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Speaker 1: This is Bloomberg Daybreak Asia for this Tuesday, March fourteenth

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Speaker 1: in Hong Kong, Monday March thirteenth in New York and

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Speaker 1: coming up today, bond prices sore Bank shares tumble as

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Speaker 1: the collapse of Silicon Valley Bank reverberates through markets. The

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Speaker 1: FED is launching an internal probe of its supervision of

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Speaker 1: Silicon Valley Bank. HSBC buys svb's British unit and HSBC

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Speaker 1: will inject about two billion dollars of liquidity. Presidents Zelenski

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Speaker 1: and She's setting up their first meeting since the invasia

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Speaker 1: of Ukraine. A terrorist avoids the death penalty in New York,

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Speaker 1: while the leaders of Australian England are in San Diego

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Speaker 1: working on a sub deal. I'm Dan Schwartzman. I'll have

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Speaker 1: the news coming up. That's all straight ahead on Bloomberg

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Speaker 1: Daybreak Asia, the business news you need to start your day,

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Speaker 1: and just one fifteen minute podcast available on Apples, Spotify,

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

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Speaker 1: Good morning, I'm a prisoner and I'm Brian Curtiz. Here

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Speaker 1: are the stories we're following today. The FED said it's

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Speaker 1: launching an internal review of its supervision and regulation of

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Speaker 1: Silicon Valley Bank and the failure last week. The review

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Speaker 1: will be led by Vice Chair for Supervision Michael Barr

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Speaker 1: and will be publicly released by the first of May.

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Speaker 1: Questions about who is it fault in the collapse surfaced

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Speaker 1: quickly after regulators were forced to take action. On Sunday evening,

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Speaker 1: we heard from Better Market CEO Dennis Kelleher, who was

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Speaker 1: critical of the FED. We have to figure out how

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Speaker 1: the Federal Reserve supervisors could have failed so flavorantly here.

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Speaker 1: We don't yet know why. What we do need is

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Speaker 1: a complete, thorough, independent investigation of the Federal Reserve supervisors here.

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Speaker 1: The Federal Reserve just announced that the Vice Chair for

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Speaker 1: Supervision is going to conduct an investigation of itself. The

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Speaker 1: FED cannot investigate itself. We need an outside, independent investigator

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Speaker 1: who will look at this objectively and really get to

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Speaker 1: the bottom of it. Biden Minister Asian officials are also

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Speaker 1: scrutinizing the quality of supervision undertaken by the California state

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Speaker 1: authorities and also the San Francisco FED, and earlier President

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Speaker 1: Biden offered more reassurance that he would seek stronger regulation

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Speaker 1: for the banks we described a moment ago this traumatic

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Speaker 1: sell off in many of the regional bank stocks. Today

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Speaker 1: despite that new backstop introduced late yesterday by the Treasury,

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Speaker 1: the FED and the FDIC, well now a key lender

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Speaker 1: to regional banks is raising billions of dollars. We have

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Speaker 1: that from Bloomberg's and Kates. The US system of federal

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Speaker 1: homelan banks is ramping up the amount of cash it

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Speaker 1: has available after the collapse of lenders including Silicon Valley

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Speaker 1: Bank and Signature Bank. That is bolstering expectations that more

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Speaker 1: regional lenders will need to come to it for funds.

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Speaker 1: Bloomberger is reporting that FHLB has raised close to eighty

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Speaker 1: nine billion dollars through the sale of short term notes.

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Speaker 1: The bond sale signals banks are going to continue tapping

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Speaker 1: their lines with FHLB this week ahead of possible contagion

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Speaker 1: fears after depositors last week made a run on SVB

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Speaker 1: leading to its failure. In Washington and Kates Bloomberg Daybreak

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Speaker 1: Asia and as you heard, the turmoil in SVB and

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Speaker 1: other banks has caused a swift reassessment over the direction

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Speaker 1: of FED policy. Swamps traders and now pricing in a

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Speaker 1: roughly fifty percent chance that the FED will hike by

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Speaker 1: another quarter percentage point later this month. Former Treasury Secretary

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Speaker 1: Larry Summer has said this is still appropriate. There's no

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Speaker 1: reason why decision does have to be made today, and

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Speaker 1: I think, as much as has ever been the case

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Speaker 1: in my memory, this is a time when the FED

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Speaker 1: needs to keep its fingers on the pulse of the

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Speaker 1: economy and make judgments only is only at the moment

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Speaker 1: when they have to be made and on the basis

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Speaker 1: of all the available data. Summer has added that further

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Speaker 1: financial shocks are likely and the FED will need to

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Speaker 1: see how events play out. The FED will hold its

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Speaker 1: next policy meeting March twenty first. Meantime, anxiety is running

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Speaker 1: a little high ahead of tomorrow's report on consumer prices

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Speaker 1: here in the US and what those data points may

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Speaker 1: mean for FED policy. Here's a preview from Bloomberg's Michael McKee.

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Speaker 1: Already important CPI data will play an even bigger role

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Speaker 1: on Wall Street following the collapse of Silicon Valley and

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Speaker 1: Signature Banks. Investors began repricing FED rate hikes last week.

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Speaker 1: They anticipated four more, a total of one percent now

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Speaker 1: just one move is baked in and by a small margin,

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Speaker 1: as traders bet concern about the banking system will outweigh

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Speaker 1: worries about inflation. But the Fed can't stop worrying about inflation,

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Speaker 1: and if we get a hot print for February, markets

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Speaker 1: will likely reprice again. Michael McKee, Bloomberg Daybreak Asia. HSBC

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Speaker 1: has purchased the British arm of Silicon Valley Bank. The

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Speaker 1: UK government cleared the way for this transaction. The bank

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Speaker 1: was given an exemption over rules that do not allow

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Speaker 1: complicated corporate customers to be housed with ring fenced banks.

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Speaker 1: City Minister Hendrew Griffiths spoke about the deal earlier with Bloomberg.

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Speaker 1: The government's interests were to get a quick conclusion to this,

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Speaker 1: to protect depositors, to allow the really important firms in

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Speaker 1: the tech and biotech sector to go about their great

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Speaker 1: work of building the UK economy from this morning, protect

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Speaker 1: the taxpayers interests, and also this outcome delivers a good

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Speaker 1: benefit to UK financial services, with HSBC headquartered in the UK,

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Speaker 1: one of Europe's largest banks, standing fully behind SVB UK Bank. Separately,

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Speaker 1: HSBC said it's planning to inject two point four billion

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Speaker 1: dollars of liquidity into spob's UK division. The bank also

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Speaker 1: didn't clarify whether it would run its new acquisition as

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Speaker 1: a standalone division or keep the SVB brand. I'm Bryan

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Speaker 1: Curtis along with Doug Krisner. Doug, So, the big story

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Speaker 1: today is the FED will investigate its supervision of Silicon

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Speaker 1: Valley Bank, and it really brings up a lot of

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Speaker 1: interesting aspects here. So the FED will probe its own

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Speaker 1: supervision of the bank and also regulators in California. Two,

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Speaker 1: as a matter of course, it will look out the

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Speaker 1: bank's internal management. Three. Inevitably, this will this will take

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Speaker 1: into consideration the four hundred and fifty basis points of

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Speaker 1: hiking that the FED has done. There's absolutely no doubt

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Speaker 1: about that. And then fourthly, I think since an inquiry

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Speaker 1: is underway, it may give and I have to say,

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Speaker 1: may it may give justification to a pause in rates

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Speaker 1: to consider the long and variable lag of all these

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Speaker 1: hikes that they've done. Well, a pause, I don't know

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Speaker 1: about that. You could be right, although Double Line Capital's

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Speaker 1: Jeff Gunlock was saying today he is expecting the FED

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Speaker 1: to mark the last rate hike for the year at

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Speaker 1: next week's meeting. He was talking to CNBC today and

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Speaker 1: saying anything higher than twenty five basis points could damage

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Speaker 1: the Fed's credibility. Inflation, as we know, Brian is still

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Speaker 1: a problem. And to go back to the point that

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Speaker 1: Mike McKee was just making there, that's why the CPI

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Speaker 1: data tomorrow is so critical. Yeah, I mean we often

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Speaker 1: say that the FED will tighten until something breaks. Something

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Speaker 1: thing has now broken. Three three banks have gone bust. Uh,

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Speaker 1: So you know, I think it may be that this

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Speaker 1: is determined that it's management at the banks and not

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Speaker 1: the fault of higher interest rates, But it may it

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Speaker 1: may be that, you know, that what the FED has

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Speaker 1: done is just overwhelmed a lot of smaller banks. So

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Speaker 1: you know, it's it's something we can't know at this moment.

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Speaker 1: I was looking at the We had a story on

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Speaker 1: the Bloomberg terminal that Charles Schwab, similar to SVB, has

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Speaker 1: a large investment securities portfolio and significant paper losses in

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Speaker 1: held to maturity books. This is a very similar situation.

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Speaker 1: In the last three trading days, Schwab shares are down

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Speaker 1: thirty two percent. Yeah, that was quite extraordinary. Um. I

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Speaker 1: was I was having a look at them earlier today,

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Speaker 1: and you know, I thought that they might get a

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Speaker 1: bounce after what we saw, you know, the actions taken

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Speaker 1: by the Fed. But it turned out not to be

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Speaker 1: the case. In today's action alone down twelve percent. And

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Speaker 1: how about First Republic Bank sixty two percent? Yeah, painful.

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Speaker 1: It is time for Global news. A big submarine deal

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Speaker 1: being finalized in San Diego. Dan Schwartzman has details in

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Speaker 1: the New York Newsroom. Dan Yeah. Brian British Prime Minister

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Speaker 1: Rishi Sunac meeting with President Biden and Australian Prime Minister

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Speaker 1: Anthony Albany, is in San Diego earlier today to unveil

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Speaker 1: a plan for a new fleet of nuclear Parrots submarines

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Speaker 1: for Australia. President Biden talking about the pack between the

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Speaker 1: three allies. Australian and I Kingdom are if two America's

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Speaker 1: most stalwart and capable allies. Our common values are shared vision,

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Speaker 1: more peaceful and prosperous future, unite US all across the

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Speaker 1: Atlantic and Pacific. The plan is for the US to

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Speaker 1: sell as many as five Virginia class subs to Australia,

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Speaker 1: who will also be building a next generation sub together

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Speaker 1: with England called the ss N Aucust that starts in

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Speaker 1: twenty twenty seven the US and England. We'll be deploying

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Speaker 1: a rotating forces subs with Australian sailors and workers embedded

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Speaker 1: on those subs for training. Ukrainian President Vladimir z Lensky

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Speaker 1: and Chinese President She's in Jinping plan on speaking by

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Speaker 1: videolink after she is expected to visit Moscow next week.

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Speaker 1: Ukraine and China have not had direct talk since Russia's

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Speaker 1: invasion last February. US National Security Advisor Jake Sullivan says

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Speaker 1: a meeting between Ukraine and China is a good idea.

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Speaker 1: It would potentially bring more balance and perspective to the

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Speaker 1: way that the peer of PRC is approaching this, and

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Speaker 1: we hope it would continue to dissuade them from choosing

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Speaker 1: to provide lethal assistance to Russia, which is obviously something

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Speaker 1: that we have warned about. China has been trying to

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Speaker 1: position itself as a peace broker in the conflict, even

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Speaker 1: offering up a twelve point plan to end hostilities back

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Speaker 1: at the end of February. According to the Stockholm International

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Speaker 1: Peace Research Institute, Russian arms sales fell the last five years,

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Speaker 1: including the war by thirty one percent from the previous

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Speaker 1: five years. The world's second largest arms exporter is expected

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Speaker 1: to prioritize producing weapons for its own military after taking

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Speaker 1: heavy losses in raining rather than for export. Russia's pending

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Speaker 1: orders have also declined, as sales have fallen for eight

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Speaker 1: of their top ten clients. Despite objections from environmentalist groups,

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Speaker 1: President Biden authorizing the Conico Phillips Willow Project to drill

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Speaker 1: for oil and northwest Alaska. The company will be permitted

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Speaker 1: to drill three different locations with an estimated return of

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Speaker 1: one hundred and eighty thousand barrels of oil per day.

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Speaker 1: Biden had campaigns on a pledge to block new drilling

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Speaker 1: on public lands as well as invest in clean energy.

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Speaker 1: Terrorists Saifulo Scipoff has avoided the death penalty after a

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Speaker 1: jury deadlocked and instead will receive life in prison. Who's

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Speaker 1: Beckistan native killed eight people and injured around a dozen

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Speaker 1: more after driving a rented pickup truck down a bike

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Speaker 1: path on the west side of Manhattan, aiming to hit

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Speaker 1: as many people as possible. Sipov was convicted of terror

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Speaker 1: related crimes in federal courtback in January and needed a

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Speaker 1: unanimous jury to have been sentenced to death. Global News

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

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Speaker 1: seven hundred journalists and analysts in over one hundred and

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Speaker 1: twenty countries. On Dan Schwartzman and this is Bloomberg. This

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Speaker 1: is Bloomberg Daybreak Asia. I'm Brian Curtis here in Hong Kong,

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Speaker 1: and our guest is Sylvia Jablonski, co founder, CEO and

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Speaker 1: CIO at Defiance ETFs. Sylvia, this probe by the FED

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Speaker 1: is really important because it will give us the answer,

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Speaker 1: hopefully on whether or not this is a supervisory or

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Speaker 1: regulatory problem, or whether it's an internal management problem, or

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Speaker 1: if it's you know, something sort of out of those

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Speaker 1: hands and into the monetary side of the fed's hands,

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Speaker 1: which is that you know, the four hundred and fifty

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Speaker 1: basis points overwhelmed a lot of people, and this is

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Speaker 1: an example of that. Just if you, you know, looking

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Speaker 1: into your crystal ball, what do you think sums up

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Speaker 1: the story? Well? I think, you know, if you if

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Speaker 1: you look at some of the different issues that that

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Speaker 1: have come along, whether it's silver Gate or Signature Bank

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Speaker 1: or you know now SVB, I think what we have

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Speaker 1: now is a lot of uncertainty in the market and

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Speaker 1: amongst investors that you know, there could be perhaps some

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Speaker 1: sort of systematic failure or larger issue than just these

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Speaker 1: you know, three strings of banks, and I think that

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Speaker 1: the investigation will be really helpful to clear that out

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Speaker 1: for investors and sort of what the FED does in

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Speaker 1: the backstop of essentially you know, sort of owning balances

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Speaker 1: and helping out depositors and whether or not that sort

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Speaker 1: of works and we move along from this and this

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Speaker 1: gets cleaned up. It is really key to the future

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Speaker 1: of the market in the near term. UM In terms

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Speaker 1: of the next FED hike, I think it's you know,

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Speaker 1: it's tricky. I think we have that next inflation read

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Speaker 1: tomorrow and if it's hotter than that, it should be.

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Speaker 1: I think the Fed almost has to do something right.

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Speaker 1: But it feels like fifty BIFs should be off the

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Speaker 1: table because now you have these, um you know, real

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Speaker 1: big concerns in terms of the string of bank failures

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Speaker 1: being a bigger problem than than you know, your long

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Speaker 1: inflation battle. I think if there was no inquiry, a

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Speaker 1: pause would look like panic from the Fed. UM and

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Speaker 1: fifty just seems, you know, it seems like it's, like

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Speaker 1: you said, just just too much. But but now that

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Speaker 1: you have the inquiry underway, does it give the FED

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Speaker 1: some justification on the monetary side to say, let's pause

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Speaker 1: until May first, and we can see what the supervisory

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Speaker 1: side of the FED determines here as the root cause.

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Speaker 1: Does that make sense? Yeah? I think, you know. I

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Speaker 1: think it's also in my mind that's actually the explanation

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Speaker 1: for why twenty five right, because I think, you know,

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Speaker 1: the market was largely pricing in fifty after the after

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Speaker 1: the hotter inflation reason jobs numbers that we've already seen.

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Speaker 1: So I think if anything, this sort of emboldens the

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Speaker 1: FED to do twenty five and and talk you know,

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Speaker 1: more deficiently and and sort of not the excuse, but

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Speaker 1: the rationale will be because we have to figure this

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Speaker 1: out and ensure that you know, all of the great

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Speaker 1: hikes we've already done aren't putting stress on all of

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Speaker 1: the regional banks. And when we come to the conclusion

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Speaker 1: that it is you know, a couple of bad actors

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Speaker 1: or a few bad you know, policy decisions or management

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Speaker 1: decisions that led to this, I think I think that

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Speaker 1: opens things up for the FED to keep working on inflation.

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Speaker 1: But you know, I think it's tough for for for

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Speaker 1: him to sort of go to zero and say this

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Speaker 1: is what we're going to do and we're going to

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Speaker 1: hold off because you know, prior to STB that, you know,

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Speaker 1: inflation was a grand issue for the Fed. So um,

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Speaker 1: I think it's just it'll be part of the rhetoric

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Speaker 1: syl if you no doubt you've been looking at and

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Speaker 1: thinking about what does it mean when we say the

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Speaker 1: long and variable lag of monetary policy raising interest rates?

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Speaker 1: So is this is this it? I mean, is this

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Speaker 1: an example? You know? I certainly hope not. This definitely

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Speaker 1: was not something um there definitely was not something that

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Speaker 1: was on our our our radars um in terms of

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Speaker 1: this essentially crushing you know, a banking system. But if

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Speaker 1: you sort of start to think about this and and

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Speaker 1: you put it all on your perspective, you know, of course,

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Speaker 1: investors are starting to pull deposits and they're looking at

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Speaker 1: money markets because they pay higher rates in different types

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Speaker 1: of products. And you know, if you have this situation

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Speaker 1: where you know, banks can't be profitable when interest rates

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Speaker 1: are high, which is sort of the classic time that

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Speaker 1: they are profitable, I think you know, it does put

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Speaker 1: straight on the banking system, and then it further puts strain.

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Speaker 1: When you see these types of events on the consumer

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Speaker 1: and consumer spending, consumers are going to hold onto their

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Speaker 1: cash a little bit tighter. And I think that this

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Speaker 1: is sort of an unintended consequence of fat hikes, and

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Speaker 1: not to mention that, you know, I've sort of been

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Speaker 1: looking at the data, and you know, it's hard to

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Speaker 1: argue that jobs aren't hot and things like this, but

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Speaker 1: you know, it is coming downward, right, and I don't

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Speaker 1: think it was expected that it would be linear. And

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Speaker 1: if you look at different parts of the parts of

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Speaker 1: the market, we've seen rolling recessions. And if you see

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Speaker 1: things like you know, sort of real estate and goods

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Speaker 1: and things like that, inventories are sort of sharpening up

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Speaker 1: and the supply demand issue is sharpening up. And you know,

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Speaker 1: so I think the rate hikes have work and a

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Speaker 1: lot of parts of the market, so um, you know,

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Speaker 1: in six to twelve months, it's there is a risk

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Speaker 1: that this slows us down. We get some sort of

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Speaker 1: soft landing or or maybe harder landing if the banking

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Speaker 1: issue continues. Well, we have three banks that failed, so

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Speaker 1: it shows you that there's something going on there, or

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Speaker 1: they look like slightly different reasons too. If we look

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Speaker 1: at Silicon Valley Bank, if the main aspect here is

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Speaker 1: that they held long term treasuries, and you know, those

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Speaker 1: treasuries were not worth what they would be worth at

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Speaker 1: maturity if you sold them now, and they needed cash now.

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Speaker 1: Therefore there was this this out of sync, a kind

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Speaker 1: of positioning by by the management. If we look at that,

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Speaker 1: I mean there's a lot of companies out there, you know,

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Speaker 1: you look at these companies like Apple and others that

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Speaker 1: have maybe ah, you know, one hundred billion dollars on

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Speaker 1: their balance sheet held in treasuries now they don't need

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Speaker 1: the capital right now, so nobody would ever know what

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Speaker 1: those mark to market values are. So you wonder whether

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Speaker 1: or not this ultimately comes back to just the pure

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Speaker 1: management of the bank. Yeah, And if you look at

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Speaker 1: the if you look at the three different situations and

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Speaker 1: sort of observe them, you know, we only have so

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Speaker 1: much information that we can analyze here. But you have

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Speaker 1: one bank that largely catered to dcs that have you know,

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Speaker 1: perhaps these brilliant ideas. You have high risk potentially for

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Speaker 1: high reward, but you also have you know that the

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Speaker 1: odds are actually against you that you have a new

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Speaker 1: business succeed, right. So, so much of who they were

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Speaker 1: lending to UM was a big risk, right and perhaps

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Speaker 1: prone to blow up in some sense. And then with

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Speaker 1: Signature Bank, you know, they took another kind of hefty risk,

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Speaker 1: right because they they positioned themselves as a crypto bank.

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Speaker 1: And then so they gathered all of those assets and

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Speaker 1: bitcoin fell and then there's instability in that system. So

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Speaker 1: it seems like we can you know, give the sort

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Speaker 1: of end to this story. Right, this bank was managed

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Speaker 1: pearly because they didn't diversify their risk, and then this

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Speaker 1: bank has managed parly because they didn't diversify their risk.

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Speaker 1: But we have to see, you know, really where that please.

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Speaker 1: Because the performance of the regional banks and even a

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Speaker 1: Schwab things like that are there. They're pretty scary, and

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Speaker 1: I think we need some answers to to feel, you know,

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Speaker 1: kind of more ease about going back into those types

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Speaker 1: of investments. That an interesting anyway, isn't it interesting that

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Speaker 1: Barney Frank, you know, one of the authors of odd Front,

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Speaker 1: was on the board of Signature Bank and wasn't able

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Speaker 1: to you know, get out in front of this. Yeah, sure,

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Speaker 1: sure was. I I had that same thought. And you know,

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Speaker 1: here we are talking about reinstituting a lot of you

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Speaker 1: know what the sort of last administration got rid of

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Speaker 1: for that reason. But that, yeah, that was you know,

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Speaker 1: we have short, short memories. Okay, what's your number one

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Speaker 1: investment idea at the moment, given all we've talked about. Yeah,

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Speaker 1: I mean, look, I'm always going to sort of say

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Speaker 1: the same thing in this type of market. I think

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Speaker 1: when you have these market pullbacks, it's a great opportunity

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Speaker 1: to create wealth and generate wealth. You have to have

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Speaker 1: the stomach for it. The risk is that these stocks

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Speaker 1: will go down further. But if you're thinking out into

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Speaker 1: the next three, four or five years of innovation, you know,

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Speaker 1: AI is a huge trend um. Look at quantum stocks,

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Speaker 1: machine learning, AI types of stocks. I think for investors

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Speaker 1: that are in this for the longer haul of beyond

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Speaker 1: twenty twenty four, everything was on sale now, and look,

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Speaker 1: I wouldn't be able to putting some banks on it

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Speaker 1: on my my account, you know, some JP Morgan, you know,

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Speaker 1: somebody's thanks. You're going to benefit from investors blog deposits.

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