:07:30,960 --> 00:07:33,440 Speaker 1: at the bottom of markets, isn't it that some people 126 00:07:33,480 --> 00:07:36,000 Speaker 1: are casting their eye to the future and what may 127 00:07:36,360 --> 00:07:38,480 Speaker 1: be to come. So I think this is the other 128 00:07:38,880 --> 00:07:41,920 Speaker 1: most important bit of reporting on the Bloomberg tael this morning. Franklin, 129 00:07:41,960 --> 00:07:46,600 Speaker 1: Templeton Investco, JP, Morgan Asset Management are looking beyond the 130 00:07:46,680 --> 00:07:49,320 Speaker 1: kind of bank failures that we're talking about, looking beyond 131 00:07:49,360 --> 00:07:53,160 Speaker 1: interest rates or even recession, and they are trying to 132 00:07:53,200 --> 00:07:55,800 Speaker 1: look to the upturn. They're trying to position now for 133 00:07:55,960 --> 00:07:59,520 Speaker 1: the Yeah, for the resurgence that they see coming beyond that. Yeah, 134 00:07:59,560 --> 00:08:01,920 Speaker 1: there's a great charting that piece, actually looking at what happens. 135 00:08:01,960 --> 00:08:04,360 Speaker 1: If you had ten thousand dollars invested in the SMP 136 00:08:04,480 --> 00:08:06,920 Speaker 1: five hundred for the best days of a rally, and 137 00:08:06,920 --> 00:08:08,960 Speaker 1: if you're in at the start, that return could be 138 00:08:09,160 --> 00:08:11,760 Speaker 1: over sixty thousand dollars. If you missed the ten best days, 139 00:08:11,960 --> 00:08:14,760 Speaker 1: that return comes down to just thirty thousand. Absolutely, it's 140 00:08:14,800 --> 00:08:18,800 Speaker 1: all about timing in the market. So well. Speaking of which, now, 141 00:08:18,920 --> 00:08:23,080 Speaker 1: bank fears do seem to be easing, just somewhat more risky. 142 00:08:23,160 --> 00:08:27,760 Speaker 1: Asia Pacific bank bonds have rebounded after a wipeout. Joining 143 00:08:27,840 --> 00:08:31,080 Speaker 1: us this morning is Blo Begs, executive editor for Asian Markets, 144 00:08:31,120 --> 00:08:34,560 Speaker 1: Paul Dobson. Paul, it's great to have you with us. 145 00:08:34,840 --> 00:08:40,040 Speaker 1: Look how far have eighty one bonds by Asia Pacific 146 00:08:40,080 --> 00:08:43,080 Speaker 1: banks actually managed to rebound? This is the kind of 147 00:08:43,440 --> 00:08:47,000 Speaker 1: critical point. This was the fallout from credit suites. Yeah, 148 00:08:47,080 --> 00:08:51,560 Speaker 1: hi there, Caroline gives be with you. So we are 149 00:08:51,559 --> 00:08:56,120 Speaker 1: seeing across the board rebound in the eighty one bonds 150 00:08:56,160 --> 00:09:00,800 Speaker 1: for Asian issuers today are thirty did the thirty nine 151 00:09:00,840 --> 00:09:03,600 Speaker 1: that are trading are up and impairing most of the 152 00:09:03,679 --> 00:09:07,480 Speaker 1: losses that we saw yesterday, not kind of clawing back everything. 153 00:09:08,120 --> 00:09:10,160 Speaker 1: And there are still some clouds over the market, but 154 00:09:10,200 --> 00:09:14,880 Speaker 1: it seems like the clarifications that were provided by the 155 00:09:14,960 --> 00:09:19,960 Speaker 1: authorities in Europe and the UK that the CDs structures 156 00:09:19,960 --> 00:09:22,600 Speaker 1: for most of the market aren't quite the same as 157 00:09:22,640 --> 00:09:26,880 Speaker 1: what they are for credit Swiss gave investors somewhat a 158 00:09:27,000 --> 00:09:31,720 Speaker 1: sense of reassurement. It wouldn't be the same case where 159 00:09:31,920 --> 00:09:34,520 Speaker 1: those bonds would be wiped out before equities in that 160 00:09:34,559 --> 00:09:37,000 Speaker 1: sort of water full pecking order, and so that's given 161 00:09:37,040 --> 00:09:38,840 Speaker 1: the market a bit of confidence, and it's also helped 162 00:09:38,840 --> 00:09:43,120 Speaker 1: a rebound in financial stocks across Asia as well, the 163 00:09:43,200 --> 00:09:46,240 Speaker 1: banks and the beg insurers like AIA having a stronger 164 00:09:46,320 --> 00:09:50,040 Speaker 1: day to day. Is that a meaningful rebound in those 165 00:09:50,120 --> 00:09:53,440 Speaker 1: areas though, or how shaken is the outlook for European 166 00:09:53,440 --> 00:09:55,680 Speaker 1: banks more broadly, I mean, bank stocks have been the 167 00:09:55,760 --> 00:09:59,120 Speaker 1: dialings of the rallies since last September. Yeah, and that's 168 00:09:59,160 --> 00:10:02,000 Speaker 1: probably part of the part of the issue. Right. They 169 00:10:02,040 --> 00:10:04,400 Speaker 1: had such a strong performance that when the clouds started 170 00:10:04,400 --> 00:10:07,280 Speaker 1: to gather. Everybody feared a storm, and you know, as 171 00:10:07,320 --> 00:10:12,000 Speaker 1: we've seen a number of hedge funds, macro hedge funds 172 00:10:12,200 --> 00:10:15,000 Speaker 1: getting flushed out of positions left, right and center, really 173 00:10:15,000 --> 00:10:17,400 Speaker 1: heading for the hills and having to liquidate things that 174 00:10:17,400 --> 00:10:20,520 Speaker 1: were profitable as well. That probably had something to do 175 00:10:20,600 --> 00:10:23,960 Speaker 1: with the turnaround that we saw in European banks as well. 176 00:10:24,120 --> 00:10:27,120 Speaker 1: And on top of that, you know, the moderation in 177 00:10:27,240 --> 00:10:29,440 Speaker 1: bets on what the ECB is likely to do again 178 00:10:29,720 --> 00:10:33,800 Speaker 1: would affect the outlook for the bank's profitability over the 179 00:10:33,800 --> 00:10:36,400 Speaker 1: future years. So all of those things sort of weighing 180 00:10:36,400 --> 00:10:40,400 Speaker 1: on the negative as well as the actual risks associated 181 00:10:40,480 --> 00:10:43,839 Speaker 1: with the banks. You know, there's lots of reassurances being 182 00:10:43,880 --> 00:10:46,760 Speaker 1: given that they're they're solid and fine. We had lots 183 00:10:46,760 --> 00:10:50,120 Speaker 1: of reassurances as well about credit Swiss. So I think 184 00:10:50,120 --> 00:10:52,000 Speaker 1: that the market is going to continue to probe those 185 00:10:52,040 --> 00:10:55,920 Speaker 1: weaker links of trying to uncover any of any of 186 00:10:55,920 --> 00:10:58,640 Speaker 1: the soft points, and in the flip side of that, 187 00:10:58,679 --> 00:11:00,600 Speaker 1: the regulators are going to be doing everything that they 188 00:11:00,600 --> 00:11:04,240 Speaker 1: can to provide those reassurances to investors. Now well, there 189 00:11:04,280 --> 00:11:07,240 Speaker 1: are also these reports that US officials are looking at 190 00:11:07,280 --> 00:11:10,800 Speaker 1: ways to temporarily guarantee or bank deposits in the US. 191 00:11:10,880 --> 00:11:15,240 Speaker 1: I mean that kind of bank deposit guarantee would surely 192 00:11:15,640 --> 00:11:18,360 Speaker 1: sure up stop markets. But then there's the kind of 193 00:11:18,720 --> 00:11:22,000 Speaker 1: risk question, more hazard question on that. Yeah, that it 194 00:11:22,040 --> 00:11:24,960 Speaker 1: would certainly help, certainly help the market. From a sort 195 00:11:24,960 --> 00:11:28,560 Speaker 1: of investing point of view, I should reassure depositors that 196 00:11:28,600 --> 00:11:31,000 Speaker 1: there's no need to hoike their cash from any of 197 00:11:31,000 --> 00:11:34,280 Speaker 1: the smaller regional banks if they were worried about potential losses. 198 00:11:34,440 --> 00:11:37,200 Speaker 1: It might not stop them, of course, mentally, oh you know, 199 00:11:37,320 --> 00:11:39,880 Speaker 1: kind of you, if you've seen what's happening, you might think, well, 200 00:11:40,080 --> 00:11:43,920 Speaker 1: you know, why don't I just accept slightly smaller interest 201 00:11:44,000 --> 00:11:45,679 Speaker 1: rates to put it somewhere where I know that it's 202 00:11:45,720 --> 00:11:48,120 Speaker 1: going to be safe for the longer term. On the 203 00:11:48,160 --> 00:11:50,439 Speaker 1: other hand, you're right, it should provide some sort of 204 00:11:50,480 --> 00:11:53,480 Speaker 1: a backstop for the market. It should provide reassurances that 205 00:11:53,800 --> 00:11:56,679 Speaker 1: authorities are right behind this. The only flip side is, 206 00:11:57,320 --> 00:12:00,800 Speaker 1: as you said, well, two things. Maybe one moral hazard. 207 00:12:01,800 --> 00:12:05,080 Speaker 1: The idea that the protecting everything meaning very little can 208 00:12:05,160 --> 00:12:07,880 Speaker 1: go to the wall is something of a risk in 209 00:12:08,000 --> 00:12:12,760 Speaker 1: terms of complacency for the sector. And also the other 210 00:12:12,960 --> 00:12:17,360 Speaker 1: kind of risk that might be hanging over people is 211 00:12:17,400 --> 00:12:20,440 Speaker 1: the suspicion that if they're willing to do this much, 212 00:12:20,800 --> 00:12:22,640 Speaker 1: what else don't we know at the moment, What are 213 00:12:22,640 --> 00:12:24,800 Speaker 1: the other dangers that we haven't uncovered yet that might 214 00:12:24,800 --> 00:12:28,760 Speaker 1: still be lurking. Okay, Paul Dobson, our executive editor for 215 00:12:28,800 --> 00:12:31,800 Speaker 1: Asian Markets, thank you very much for bringing us that analysis. 216 00:12:31,880 --> 00:12:34,040 Speaker 1: Let's turn to the next big event that markets are 217 00:12:34,040 --> 00:12:36,320 Speaker 1: watching out for though, the FEDS two day meeting beginning 218 00:12:36,760 --> 00:12:39,280 Speaker 1: amid volatility that we've seen on the treasury markets in 219 00:12:39,360 --> 00:12:42,439 Speaker 1: recent days. So will the FED focus on price stability 220 00:12:42,559 --> 00:12:46,200 Speaker 1: or financial stability are Seenior Asia Economy reporter Michelle Darrisco 221 00:12:46,160 --> 00:12:49,160 Speaker 1: goes with us for more on that. Michelle, great to 222 00:12:49,200 --> 00:12:50,880 Speaker 1: have you with us. So is this going to be 223 00:12:50,920 --> 00:12:54,640 Speaker 1: the dovish hike or the hawkish hold? Yeah, well, I'm 224 00:12:54,720 --> 00:12:57,920 Speaker 1: not smart enough to make my bets and to stick 225 00:12:57,960 --> 00:13:00,160 Speaker 1: with them. But of course a big question right now 226 00:13:00,600 --> 00:13:03,199 Speaker 1: really a question of balance across the board for j Powell. 227 00:13:03,480 --> 00:13:05,880 Speaker 1: I mean, you have the priceability versus financial stability. You 228 00:13:05,920 --> 00:13:09,920 Speaker 1: also have hard data at versus sentiment, Wall Street versus mainstream. 229 00:13:09,960 --> 00:13:11,880 Speaker 1: So he's really going to have to if he does 230 00:13:11,920 --> 00:13:15,439 Speaker 1: a debish, a hike, or a hawkish hold. I mean, 231 00:13:15,720 --> 00:13:17,440 Speaker 1: no matter what he does, he's going to have to 232 00:13:17,640 --> 00:13:21,040 Speaker 1: provide some real reassurances that things are under control that 233 00:13:21,080 --> 00:13:24,319 Speaker 1: no matter what might come, which nobody knows what might 234 00:13:24,400 --> 00:13:27,120 Speaker 1: lie ahead in the global banking sector, for one, but 235 00:13:27,720 --> 00:13:30,640 Speaker 1: elsewhere in the economy, he's going to have to outline 236 00:13:30,640 --> 00:13:32,840 Speaker 1: the tools that they have got in place and reassure 237 00:13:32,920 --> 00:13:36,640 Speaker 1: everyone that they're monitoring things closely. Obviously, but they've got 238 00:13:36,679 --> 00:13:39,319 Speaker 1: all these tools set up, and as Paul was just saying, 239 00:13:39,360 --> 00:13:42,640 Speaker 1: you know this report about them exploring other ways to 240 00:13:42,679 --> 00:13:45,520 Speaker 1: assure all depositors, so really kind of pulling out all 241 00:13:45,520 --> 00:13:48,240 Speaker 1: the stops and making sure that things are in order 242 00:13:48,520 --> 00:13:52,000 Speaker 1: in case things could get worse. Okay, So then the 243 00:13:52,120 --> 00:13:55,160 Speaker 1: view around whether the FED is going to be focused 244 00:13:55,160 --> 00:13:58,920 Speaker 1: fully on inflation or the banking crisis, what wins out. 245 00:13:59,000 --> 00:14:03,040 Speaker 1: That's it was immensely uncertain about that. No, it totally is. 246 00:14:03,080 --> 00:14:05,040 Speaker 1: And and now we're in a place where, of course 247 00:14:05,040 --> 00:14:08,319 Speaker 1: it's it's pause versus quarter point hike. I mean, earlier 248 00:14:08,360 --> 00:14:11,280 Speaker 1: than last week, we were still hearing Pop Powell entertain 249 00:14:11,360 --> 00:14:13,720 Speaker 1: the notion of a half point hike. That's that's certainly 250 00:14:13,720 --> 00:14:16,000 Speaker 1: off the table at this point and in everyone's view, 251 00:14:16,320 --> 00:14:18,160 Speaker 1: But you know, the case for a pause that they're 252 00:14:18,160 --> 00:14:22,200 Speaker 1: looking at markets tightening financial conditions enough so far, perhaps 253 00:14:22,240 --> 00:14:25,440 Speaker 1: the FED won't have to the FED swap lines arrangement 254 00:14:25,520 --> 00:14:27,200 Speaker 1: as well as you know what we were talking about 255 00:14:27,280 --> 00:14:30,120 Speaker 1: with assuring all depositors. Maybe that's a sign that they 256 00:14:30,120 --> 00:14:33,720 Speaker 1: have underlying, underlying anxiety about what might still come. So 257 00:14:33,880 --> 00:14:36,360 Speaker 1: maybe another reason for a pause. It's too early to 258 00:14:36,360 --> 00:14:39,200 Speaker 1: tell what the tools so far might have done from 259 00:14:39,280 --> 00:14:43,440 Speaker 1: last week just to help bring those stresses down, and 260 00:14:43,640 --> 00:14:46,640 Speaker 1: successive banking stresses do show, you know, the impact of 261 00:14:46,680 --> 00:14:49,480 Speaker 1: the tightening over the last year. But alternatively, I mean 262 00:14:49,520 --> 00:14:51,600 Speaker 1: like there's also a very strong case for a quarter 263 00:14:51,600 --> 00:14:54,320 Speaker 1: point hike. I mean this the swaps move, on top 264 00:14:54,360 --> 00:14:57,520 Speaker 1: of assuring depositors and setting up a facility and and 265 00:14:57,720 --> 00:15:00,680 Speaker 1: doing all these things to control the financial stabilit situation 266 00:15:00,840 --> 00:15:04,040 Speaker 1: is reviving this case that you know, the FED can 267 00:15:04,160 --> 00:15:05,840 Speaker 1: walk and chew gum at the same time. It has 268 00:15:05,880 --> 00:15:09,840 Speaker 1: two tools, or two different toolboxes, one for financial stability, 269 00:15:10,080 --> 00:15:12,160 Speaker 1: and there's a case to be made that interest rate 270 00:15:12,200 --> 00:15:14,960 Speaker 1: should only be used on the price stability side, and 271 00:15:15,000 --> 00:15:18,240 Speaker 1: on that side they're still concerned about inflation. So you know, 272 00:15:18,280 --> 00:15:21,000 Speaker 1: it's all of that plus the idea that you know, 273 00:15:21,200 --> 00:15:24,200 Speaker 1: reneging on their inflation fight, which Powell has kept up 274 00:15:24,280 --> 00:15:27,560 Speaker 1: for so long, and in the face of market scrutiny 275 00:15:27,600 --> 00:15:31,080 Speaker 1: and market doubts, renigging on that now might just blow 276 00:15:31,120 --> 00:15:35,280 Speaker 1: his credibility even more. So he's got a tough and 277 00:15:35,400 --> 00:15:39,320 Speaker 1: very narrow path to achieve at this meeting. Okay, our 278 00:15:39,320 --> 00:15:41,800 Speaker 1: senior Agia Economy report you, Michel Jarmisco, thank you very 279 00:15:41,880 --> 00:15:44,560 Speaker 1: much for that look ahead to the Federal Reserve meeting. 280 00:15:44,800 --> 00:15:46,520 Speaker 1: So what to the events of the past fortnite in 281 00:15:46,520 --> 00:15:49,400 Speaker 1: the banking sector mean for the wider financial world and 282 00:15:49,400 --> 00:15:52,400 Speaker 1: what consequences could come down the line. We've been discussing 283 00:15:52,440 --> 00:15:54,960 Speaker 1: this with Bloomberg's editor in chief John mecoth White. We 284 00:15:55,080 --> 00:15:57,640 Speaker 1: started by asking him if we were in a new 285 00:15:57,680 --> 00:16:02,600 Speaker 1: global financial crisis. The simple answer, which would be true, 286 00:16:02,800 --> 00:16:05,080 Speaker 1: I think even if as a regulators we don't know. 287 00:16:05,760 --> 00:16:07,920 Speaker 1: But at the moment it sort of feels like a 288 00:16:07,960 --> 00:16:12,080 Speaker 1: milder version. I think it feels like a variety of 289 00:16:12,240 --> 00:16:18,720 Speaker 1: slightly unrelated events or not wholly interrelated events, where you 290 00:16:18,800 --> 00:16:21,680 Speaker 1: have what happened with Silicon Valley Bank being pretty different 291 00:16:21,720 --> 00:16:25,480 Speaker 1: to what happened with Credit SUITEE, and against that, you know, 292 00:16:25,520 --> 00:16:28,000 Speaker 1: you look back through history, what happened with Northern Rock 293 00:16:28,160 --> 00:16:30,600 Speaker 1: was pretty different to what happened with the Royal Bank 294 00:16:30,640 --> 00:16:34,200 Speaker 1: of Scotland. So it often creates an atmosphere in financial 295 00:16:34,280 --> 00:16:38,640 Speaker 1: crisis where lots of things that aren't necessarily interrelated, or 296 00:16:38,680 --> 00:16:41,440 Speaker 1: people afterwards can claim, look, they had nothing to do 297 00:16:41,480 --> 00:16:44,880 Speaker 1: with each other at the time, markets are febriles, so 298 00:16:44,920 --> 00:16:47,200 Speaker 1: they jump from part to part. So the answer is, 299 00:16:47,240 --> 00:16:49,880 Speaker 1: I think probably not, because I think this time there 300 00:16:50,000 --> 00:16:53,360 Speaker 1: is more capital than things around, and regulators are at 301 00:16:53,440 --> 00:16:56,520 Speaker 1: least vaguely better prepared than they were last time. But 302 00:16:56,680 --> 00:16:59,360 Speaker 1: it's hard to say, are you waiting for more issues 303 00:16:59,400 --> 00:17:02,720 Speaker 1: to drop? I think at the moment people at the 304 00:17:02,760 --> 00:17:05,119 Speaker 1: time of speaking, you know, people are looking very hard 305 00:17:05,200 --> 00:17:09,680 Speaker 1: at the American regional banks. What's been shown, I think, 306 00:17:09,760 --> 00:17:13,480 Speaker 1: especially by the Credit Sue side, is that once you 307 00:17:13,600 --> 00:17:15,919 Speaker 1: have a kind of liquidity run, it's very hard to 308 00:17:15,960 --> 00:17:18,760 Speaker 1: stop because if you look at the numbers, and again 309 00:17:18,920 --> 00:17:22,840 Speaker 1: I don't have these immediately at hand, but basically for 310 00:17:22,880 --> 00:17:26,440 Speaker 1: the amount of capital that Credit Suite had against the 311 00:17:26,480 --> 00:17:29,399 Speaker 1: sort of bigger loans. It wasn't bad or certainly a 312 00:17:29,480 --> 00:17:31,359 Speaker 1: lot better than it was back in two thousand and eight, 313 00:17:31,359 --> 00:17:34,640 Speaker 1: two and nine, but once things started to move, it 314 00:17:34,680 --> 00:17:37,760 Speaker 1: was immensely difficult from a liquidity point of view to 315 00:17:37,840 --> 00:17:41,080 Speaker 1: keep going. And that you know, we're in a situation 316 00:17:41,119 --> 00:17:44,240 Speaker 1: where just maybe UBS has pulled off one of the 317 00:17:44,240 --> 00:17:47,119 Speaker 1: great deals of the century in terms of snapping up 318 00:17:47,119 --> 00:17:51,440 Speaker 1: a lot of assets amazingly jeeply. There must be a 319 00:17:51,440 --> 00:17:54,400 Speaker 1: bargain somewhere in that. But the question is we don't 320 00:17:54,400 --> 00:17:57,400 Speaker 1: know quite what's under the covers. Is what we're seeing 321 00:17:58,000 --> 00:18:01,879 Speaker 1: in banking a failure of regulation or a kind of 322 00:18:01,960 --> 00:18:05,639 Speaker 1: success of lessons learned after two thousand and eight? Do 323 00:18:05,720 --> 00:18:10,040 Speaker 1: the rules need to change again? Regardless of whether it's 324 00:18:10,080 --> 00:18:13,119 Speaker 1: deserved or the record on this is pretty clear throughout 325 00:18:13,160 --> 00:18:16,280 Speaker 1: history is the rules will change again. I think this 326 00:18:16,440 --> 00:18:23,159 Speaker 1: time it's perhaps less individual kind of liquidity rules, capital rules. 327 00:18:23,240 --> 00:18:26,000 Speaker 1: You know, there are a few obvious things which perhaps 328 00:18:26,000 --> 00:18:29,240 Speaker 1: were always obvious to do. Is the idea that just 329 00:18:29,320 --> 00:18:32,840 Speaker 1: because a bank wasn't classed as too big to fail 330 00:18:33,000 --> 00:18:35,800 Speaker 1: like Silicon Valley Bank, you know, why on Earth went 331 00:18:35,920 --> 00:18:39,440 Speaker 1: regulators looking at things like mismatches between deposits and things 332 00:18:39,440 --> 00:18:42,359 Speaker 1: that that's you know, that just seems like a straightforward 333 00:18:42,400 --> 00:18:46,040 Speaker 1: tick those ones. I think in terms of real change, 334 00:18:46,080 --> 00:18:48,280 Speaker 1: it's going to be perhaps more in terms of the 335 00:18:48,400 --> 00:18:52,280 Speaker 1: attitude towards banking, and I think you will see. My 336 00:18:52,400 --> 00:18:55,119 Speaker 1: guess is that there you will see a push towards 337 00:18:55,160 --> 00:18:59,040 Speaker 1: a slightly more nationalistic view of finance in the same 338 00:18:59,040 --> 00:19:01,000 Speaker 1: way as we've seen a much more naturalistic view of 339 00:19:01,000 --> 00:19:03,919 Speaker 1: just about everything in an era of decoupling. And I 340 00:19:03,960 --> 00:19:06,640 Speaker 1: think you're going to see that. You know, Switzerland decided 341 00:19:06,720 --> 00:19:10,840 Speaker 1: this was a strategic industry for Switzerland. I mean, maybe 342 00:19:11,040 --> 00:19:14,000 Speaker 1: again that is bleedingly obvious, but they hadn't really looked 343 00:19:14,040 --> 00:19:17,160 Speaker 1: at it in those terms before. I think for America, 344 00:19:17,320 --> 00:19:20,200 Speaker 1: of bailing out Silicon Valley Bank became not just a 345 00:19:20,280 --> 00:19:25,280 Speaker 1: question about depositors. It became about the whole integrity of 346 00:19:25,320 --> 00:19:30,479 Speaker 1: American tech, the flagship industry of America, and so on 347 00:19:30,520 --> 00:19:31,800 Speaker 1: and so on. I think there is a lot of 348 00:19:31,840 --> 00:19:34,160 Speaker 1: that going on. The backdrop to all of this, of course, 349 00:19:34,280 --> 00:19:37,200 Speaker 1: is rising interest rates from central banks as well. This 350 00:19:37,840 --> 00:19:40,080 Speaker 1: presenting central banks with the dilemma of trying to bring 351 00:19:40,119 --> 00:19:42,760 Speaker 1: down inflation but also trying to manage the concerns of 352 00:19:42,960 --> 00:19:46,880 Speaker 1: financial stability. Can those two things really both be managed 353 00:19:46,920 --> 00:19:49,920 Speaker 1: by the same authorities? I think in the end they 354 00:19:49,960 --> 00:19:53,040 Speaker 1: probably have to. I think in the end what happens 355 00:19:53,240 --> 00:19:58,280 Speaker 1: with banking crises is that whether you like it or not, 356 00:19:58,320 --> 00:20:01,800 Speaker 1: the central banks get for it. There was a time 357 00:20:01,840 --> 00:20:06,600 Speaker 1: back in Britain when I think Mervin King at the 358 00:20:06,760 --> 00:20:10,840 Speaker 1: Bank of England thought that with Northern Rock that wouldn't 359 00:20:10,840 --> 00:20:13,240 Speaker 1: necessarily end up at his door. At the time I 360 00:20:13,280 --> 00:20:15,040 Speaker 1: work for a magazine that put him on the cover, 361 00:20:16,800 --> 00:20:20,159 Speaker 1: and I think he felt, not unreasonably that that was 362 00:20:20,160 --> 00:20:22,720 Speaker 1: a bit unfair. There was a whole new finance system, 363 00:20:22,800 --> 00:20:27,720 Speaker 1: but the basic idea behind finance In the end, people 364 00:20:27,920 --> 00:20:30,639 Speaker 1: look towards the central bank. The central banks are going 365 00:20:30,680 --> 00:20:33,640 Speaker 1: to be the people providing cash if you need it. 366 00:20:33,720 --> 00:20:36,919 Speaker 1: That's one reason. And secondly, there is a degree of 367 00:20:37,160 --> 00:20:39,560 Speaker 1: kind of clubbishness and in some ways which is a 368 00:20:39,560 --> 00:20:42,959 Speaker 1: good thing, between banks and the people they regulate. And 369 00:20:43,320 --> 00:20:44,840 Speaker 1: the Bank of England is in the middle of the 370 00:20:44,840 --> 00:20:50,320 Speaker 1: city of London. True, the FEDS in Washington, and the 371 00:20:50,320 --> 00:20:54,600 Speaker 1: financial system is mainly outside Washington. But in general, and 372 00:20:54,600 --> 00:20:56,639 Speaker 1: I think there is a there is a feeling along 373 00:20:56,680 --> 00:20:59,760 Speaker 1: those ways, and there's not no matter how hard Central 374 00:20:59,760 --> 00:21:02,919 Speaker 1: bank US try to jump away from this at this moment, 375 00:21:03,240 --> 00:21:05,720 Speaker 1: people will always look at them. In a time of 376 00:21:06,040 --> 00:21:08,560 Speaker 1: so much change, are they're going to be many winners 377 00:21:08,600 --> 00:21:11,040 Speaker 1: emerging from this? Do you think, well, there could be. 378 00:21:11,400 --> 00:21:14,560 Speaker 1: You've got Warren Buffett once again, he's always out there 379 00:21:14,560 --> 00:21:17,280 Speaker 1: looking for a bargain, and as a reasonable record of 380 00:21:17,400 --> 00:21:21,600 Speaker 1: spotting them. There will be, no doubt some people who 381 00:21:21,600 --> 00:21:23,359 Speaker 1: would like to think they're part of the committee to 382 00:21:23,359 --> 00:21:27,359 Speaker 1: save the world, and you see Jamie Diamond involved in 383 00:21:27,480 --> 00:21:33,120 Speaker 1: part of that. And financially there will be people who 384 00:21:33,200 --> 00:21:35,919 Speaker 1: bought things at the right time. The sort of basic 385 00:21:36,000 --> 00:21:39,520 Speaker 1: Silicon Valley bank portfolio of lending tech companies was going 386 00:21:39,600 --> 00:21:43,520 Speaker 1: reasonably well. That wasn't where their problem came from. People 387 00:21:43,560 --> 00:21:46,879 Speaker 1: who by that could do very well. First Republic perhaps 388 00:21:46,880 --> 00:21:51,080 Speaker 1: the same we mentioned ubs, you know, in principle at 389 00:21:51,200 --> 00:21:55,520 Speaker 1: least if we had gone back even five years ago. 390 00:21:55,880 --> 00:21:58,160 Speaker 1: I think if you've seen to Ubs and once you've 391 00:21:58,160 --> 00:22:00,399 Speaker 1: got rid of all their protestations about the fact they 392 00:22:00,400 --> 00:22:03,280 Speaker 1: didn't want it, etc. Etc. Etc. If you've said you 393 00:22:03,359 --> 00:22:06,840 Speaker 1: can buy credit suites for three villain, I think they 394 00:22:06,960 --> 00:22:09,920 Speaker 1: might have said that's not a bad deal, and so 395 00:22:09,960 --> 00:22:13,240 Speaker 1: I think from that perspective there is upside. But again, 396 00:22:13,600 --> 00:22:17,600 Speaker 1: as I said before, we don't quite know exactly what 397 00:22:17,720 --> 00:22:21,240 Speaker 1: comes with that. This is Bloomberg Daybreak Europe. You're a 398 00:22:21,280 --> 00:22:23,920 Speaker 1: morning brief on the stories making news from London to 399 00:22:24,040 --> 00:22:26,960 Speaker 1: Wall Streets and beyond. Look for us on your podcast 400 00:22:27,040 --> 00:22:30,560 Speaker 1: feed every morning on Apple, Spotify and anywhere else you 401 00:22:30,640 --> 00:22:33,320 Speaker 1: get your podcasts. You can also listen live each morning 402 00:22:33,320 --> 00:22:36,639 Speaker 1: on London DAB Radio, the Bloomberg Business app, and Bloomberg 403 00:22:36,680 --> 00:22:39,879 Speaker 1: dot Com. Our flagship New York station is also available 404 00:22:39,920 --> 00:22:44,040 Speaker 1: on your Amazon Alexa devices. Just say Alexa played Bloomberg 405 00:22:44,119 --> 00:22:47,480 Speaker 1: eleven thirty. I'm Caroline Hitka and I'm Stephen Carroll. 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