Latest / Bloomberg Intelligence / Credit Suisse, Regional Banks, and Iraq Veterans

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Credit Suisse, Regional Banks, and Iraq Veterans · Bloomberg Intelligence

0:00
Speaker 1: Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney, alongside
0:04
Speaker 1: my co host Matt Miller. Every business day we bring
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Speaker 1: you interviews from CEOs, market pros, and Bloomberg experts, along
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Speaker 1: with essential market moving news. Find the Bloomberg Markets Podcast
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Speaker 1: on Apple Podcasts or wherever you listen to podcasts, and
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Speaker 1: at Bloomberg dot com slash podcast. Again, a little bit
0:21
Speaker 1: of a Bloomberg Intelligence round table here as we think
0:24
Speaker 1: about this banking issue, these banking crises, if you will,
0:27
Speaker 1: on both sides of the pond. We do that with
0:29
Speaker 1: Alison william Sees, his senior Global Banks annalyst for Bloomberg Intelligence,
0:33
Speaker 1: and Tim Craig, had director of Research and he's a
0:35
Speaker 1: senior European strategist with Bloomberg Intelligence. And Tim you're based
0:39
Speaker 1: in London. Allison's based in Princeton and Tim from London.
0:43
Speaker 1: Give us a sense of what the feeling is among
0:46
Speaker 1: Bloomberg's institutional investor clients and clients for Bloomberg Intelligence that
0:50
Speaker 1: you talk to about what the demise of credit Swiss means,
0:54
Speaker 1: what the uncertainty of the European banking sector means to
0:58
Speaker 1: the typical European investor, look, I think that the key
1:03
Speaker 1: here from from European investors perspective is is this, you know,
1:07
Speaker 1: the cockroach theory going on, or is Credit Suite a
1:12
Speaker 1: one off? It's been undergoing a very prolonged period of troubles,
1:19
Speaker 1: Let's put it that way. You know, a couple of
1:21
Speaker 1: decades worth in ways, and you know, the take so
1:26
Speaker 1: far today is it's it's very much more of the
1:31
Speaker 1: one off. There are definitely issues that we need to
1:34
Speaker 1: consider the ramifications of the At one situation, that special
1:38
Speaker 1: bond issue with Credit Suite was a bit of an
1:42
Speaker 1: eye opener this morning that seems to have calmed for
1:45
Speaker 1: the moment. But underlying all of this, if we assume
1:50
Speaker 1: this is one off, an SVB and signature are in
1:54
Speaker 1: one form or another one off, it does from a
1:57
Speaker 1: European investment perspective, looking across the mark markets, especially with
2:01
Speaker 1: Futzie in particular, we're called into question what about financial's
2:07
Speaker 1: profitability post all of this, And I think there is
2:11
Speaker 1: a reasonable issue that our banks team on both sides
2:15
Speaker 1: of the Atlantic have been raising in terms of profitability
2:18
Speaker 1: of banks, and banks are a big deal for European markets,
2:22
Speaker 1: much bigger than they are necessarily in the US. You know,
2:25
Speaker 1: it's twenty five percent of Futzie earnings for example, And
2:29
Speaker 1: so if profitability is under threat relative to what was
2:33
Speaker 1: expected only two or three weeks ago, that changes the
2:37
Speaker 1: dynamic and the tenor of the market. Well, what does
2:40
Speaker 1: it then mean when you factor in something like kind
2:43
Speaker 1: of the bond turmoil? These eight ones have gotten so
2:46
Speaker 1: much scrutiny that the idea they're going to get you
2:49
Speaker 1: written down to zero. It felt like in the early
2:53
Speaker 1: trade this morning and the overnight trade as well. That
2:55
Speaker 1: affected sentiment around the world. It was a question of, well,
2:59
Speaker 1: if credits least ones are going to drop, then what
3:02
Speaker 1: is the incentive to create a capital buffer for any
3:04
Speaker 1: other bank around the world. Is that a fair assessment
3:08
Speaker 1: or a fair way to think about that. I'll give
3:12
Speaker 1: my two cents, but I'm bet Allison has perspective on this.
3:16
Speaker 1: But and I will echo Jerome Julius, who is our
3:19
Speaker 1: banks credit analyst here in London, you clearly could call
3:25
Speaker 1: exactly the sort of question that you have. But for
3:29
Speaker 1: the credit suites and ubs specifically, unlike any of the
3:33
Speaker 1: other at one issuers across Europe, they do have a
3:37
Speaker 1: little clause that is a little bit different. That does
3:40
Speaker 1: argue why this is an exception and not something that
3:44
Speaker 1: you would just generically see putting in question at ones
3:49
Speaker 1: as a as an asset class or you know, a
3:53
Speaker 1: capital building tool for banks, and you know, I think
3:56
Speaker 1: if that's what proves to be the case, then may
4:00
Speaker 1: be you know, this market you know isn't or this
4:03
Speaker 1: tool you know won't be ineffectual going forward. Well, Alison
4:07
Speaker 1: hop On in here you of course oversee global banks
4:10
Speaker 1: and asset managers. What do you make of this kind
4:13
Speaker 1: of at one scrutiny, Alison, you're with us, he's a
4:19
Speaker 1: research talking about UM. You know why those securities are
4:24
Speaker 1: a little bit different than other securities in Europe. I
4:27
Speaker 1: think two things. First is that UM, you know, part
4:32
Speaker 1: of the violent reaction is is just that, you know,
4:35
Speaker 1: look at people that look at capital structure, UM did
4:38
Speaker 1: not like that. You know that that those securities were
4:43
Speaker 1: zeroed and equity shareholders actually got something UM. But they
4:49
Speaker 1: are balance securities and you know that is a risk
4:55
Speaker 1: out there. And I think in this particular transaction, UH,
4:59
Speaker 1: the Swiss government made this decision to provide more capital
5:05
Speaker 1: support for ubs. So CET one is a key ratio
5:09
Speaker 1: for that bank, and so that the way that this
5:12
Speaker 1: deal ended up being structured UM provides that support, and
5:15
Speaker 1: that that does sort of lead into the discussion of
5:18
Speaker 1: you know, the Swiss government talking about this not being
5:20
Speaker 1: a bailout, but for sure they orchestrated the deal. And
5:24
Speaker 1: so I think, you know that the two things to
5:28
Speaker 1: me were first of all that aspect. Second of all,
5:31
Speaker 1: the fact that UBS shareholders are not going to vote
5:36
Speaker 1: that's not required for the deal, and so that's that's
5:39
Speaker 1: something that management alluded to that the Swiss work had
5:44
Speaker 1: actually indicated they were going to change the law. And
5:47
Speaker 1: TI might be able to comment on that from a
5:49
Speaker 1: macro perspective, but you know, in general, investors don't like
5:53
Speaker 1: those type of surprises. I think at the end of
5:57
Speaker 1: the day, UM, you know this this is a deal
6:00
Speaker 1: that in a long term has a lot of financial
6:04
Speaker 1: protections for UBS. They did get it at a very
6:06
Speaker 1: cheap price. They do have the added capital boosts that
6:10
Speaker 1: we just discussed. However, it is going to take a
6:14
Speaker 1: long period of time. It's the sizeable we're structuring. The
6:19
Speaker 1: accretion is not expected till twenty twenty seven. There's a
6:22
Speaker 1: lot of details that worked aren't worked haven't been worked out,
6:25
Speaker 1: we're going to want to hear about. So long term,
6:28
Speaker 1: it does look like an attractive deal, but there's there's
6:31
Speaker 1: likely to be some volatility in the near term. Hey, Allison,
6:34
Speaker 1: you know, we were talking to your colleague, Herman Chan
6:36
Speaker 1: who follows the regional banks for Bloomberg Intelligence, and we're
6:39
Speaker 1: talking about how important it is important role that regional
6:42
Speaker 1: banks and community banks play in you know, markets all
6:46
Speaker 1: across the country in terms of take it into posits
6:49
Speaker 1: and then loaning it out to you know, local businesses
6:52
Speaker 1: or consumers who want to get a residential mortgage and
6:54
Speaker 1: things like that. To the extent that those types of
6:57
Speaker 1: banks are losing deposits to maybe, I don't know, the
7:00
Speaker 1: big money center banks, does that pose a risk for
7:03
Speaker 1: local economies, like maybe the capital is not going to
7:06
Speaker 1: be there to build that new store or to finance
7:09
Speaker 1: this new office building or something. It doesn't necessarily pose
7:14
Speaker 1: a risk because these big banks and specifically JP Morgan
7:19
Speaker 1: Bank of America and Whiles Fargo are in so many
7:23
Speaker 1: local markets across the country, and so that that is
7:26
Speaker 1: the way that they're gaining the deposit is that you know,
7:29
Speaker 1: they are the third or four bank in that local market. However,
7:33
Speaker 1: I would say that, you know, the regulators are very focused. Obviously,
7:37
Speaker 1: they prefer it to be They prefer deposits to be
7:41
Speaker 1: out you know, across a wide variety of banks. They
7:45
Speaker 1: prefer not for the big biggest banks to get bigger,
7:50
Speaker 1: and a lot of the regulations and a lot of
7:52
Speaker 1: the actions that they take are in general aimed at
7:55
Speaker 1: protecting some of these smaller banks, and I think that's
7:58
Speaker 1: why you see a lot of people raising questions about
8:02
Speaker 1: deposit insurance, different people suggesting different things. I would just
8:06
Speaker 1: say that it's definitely tricky because it's a very big
8:12
Speaker 1: deposit up there, base sets out there that is uninsured.
8:16
Speaker 1: And you know, certainly we saw with with with the
8:21
Speaker 1: orchestrated transaction last week that regulators are watching this, but
8:25
Speaker 1: they don't necessarily want to come in and provide that
8:28
Speaker 1: type of blanket insurance tim real quick. We heard from
8:32
Speaker 1: the ECB last week fifty basis point increase. How is
8:35
Speaker 1: that received by the market. How's that being received by
8:37
Speaker 1: the market? Yeah, Paul, I think the interesting thing here
8:41
Speaker 1: is twofold number one there was I think there would
8:45
Speaker 1: have been a negative reaction had they not raised what
8:49
Speaker 1: was widely anticipated to be fifty, because it would have
8:52
Speaker 1: given a sign that they think that there's a looming issue.
8:56
Speaker 1: So I applaud them for that. Secondly, if you look
9:00
Speaker 1: at what's gone on with expectations for policy rates over here,
9:05
Speaker 1: whether it be the ECB or it be the Bank
9:07
Speaker 1: of England, you know, there have been dramatic shifts and
9:11
Speaker 1: I know you were just talking about that with FED
9:13
Speaker 1: policy as well. The idea that we're going to peak
9:17
Speaker 1: earlier and lower and then pivot the easing is pretty pervasive,
9:24
Speaker 1: you know, but that begs the question we haven't solved
9:27
Speaker 1: the inflation issue that's still here. That's what they have
9:31
Speaker 1: focused on. I think personally the markets were being disappointed. Gotcha, Okay,
9:36
Speaker 1: all right guys, great, great to get you two together.
9:38
Speaker 1: Alison Williams, Senior bank analyst and Tim Craig at Director
9:40
Speaker 1: of Research and Senior European Strategists, both for Bloomberg Intelligence.
9:47
Speaker 1: You're listening to the Team Cancer Line program Bloomberg Markets
9:51
Speaker 1: weekdays at ten am Eastern on Bloomberg dot com, the
9:54
Speaker 1: I Heart Radio app, and the Bloomberg Business app. We're
9:57
Speaker 1: listening on demand wherever you get your podcast, other European
10:02
Speaker 1: banking community, the European econ economic outlook. We can do
10:07
Speaker 1: that with Fanny's Strafakana, Professor of Economics at the London
10:11
Speaker 1: Business School, Vanni, thanks so much for joining us here.
10:15
Speaker 1: I guess some good news. UBS stock is trading higher.
10:19
Speaker 1: What is your takeaway from this UBS credit Swiss transaction?
10:24
Speaker 1: So thank you very much for having me. I do
10:26
Speaker 1: believe that this was a long time coming, that Credit
10:28
Speaker 1: Swiss was supposed to be essentially resolved at this point
10:32
Speaker 1: it was bought by UBS. I'm not quite happy with
10:35
Speaker 1: the weight was done, and I think financial markets are
10:38
Speaker 1: not quite happy with essentially everything being done behind closed
10:41
Speaker 1: doors over the weekend, the shareholders at Credit Swiss who
10:44
Speaker 1: were not really considered much in this decision, and then
10:47
Speaker 1: of course there's the fiasco with the Coco bonds. Overall,
10:50
Speaker 1: I do believe that development is positive because it's going
10:53
Speaker 1: to limit contagion to other systematically important banks in Europe.
10:57
Speaker 1: That's why we saw the heads of the central banks
10:59
Speaker 1: well coming the takeover of Credit Suiss. My concern is
11:02
Speaker 1: with the long run consequences on both the billionable debt,
11:07
Speaker 1: which is very important to regulators. So that's a massive market,
11:10
Speaker 1: more than two hundred billion, and effectively it felt like
11:13
Speaker 1: the Swiss regulators traded three billion valuation of equity shareholders
11:16
Speaker 1: for the two hundred billion dead markets. And I believe
11:20
Speaker 1: that would have been done better and avoid it, essentially
11:23
Speaker 1: the repercussions to the billion abouded market. Having said that,
11:28
Speaker 1: also best it's bad news for the shares of banks,
11:32
Speaker 1: even if they're financially sound and solvent and they're well regulated,
11:37
Speaker 1: especially the large banks. The message that was sent after
11:39
Speaker 1: the weekend is that even though regulators assure everyone that
11:43
Speaker 1: you know, the banks have enough fliquidity, enough equity, overnight,
11:47
Speaker 1: we might still wipe out a big chunk of the
11:50
Speaker 1: equity if we decide to do that, essentially in the
11:53
Speaker 1: case of pretty Swiss. And I do believe that this
11:55
Speaker 1: might translate into lower city state valuations of bankache given
12:00
Speaker 1: the massive interventions of regulators and governments into systematically important
12:04
Speaker 1: bank which probably markets were not pricing prior to the weekend.
12:08
Speaker 1: Professor put us into some perspective for us when it
12:11
Speaker 1: comes to international willingness to kind of invest in European banks. Here,
12:17
Speaker 1: how do you view this if you are an investor
12:19
Speaker 1: in the Middle East or an investor in Asia, are
12:22
Speaker 1: you more or less willing after this Credit Suiss debacle
12:26
Speaker 1: to have that exposure to European and arguably to American
12:29
Speaker 1: banks as well. I do think it did create a
12:33
Speaker 1: problem for the valuation of equity or larger systematically banks.
12:36
Speaker 1: Of course, they have franchise value right there are assets
12:38
Speaker 1: back in these banks. So the question is by how
12:41
Speaker 1: much we cause damage by not considering the shareholders or
12:46
Speaker 1: not to a large extent over the weekend, I do
12:50
Speaker 1: believe that actually what we saw happened was a result
12:52
Speaker 1: of political economic considerations. So it was a massive shock
12:56
Speaker 1: that equities still received something while the Coco bonds were
13:00
Speaker 1: completely wiped out. Now, probably this was necessary to persuade
13:04
Speaker 1: the shareholders of ubs that supposedly had presumably had also
13:08
Speaker 1: exposure to Credit Swiss to take on the deal. However,
13:12
Speaker 1: there are ways in which this could have been done
13:14
Speaker 1: and they could have been compensated with doubt essentially create
13:19
Speaker 1: creating problems in the billion about the market. Now, yes,
13:23
Speaker 1: bank valuations might be lower in steady state, the question
13:27
Speaker 1: is by how much? And and here financial investors are
13:29
Speaker 1: waking up and realizing, okay, what is what is the
13:32
Speaker 1: long term damage of both the current shocks that we've observed,
13:36
Speaker 1: but also the steady state trends that are present in
13:39
Speaker 1: the banking industry, which is shrinking over time for a
13:42
Speaker 1: number of different reasons. So, professor, who really drives the
13:46
Speaker 1: bus in these types of situations, Who's really in charge?
13:49
Speaker 1: Isn't the European Central Bank? Is that the Swiss National
13:52
Speaker 1: Bank give us a sense of how within Europe when
13:55
Speaker 1: a bank is under stress, who really comes into kind
13:58
Speaker 1: of you sure that a deal gets done somehow? Well,
14:03
Speaker 1: to be fair, bailing out banks is still a national issue,
14:07
Speaker 1: so you saw during the global financial crisis, it is
14:10
Speaker 1: on the Swiss government, on the Swiss regulators STU deal
14:13
Speaker 1: with Credit Swiss. Of course, they shouldn't take in isolation
14:17
Speaker 1: this decision, because financial markets are very interconnected. Decisions they
14:20
Speaker 1: make heavy percussions for the other central banks and the
14:24
Speaker 1: other large banks. So for example, we saw the ECB
14:28
Speaker 1: and the European regulators made a clear statement that from
14:31
Speaker 1: their point of view, bailing about that is senior to
14:34
Speaker 1: equity and they would treat it as such, unlike what
14:36
Speaker 1: happened with Credit Swiss. But it's very much decision done
14:41
Speaker 1: by the Swiss government and the Swiss regulators. I'm not
14:45
Speaker 1: true to what extent the Europeans and the Americans will consulted.
14:49
Speaker 1: My priory is not that much. I am confused almost
14:54
Speaker 1: by the fine print of that Swiss Uba story that
14:57
Speaker 1: you were specifically talking about. But let's let's broadened out here.
15:01
Speaker 1: If we're talking about this merger really a merger, acquisition,
15:05
Speaker 1: whatever you want to call it, I hear each bank
15:06
Speaker 1: has a different way they're phrasing it. But if you
15:10
Speaker 1: are talking about the effect it has on the Swiss
15:13
Speaker 1: economy and, by extension, one of the G ten nations
15:18
Speaker 1: of the world, what effect do you actually see? And
15:21
Speaker 1: I'm kind of talking about this in the lens of
15:23
Speaker 1: say effects for example, and the Swiss taxpayer. Are their
15:26
Speaker 1: global ramifications for that? Well, it is not completely without
15:31
Speaker 1: any reprecussions for the Swiss taxpayer. So for example, in
15:34
Speaker 1: the deal they specify that the first five billion of
15:37
Speaker 1: flossies will be borne by UBS, but then they provision
15:40
Speaker 1: for anana nine point eight billion of future losses that
15:44
Speaker 1: will have to be paid by the Swiss taxpayer if
15:46
Speaker 1: they're additional losses. And this is part of essentially the
15:50
Speaker 1: offering to UBS in order to agree to this deal,
15:53
Speaker 1: So potentially there could be applications for the Swiss taxpayer,
15:57
Speaker 1: that's for sure. I don't believe that the actual takeover
16:02
Speaker 1: of Credit Swiss is going to have very material impact
16:05
Speaker 1: on the Swiss real economy, to the extent that the
16:07
Speaker 1: retail bank, which is what matters for lending to consumers
16:11
Speaker 1: and two forms, has been always in good shape and
16:14
Speaker 1: it's ring fenced. We'll see where the UBS is going
16:17
Speaker 1: to keep it on the book or it's going to
16:18
Speaker 1: be sold off in a separate entity. So the repercussions
16:22
Speaker 1: to the real economy, the Swiss economy are probably limited. Now,
16:26
Speaker 1: the deal was important to essentially prevent global contagent, and
16:31
Speaker 1: the longer you leave the bank, the Credit Swiss in
16:33
Speaker 1: this case alive, given that it's on the verge of
16:36
Speaker 1: definite it has been for quite a while, the bigger
16:38
Speaker 1: the risk of contagent to the rest of the financial industry.
16:41
Speaker 1: So in that sense, it was a good decision to
16:43
Speaker 1: finally deal with Credit Swiss because it's been a long
16:46
Speaker 1: time coming towards Yeah, I'm sorry, do you have concerns
16:50
Speaker 1: about other banks or other countries or other regions in
16:53
Speaker 1: Europe that we might see more this, or you think
16:55
Speaker 1: this is specific to Credit Swiss, which which as you mentioned,
16:59
Speaker 1: has had long standing problems. Yeah, so in terms of
17:01
Speaker 1: systematically important bank, I do believe it's definitely specific to
17:05
Speaker 1: Credit Suizz. One caveat being is that we definitely do
17:09
Speaker 1: not know where the interest rate dividi risks are born.
17:13
Speaker 1: So if there are large systematically important banks that have
17:15
Speaker 1: loaded on interest rate risk and they're the sellers of
17:18
Speaker 1: the insurance, the issues might be there. The main issues
17:21
Speaker 1: in the European banking sect they are going to be
17:23
Speaker 1: similar to the US banking sector, and that will be
17:25
Speaker 1: with the regional and small banks. So it's a very
17:28
Speaker 1: simil pattern, right. So the issues is facing is the
17:31
Speaker 1: fact that in terms of bookmarket valuations the small banks
17:34
Speaker 1: are solvent, but the mark to market valuations they're insolvent.
17:38
Speaker 1: They are relying on the backstop of the FED borrowing
17:41
Speaker 1: against face value. So the same consideration is present from
17:44
Speaker 1: the europe European banks. The European banks are a little
17:46
Speaker 1: bit in a better shape because they have floating mortgages
17:50
Speaker 1: and not so much fixed income. But in terms of
17:53
Speaker 1: credit contraction, we will seek credit contraction in Europe as
17:57
Speaker 1: well potentially. All right, doctor, thank you so much for
17:59
Speaker 1: joining us. Can really appreciate getting your prospective perspective. Doctor
18:02
Speaker 1: Vannius for Rokana, professor of economics at the London Business School,
18:06
Speaker 1: talking to us about this UBS Credit Swiss deal. UBS
18:09
Speaker 1: acquiring Credit Swiss. You're listening to the tape Ken's are
18:13
Speaker 1: Live program Bloomberg Markets weekdays at ten am Eastern on
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18:20
Speaker 1: the Bloomberg Business app. You can also listen live on
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Speaker 1: Amazon Alexa from our flagship New York station. Just say
18:26
Speaker 1: Alexa play Bloomberg eleven thirty. I want to bringing John Michelthwaite.
18:31
Speaker 1: He's an our editor in chief of Bloomberg News. He
18:34
Speaker 1: is located in our lovely London headquarters in the city
18:38
Speaker 1: of London. So, John, the story for Global Wall Street
18:41
Speaker 1: over the last several days has been the dying throws,
18:45
Speaker 1: if you will, of the Credit Swiss. Could you give
18:48
Speaker 1: us a sense again the acquisition being announced this morning,
18:52
Speaker 1: UBS buying Credit Swiss. What that really represents for Swiss
18:57
Speaker 1: banking and just Switzerland in general. Well, I think it's
19:01
Speaker 1: Switzerland saying, and this may have been fall in the
19:04
Speaker 1: category of the bleeding obvious that you know, banking is
19:08
Speaker 1: a critical national industry to them in the same way
19:12
Speaker 1: as you know Hollywood focused on films or whatever it is.
19:15
Speaker 1: It's this is a crucial part of the Swiss makeup
19:18
Speaker 1: and they made this decision. It is you referred to
19:21
Speaker 1: your own experiences. It is a pretty amazing thing, this bank, which,
19:25
Speaker 1: certainly when I started being a financial journis in nineteen eighties,
19:29
Speaker 1: you would not have imagined that Credit Swiss was even
19:33
Speaker 1: remotely close to this, and even as a little ago
19:36
Speaker 1: as a decade it was worth over one hundred billion
19:38
Speaker 1: dollars And now suddenly it's being snapped up for three
19:41
Speaker 1: And the whole point about Swiss banking was it was
19:43
Speaker 1: meant to be reliable. So maybe UBS has got a
19:48
Speaker 1: fantastic deal, but it's certainly a change, and I think
19:50
Speaker 1: it will send shock waves not just through Swiss banking,
19:55
Speaker 1: but also through European banking. You now have, I suppose,
19:59
Speaker 1: a Swiss national champion in one extent, what questions does
20:02
Speaker 1: that mean for other banks across Europe? Will there be
20:05
Speaker 1: more mergers? And just as in America, I think there
20:08
Speaker 1: is fundamental questions about whether America should have so many
20:13
Speaker 1: small banks, what superregionals mean, and so on. There is
20:17
Speaker 1: a general financial questioning going on pretty much across the world.
20:21
Speaker 1: Put that into perspective for us when it comes to
20:23
Speaker 1: international investments. If Credit Suez and was thinking largely was
20:27
Speaker 1: the gold standard, now that it's kind of fallen apart,
20:31
Speaker 1: does that disincentivize investments from the Middle East, from Asia?
20:36
Speaker 1: I think certainly the Saudis don't love them very much
20:38
Speaker 1: at the moment, Having just right the way down to
20:42
Speaker 1: the weekend still arguing about it, I think it must
20:45
Speaker 1: make a difference. It's an odd business though, banking. You
20:48
Speaker 1: look back at the two thousand and eight crisis and
20:50
Speaker 1: you had a variety of names which were sort of
20:54
Speaker 1: shuddering at the brink. You know. City Bank was an
20:57
Speaker 1: example of something that everyone began to say, how terrible
21:00
Speaker 1: it's band that sheets were and things like that. But
21:03
Speaker 1: millions of people around the world, I'm guessing millions, and
21:06
Speaker 1: certainly a lot of people bank with City Bank without
21:08
Speaker 1: any particular worries. Now, so you can see that happening.
21:13
Speaker 1: I think you could see it's just possible that UBS
21:17
Speaker 1: has actually done a remarkably clever deal. It certainly would
21:21
Speaker 1: look like a clever deal if you looked at it,
21:23
Speaker 1: say five years ago, you would think if you could
21:25
Speaker 1: really buy a Credit sweez for three billion, you know
21:28
Speaker 1: what's what's and get permission in a sense from your
21:32
Speaker 1: national government to sort of reorganize it, that's quite a
21:36
Speaker 1: good start. The problem is we don't quite know what's
21:39
Speaker 1: buried in the in the credit suis books. John is
21:43
Speaker 1: there and I'm just looking to do ubs ADRs right now.
21:46
Speaker 1: They're trading up about four percent here after trading lower earlier,
21:48
Speaker 1: So the market's applauding this deal at least at this point, John,
21:53
Speaker 1: Is there a concern or maybe what level of concern
21:55
Speaker 1: is there in Europe that this may not be a
21:59
Speaker 1: credit Swiss specific issue, that there may be more system
22:03
Speaker 1: systematic risk across Europe. You look at credit squeezes problems
22:07
Speaker 1: and again I've no doubt you've played your role in this,
22:10
Speaker 1: but the pretty much since those days it used to
22:15
Speaker 1: be used to be a very reputable place. But you
22:19
Speaker 1: look at the recent rank run of scandals, pretty much
22:22
Speaker 1: everything at some point has ended up with Credit sweee
22:25
Speaker 1: being involved in some bit of it. Deutsche Bank also
22:28
Speaker 1: has a record that goes a bit like that. The
22:30
Speaker 1: German Landers Bank have a record which occasionally has meant
22:35
Speaker 1: they've ended up with things that they shouldn't have done.
22:37
Speaker 1: So there's quite a few things looking around. And the
22:41
Speaker 1: big difference I think this time is that whereas previous
22:46
Speaker 1: sort of banking problems had a lot to do with
22:49
Speaker 1: underlying credit quality, I think, certainly in terms of kind
22:53
Speaker 1: of Silicon Valley Bank and also to some extentment would
22:56
Speaker 1: happened in credit sweee is liquidity was the main thing.
23:00
Speaker 1: It wasn't whether in the end you have a sort
23:02
Speaker 1: of reputable business with good lending and so on and
23:05
Speaker 1: so on. Notwithstanding all the scandals that grow sweets. You know,
23:08
Speaker 1: they had quite a lot of capital against that. The
23:11
Speaker 1: problem was that they needed capital to pay people who
23:15
Speaker 1: wanted to take their deposits out now. And that is
23:18
Speaker 1: the one sort of cord that runs true between both
23:21
Speaker 1: Silicon Valley Bank and this. What does that then mean
23:25
Speaker 1: for kind of these regulatory bodies here? It felt like
23:28
Speaker 1: the bond market turmoil just in the last twenty four
23:30
Speaker 1: hours really pushed the European banking authorities to say, look,
23:35
Speaker 1: what's going on in Switzerland is a Switzerland specific kind
23:39
Speaker 1: of regulatory arena, for lack of a better term. Are
23:44
Speaker 1: they right to really emphasize that. Well, I'm not sure
23:48
Speaker 1: they are in that extent. Yes, there is a there
23:51
Speaker 1: is a great deal of swiftness about this subject, particularly
23:55
Speaker 1: of keynote to the deputy editor in chief of Bloomberg.
23:59
Speaker 1: But there is something there, and the Swiss to some
24:01
Speaker 1: extent have taking decisions that will not please that many
24:06
Speaker 1: people outside Switzerland. There are a lot of European banks
24:10
Speaker 1: are suddenly looking at their capital or people who invested
24:13
Speaker 1: in different levels bondholders and European banks are suddenly a
24:16
Speaker 1: bit worried. You've got the Saudis doing that stuff. Not pleased.
24:21
Speaker 1: So the Swiss have taken a number of kind of
24:23
Speaker 1: somewhat insular decisions, you might argue, but you look around
24:27
Speaker 1: the world. It's very difficult if you're regulated, know exactly
24:30
Speaker 1: how you deal with that liquidity side. Because what's happened
24:34
Speaker 1: with both Silicon Valley Bank and with Credit speceis you've
24:37
Speaker 1: had this thing where people have just queued up saying
24:39
Speaker 1: they want their money back, and that's quite hard. That's
24:42
Speaker 1: much harder to deal with in a strange way other
24:45
Speaker 1: than maybe if you ensure all depositors, but that is
24:49
Speaker 1: carries an enormous amount of moral hazard. John, You know,
24:52
Speaker 1: when I think of Switzerland, I think of chocolate watches,
24:56
Speaker 1: and you know, bank secrecy laws, banking, it's it's a
25:00
Speaker 1: it's identifiable with the you know, it just seems like
25:03
Speaker 1: Switzerland one and the same. How do you think the
25:06
Speaker 1: average Swiss person on the streets of Geneva or Zurich
25:10
Speaker 1: are taking this news today that one of the venerable
25:12
Speaker 1: institutions has gone under. I think there was a mutual
25:16
Speaker 1: friend of us pointed out that when this thing started
25:19
Speaker 1: that they didn't think the Swiss would panic. And you
25:22
Speaker 1: look at different things that have been various sort of
25:25
Speaker 1: small scale things where you have seen invested in Switzerland
25:28
Speaker 1: move quite rapidly, sort a thing involving global asset management
25:33
Speaker 1: a couple of years ago where they suddenly pulled money
25:35
Speaker 1: out of a bond fund that the Swiss don't seem
25:39
Speaker 1: to panic unless they really think it's sort of hitting
25:41
Speaker 1: their money at that time. In this case, I think,
25:44
Speaker 1: as far as I've seen, and I'm stand to be corrected,
25:47
Speaker 1: is that most of the action on credit series was
25:49
Speaker 1: from outside Switzerland. It was for people taking taking stuff back,
25:54
Speaker 1: or certainly not from the retail sector. And there is
25:58
Speaker 1: that there is that question about the retail sector. You
26:00
Speaker 1: look at possible mergers in Europe, one potential one longbooted
26:05
Speaker 1: in Germany's you put Deutsche Bank and Commets Bank together.
26:08
Speaker 1: A justification for that would be that Commets Bank, whatever
26:12
Speaker 1: it's ups and downs, does have retail investors in a
26:15
Speaker 1: way that retail depositors in a way that the Deutsche
26:19
Speaker 1: does not. Hey, John, just lastly, I mean we've you
26:22
Speaker 1: mentioned Deutsche Bank, and over the years we've we've talked
26:24
Speaker 1: about that troubling story and one of the solutions that
26:28
Speaker 1: we Americans bandy about us why can't the stronger European
26:31
Speaker 1: banks buy out the weaker European banks? And we keep
26:34
Speaker 1: getting told about this, boy, that's a tough regulatory cell.
26:37
Speaker 1: Is there any change in that thinking? I will two things.
26:42
Speaker 1: Number one is yes, you're absolutely right, and I think
26:45
Speaker 1: there will be a change. I think the change will
26:47
Speaker 1: come from in part from that, but also from a
26:50
Speaker 1: general national belief in subtle national champions. You cannot take
26:54
Speaker 1: any of this stuff that the European Union is spouting
26:57
Speaker 1: at the moment about national champions on and look at
26:59
Speaker 1: fine ants and then discover that the top five banks
27:02
Speaker 1: to all Americans without thinking that maybe something will come
27:06
Speaker 1: of it. And the second thing the Americans is in
27:08
Speaker 1: a pah humbug America is the place where are these
27:12
Speaker 1: thousands of small banks, which, adding anybody outside one or
27:17
Speaker 1: two American politicians thinks is a particularly brilliant idea, right
27:21
Speaker 1: exactly what we're dealing with that as well here, John,
27:24
Speaker 1: thanks so much for taking the time. John Michael Thwaite,
27:26
Speaker 1: he is the editor in chief Bloomberg News, joining us
27:29
Speaker 1: from London and giving us some excellent perspective on what
27:33
Speaker 1: is taking place in Switzerland with ubs Credit Swiss and
27:36
Speaker 1: then just European banking in general. We appreciate getting some
27:40
Speaker 1: of his time. You're listening to the team cancer a
27:43
Speaker 1: live program Bloomberg Markets weekdays at ten am easting on
27:47
Speaker 1: Bloomberg dot com, the iHeartRadio app and the Bloomberg Business app.
27:51
Speaker 1: We're listening on demand wherever you get your podcast. All right,
27:57
Speaker 1: John Tucker, thank you so much. We appreciate it. A big,
27:59
Speaker 1: big news tinuing in the world of global banking again
28:03
Speaker 1: coming out of Europe. Credit Swiss being acquired by UBS.
28:07
Speaker 1: Good news for the banking space. Seeing some of the
28:10
Speaker 1: other big names like JP, Morgan Chase and City Group
28:13
Speaker 1: also do well. Some of the regional names kind of
28:15
Speaker 1: hit or miss. First Republic Bank it's down another fifteen percent.
28:19
Speaker 1: No news there on kind of a salvage operation there,
28:22
Speaker 1: so we'll pay attention to that. But some of the
28:24
Speaker 1: other regional banks trading higher today. So let's break this
28:27
Speaker 1: all down. We'll do a little roundtable here into banks.
28:30
Speaker 1: We can do that with Herman Chan and Arnold Coucuta.
28:33
Speaker 1: Both of them are analysts for Bloomberg Intelligence. Arnold follows
28:38
Speaker 1: it from the credit side and Hermann follows it from
28:41
Speaker 1: the equity side, and they're both here in our Bloomberg
28:43
Speaker 1: Interactive Broker studio. So Herman, I have to bid. I'm
28:47
Speaker 1: surprised it's Monday morning. I thought we'd come back and
28:49
Speaker 1: we'd have a buyer for First Republic. I thought i'd
28:52
Speaker 1: have a buyer for Summer all of the Silicon Valley Bank.
28:56
Speaker 1: Where are they? Yeah, Herman, what's up with that? Yeah,
28:59
Speaker 1: we're all going the same question. I think First Republic
29:02
Speaker 1: is trying to make a go of it if you
29:06
Speaker 1: want to take a step back. First, Republic's historically been
29:09
Speaker 1: a very well regarded bank. CEO has been there since
29:12
Speaker 1: the founding, high regard across you know, fellow CEOs and regulators.
29:18
Speaker 1: It hasn't lost money in its loan book and its entirety,
29:22
Speaker 1: so it's done everything right and it's getting caught up
29:25
Speaker 1: in some of the turmoil in the markets, and I think,
29:29
Speaker 1: you know, rightfully, they're a bit prideful and want to
29:31
Speaker 1: try to salvage whatever they can. The market's going against them,
29:36
Speaker 1: so we'll see what happens. SBB it's a different picture
29:39
Speaker 1: because it is a bit of a complicated bank. It
29:41
Speaker 1: has you know, investment banking, It has a private wealth
29:45
Speaker 1: management arm, it has a venture debt arm along with
29:49
Speaker 1: your traditional loans and deposits. So it sounds like the
29:53
Speaker 1: FDIC is taking a dual track and trying to sell
29:56
Speaker 1: the traditional bank to a traditional bank and then the
30:01
Speaker 1: other stuff will go elsewhere. Arnold, Yeah, there you go.
30:05
Speaker 1: Arnold's fund in here and talk to us about this
30:08
Speaker 1: bond market, because over the last twenty four hours it's
30:11
Speaker 1: been fascinating. Look at the credit suits fallout and kind
30:15
Speaker 1: of how you even trade that given the at ones
30:18
Speaker 1: are going to be written down to zero, and that
30:20
Speaker 1: creating commotion around the world. Is that panic over now
30:23
Speaker 1: in the credit market. Yeah, I think a lot of
30:26
Speaker 1: people were caught by, you know, even though it's written
30:29
Speaker 1: in the docks, right that for the Swiss at ones
30:32
Speaker 1: an a one give me a definition. I'm not a
30:34
Speaker 1: bank person, yep, so additional tier one capital. It's um,
30:37
Speaker 1: think of it as like equity light okay, right, And
30:41
Speaker 1: I guess these are supposed to be could be perpetual securities,
30:45
Speaker 1: but I guess there's a quirk of people investors in
30:48
Speaker 1: Europe expecting needs to be called at the call date
30:50
Speaker 1: in five years. But and then, um, the at ones.
30:52
Speaker 1: These are kind of a post financial crisis instrument where
30:56
Speaker 1: mostly people look at this in terms of if your
30:58
Speaker 1: capital ratios, which are let's say fourteen percent, and they
31:02
Speaker 1: go below seven percent, that's when these things are triggered, triggered,
31:06
Speaker 1: and so the bond which converted into a piece of
31:07
Speaker 1: equity for most of Europe, yes, but then for the
31:10
Speaker 1: Swiss ones, right, these were unique and that they were
31:12
Speaker 1: write down security, so you get zero. So why the
31:16
Speaker 1: fine print on Switzerland? Well, and so that that's kind
31:19
Speaker 1: of the path that they chose to go right where
31:21
Speaker 1: it's kind of like, you know, they are also other
31:22
Speaker 1: ones where it's like, oh, you could be mum temporarily
31:25
Speaker 1: temporarily written down, but then they might have a chance
31:28
Speaker 1: to come back or um. But but more in this case,
31:31
Speaker 1: I think it was it was like because the regulator
31:33
Speaker 1: had to step in, so then it was like, okay,
31:35
Speaker 1: well regular had to come in and that's why you
31:38
Speaker 1: guys are getting written down. So it was it was
31:40
Speaker 1: odd that even though the equity still got what is it,
31:43
Speaker 1: I think three billion at the end, um, you know,
31:46
Speaker 1: the eighteen ones were written down to zero. So I
31:47
Speaker 1: think that caught some people, a lot of people offsides. Yeah,
31:50
Speaker 1: I bet the guys who wrote those contracts Paul breaking
31:53
Speaker 1: it in. Yeah. Yeah, it's just amazing. So so because
31:55
Speaker 1: typically in a bankruptcy, the equity guys get zero. Yeah,
31:59
Speaker 1: the credit guys. The more senior yard the more you'll
32:02
Speaker 1: get if you get anything, and the more subordinated you are,
32:05
Speaker 1: the more the greater the risk that you're not going
32:07
Speaker 1: to get anything. You're gonna get substantially less. In this
32:10
Speaker 1: particular case, the equity holders got something right, and these
32:15
Speaker 1: eighty one bond holders get zipped? Is that kind of
32:18
Speaker 1: play out? Yeah? Yeah, so I think it's because of this,
32:21
Speaker 1: like because the regulator had to step in guarantee. I
32:24
Speaker 1: think it was like nine billion of losses and right,
32:26
Speaker 1: so it's not just a smooth okay, um ubs spies
32:29
Speaker 1: for for three billion you know, um curded Swiss. Well
32:33
Speaker 1: actually had the regulator had to kind of massage this
32:36
Speaker 1: and then and take on some losses, so you know,
32:38
Speaker 1: pointing to that, um, you know, that's why they will
32:40
Speaker 1: to kind of go in and write down these sixteen
32:43
Speaker 1: seventeen billion dollars of securities and then put them into
32:46
Speaker 1: context when it comes to the ripple effects around the world,
32:48
Speaker 1: because it felt like then all the eighty one bonds
32:51
Speaker 1: around the world were like no, I touch this absolutely right.
32:54
Speaker 1: Then it's like oh oh yeah there is. It's not
32:56
Speaker 1: just really looking at um, oh, how how big is
32:59
Speaker 1: your you know attritionally you look at the buffer. Oh yeah,
33:02
Speaker 1: we are you know, X billion amount of capital above
33:05
Speaker 1: our buffer. But then when when when when it comes
33:07
Speaker 1: to kind of confidence runs and uh, you know, regulators
33:10
Speaker 1: having to step in, then they can kind of point
33:12
Speaker 1: to that clause and say hey, actually, uh, this thing
33:15
Speaker 1: will trigger, this thing will bit and get converted to
33:16
Speaker 1: equity or or in this case the worst case, you know,
33:19
Speaker 1: written down to zero. So all right, So herman, I'm
33:21
Speaker 1: looking at the S and P five hundred regional bank
33:23
Speaker 1: sub industry. Uh it is trading up today? Um has
33:30
Speaker 1: it has the worst pass for the US regional bank
33:32
Speaker 1: as a category, as an investable category. Do you think
33:35
Speaker 1: as a sector it's still going to be a bit
33:38
Speaker 1: of a roller coaster ride. But I would say that
33:40
Speaker 1: resolution with the the issue in Europe with credit suites,
33:44
Speaker 1: and also closer to home, with a New York Community Bank,
33:48
Speaker 1: which is another bank we cover buying certain loans and
33:51
Speaker 1: deposits from the FDIC and really injecting a bit of
33:57
Speaker 1: confidence into the system, showing that the system works. A
34:00
Speaker 1: bank may fail, but another bank will step in and
34:04
Speaker 1: absorb some of those assets and those employees. So I
34:08
Speaker 1: think all in all, today should be viewed as a
34:11
Speaker 1: sign that that things are a bit stable. Your community
34:13
Speaker 1: Bank up thirty five percent on this deal? Does that
34:17
Speaker 1: surprise you? You You know, it doesn't surprise me because it,
34:22
Speaker 1: in effect it was a very sweet, hard deal for
34:24
Speaker 1: NYCB does The issue with new or community bank historically
34:29
Speaker 1: has been funding. They they do their their funding base
34:34
Speaker 1: a bit differently where they issue a lot of higher
34:36
Speaker 1: cost CDs and a higher costs wholesale funding. So in effect,
34:40
Speaker 1: all these lower costs signature deposits are coming in to
34:44
Speaker 1: improve the balance sheet and that has really strong implications
34:48
Speaker 1: for earnings and earnings growth and then interest margins. So
34:52
Speaker 1: now who put this deal together? Does the FDIC come
34:55
Speaker 1: in or to just and my CB do it on
34:58
Speaker 1: their own. So like most of these failed deals, failed banks,
35:02
Speaker 1: the nays, the FBI c will do an auction process
35:06
Speaker 1: and there are anybody, any bank of a certain size
35:10
Speaker 1: can bid and offer terms that they think would would win,
35:14
Speaker 1: and eventually NYCB was the winning bid. Arnold, do we
35:18
Speaker 1: have any of these eight one bonds in the US?
35:20
Speaker 1: I mean our banks do that kind of thing after
35:23
Speaker 1: the financial crisis. So, uh, these cocoas in Europe, the
35:27
Speaker 1: ones with these triggers, that's a way contingent convertibles. We'll
35:32
Speaker 1: stick with Cocoa. The f clauses where you know, if
35:36
Speaker 1: you hit a certain level of equity then you'll get
35:39
Speaker 1: written down or a crivered equity or the regulator has
35:41
Speaker 1: to step in. You'll get converted equity, you're written down. Um.
35:44
Speaker 1: The way we fill that in the US is through
35:46
Speaker 1: preferred stock, right, And so we don't have these explicit
35:50
Speaker 1: trigger events where you get written down to zero or
35:52
Speaker 1: converted equity. So I think we do have a better
35:56
Speaker 1: sense of you know, the capital structure higher. How are
35:59
Speaker 1: those things trading? Yeah, no, they're off. Yeah, but you know,
36:04
Speaker 1: not not as much as you know other other parts
36:06
Speaker 1: of Europe or Asia where I'm seeing like ten points
36:08
Speaker 1: plus down and stuff. So I think, you know, the
36:11
Speaker 1: regular sense of the hierarchy does remain in the US.
36:14
Speaker 1: But obviously, um, you know, with with banks failing in
36:17
Speaker 1: the in the US, still some uncertainty with FRC the
36:21
Speaker 1: New York Community Bank acquisition of SPNY sweetheart deal. Right,
36:25
Speaker 1: they only took thirteen billion of the loan book of
36:28
Speaker 1: what seventy seven billion, right, So out of the stuff
36:31
Speaker 1: that maybe overlaps with UM Silicon Valley Bank, they did
36:34
Speaker 1: not take the capital call line, you know, a book
36:37
Speaker 1: with the VCS. They did not take the commercial real
36:40
Speaker 1: estate right New York commercial estate stuff, So there's a
36:43
Speaker 1: lot of stuff that that was left out there, right,
36:45
Speaker 1: So Um, you know, has everything solved yet. I mean,
36:48
Speaker 1: let's see how this, you know, first Republic thing pays out.
36:51
Speaker 1: I mean we got the SMP downgrade, right, but yeah,
36:54
Speaker 1: there's still a lot of certain uncertainty. I think, all right, well,
36:57
Speaker 1: you guys should all over it. And that's why we
36:59
Speaker 1: feel so fortunate to get access to YouTube guys a
37:02
Speaker 1: Hermit Chan and Arnold Kuta. They're both Bloomberg Intelligence. One
37:06
Speaker 1: follows the equity one follows a debt. They're interchangeable as
37:08
Speaker 1: far as I'm concerned. They both know what they're talking
37:10
Speaker 1: about when it comes to banks and bank accounting. So
37:13
Speaker 1: maybe you know a little bit of a ray of
37:15
Speaker 1: sunshine their cretty. You know, we get credit Swiss kind
37:18
Speaker 1: of dealt with signature dealt with here in the US.
37:21
Speaker 1: Now we'll see. I guess next you get something with
37:23
Speaker 1: the West Coast banks. A proper nerd like myself would
37:27
Speaker 1: notice that you just said the debt folks and equity
37:29
Speaker 1: folks are interchangeable, kind of like a coco Arnold gets me. Anyway,
37:35
Speaker 1: that moment's over. Continue. You're listening to the tape Cancer
37:38
Speaker 1: Live program Bloomberg Markets weekdays at ten am Eastern on
37:42
Speaker 1: Bloomberg Radio Tune in a half, Bloomberg dot Com and
37:45
Speaker 1: the Bloomberg Business Half. You can also listen live on
37:48
Speaker 1: Amazon Alexa from our flagship New York station, Jo Say
37:51
Speaker 1: Alexa play Bloomberg eleven thirty JT. Thank you so much.
37:57
Speaker 1: We appreciate it. My prousers just pointing out that I
38:00
Speaker 1: knew it was close, but twenty years to the day
38:02
Speaker 1: today is the US invasion of Iraq. Wow did that
38:05
Speaker 1: go fast? Um? Greg Parsons joins us here Greg as
38:09
Speaker 1: a chairman and CEO of CAVU Securities. He joins us
38:12
Speaker 1: here in a Bloomberg in actor broker studio. CAVU. What
38:16
Speaker 1: does that mean? Where did it come from? So? CAVU
38:18
Speaker 1: military acronym ceiling and visibility unlimited. Gotcha, that's a good
38:23
Speaker 1: name for a firm. I mean, you got everything in focus,
38:25
Speaker 1: you know where you're going, all that kind of stuff.
38:27
Speaker 1: You know, it really is, you know, up into the right,
38:29
Speaker 1: you know sky. You know the opportunity sets are limited.
38:31
Speaker 1: Certainly as a former infantry officer, you know, I've got
38:34
Speaker 1: a little personal adjita, you know, paying homage to my
38:37
Speaker 1: aviation brethren. But yes, it's it is a great it's
38:41
Speaker 1: a great signal and it's a great signal to the
38:43
Speaker 1: market of what we're trying to accomplish. And Greg was
38:45
Speaker 1: an infantry officer with the United States Marine Corps. So
38:48
Speaker 1: we thank you for your service. Greg, talk to us
38:50
Speaker 1: about CAVU. What are you guys trying to do there?
38:52
Speaker 1: Where do you fit in? What's what's the focus for
38:54
Speaker 1: you guys. So, we are a minority and veteran own
38:57
Speaker 1: broker dealer based here in New York City, and look,
39:00
Speaker 1: we view our strategic mandate. You know, I've spent coming
39:02
Speaker 1: on thirty years ever since I got out of the
39:04
Speaker 1: Marine Corps at the in the financial services industry and
39:09
Speaker 1: take a lot of pride and feel out of responsibility
39:11
Speaker 1: and driving the conversation around inclusion and equitable opportunity. Right. So,
39:17
Speaker 1: a CAVI we view our mission as providing best you know,
39:21
Speaker 1: being a strategic solutions provider for that corporate treasurer or
39:24
Speaker 1: that public fund allocator to allow them to be inclusive,
39:28
Speaker 1: more inclusive in their decision financial services decision making in
39:33
Speaker 1: terms of the macroeconomic issues here. Look, I'm a market
39:36
Speaker 1: scale so you've got to really like nerd up for
39:39
Speaker 1: this next question. What do you do on Wednesday FOMC decision.
39:45
Speaker 1: I mean, it kind of depends where you are, what
39:47
Speaker 1: type of investor you are. I mean, we have a
39:49
Speaker 1: sister platform, a mortgage back security shop. I think certainly
39:52
Speaker 1: the volatility in the market right the market's kind of expecting,
39:55
Speaker 1: you know, a quarter point. I think it's it's it's
39:58
Speaker 1: going to be volatile sledding moving forward, right so and
40:02
Speaker 1: especial volatile sledding right m right there. Yeah, And you know,
40:06
Speaker 1: with everything that's gone over the last two weeks, you
40:09
Speaker 1: take a very you know, as best you can, right
40:12
Speaker 1: you show up balance sheet and you sure you've got
40:14
Speaker 1: kind of a long term perspective. But there's certainly is
40:16
Speaker 1: value being created in various pockets of the capital markets.
40:19
Speaker 1: Are you hedging at all? Again, on the asset management side,
40:26
Speaker 1: with where where we have exposure, it's probably less about
40:28
Speaker 1: hedging from a direct you know, using derivative or overlays,
40:32
Speaker 1: and more about you know, security selection or sector selection
40:35
Speaker 1: of Again, we are extremely bullish on structured product asset
40:39
Speaker 1: back cash flows that you know, while they're certainly spread
40:42
Speaker 1: widening in market right now, if you believe in the
40:44
Speaker 1: fundamental credits of what you have, You've got some natural
40:46
Speaker 1: hedge to some of the volatility we expect to see. Greg.
40:49
Speaker 1: You know, I've been on the street simmar to you
40:51
Speaker 1: more than thirty years, um, and I'm not sure the
40:54
Speaker 1: diversity situation, whether it's racial diversity, gender diversity, has gotten
40:58
Speaker 1: a whole lot better. I mean, I look at the
41:01
Speaker 1: incoming classes of analysts at Investment Bank USA today, It'll
41:05
Speaker 1: be perfectly racially diverse gender race. But when you get seven, eight,
41:10
Speaker 1: nine years on to the managing director slash partner interviews,
41:14
Speaker 1: it ain't so anymore. What in your experience, how's the
41:19
Speaker 1: street evolved and not evolved? How does it? What's going on?
41:22
Speaker 1: I mean, look, you know certainly all right now, what's
41:24
Speaker 1: the SoundBite to answer? I mean that is a massive
41:26
Speaker 1: question that applies to much more than just Wall Street.
41:28
Speaker 1: But no, I mean, look your macro premise. My first
41:30
Speaker 1: job out of the Marine Corps working for a minority
41:32
Speaker 1: on investment bank in ninety eight. You fast forward it's
41:35
Speaker 1: twenty twenty three, and how much of the landscape is
41:38
Speaker 1: fundamentally changed? Not enough? Yeah, Look, I think there's certainly
41:42
Speaker 1: a growing focus on the human capital side. Right, How
41:46
Speaker 1: do you recruit you know, identify and recruit talent and
41:50
Speaker 1: build that pipeline and build that funnel. Right, second question
41:53
Speaker 1: is how do you then retain them? Certainly, you know,
41:55
Speaker 1: I spent about eight years in McKinsey thinking about that
41:58
Speaker 1: exact issue. Right again, I think it's a multi tiered
42:01
Speaker 1: problem where the first is ensuring that you're the open
42:04
Speaker 1: end of the funnel. Right, you're creative, you're thoughtful, you know,
42:07
Speaker 1: ensuring you're not lowering a standard or lowering a bar,
42:10
Speaker 1: but you're providing an equitable opportunity set for folks to
42:13
Speaker 1: get into the funnel. And then look, it's corporate's responsibility
42:16
Speaker 1: as they think about building a career path or again,
42:20
Speaker 1: whether it's veteran, whether it's minority, whether it's gender, how
42:22
Speaker 1: do you ensure that you give someone the right path
42:25
Speaker 1: right meritocracy of idea where if they perform, there's a
42:28
Speaker 1: path to them and succeeds. So that again, twenty years
42:30
Speaker 1: from now, we're not talking about the same issue of potential.
42:34
Speaker 1: You know, a disportionate small number participation at senior levels
42:39
Speaker 1: of management. So you're confident twenty years from now that
42:41
Speaker 1: analyst class is gonna rise and be just as equitable
42:44
Speaker 1: as perhaps it is now. I am certainly hopeful. I
42:47
Speaker 1: think I don't know about confident, but hopeful. I mean, look,
42:50
Speaker 1: there is there is growing conversation. Right, Certainly, the talent
42:53
Speaker 1: is out there. I mean, every academic study, every research study,
42:57
Speaker 1: right shows the power of you know, whether it's investment
42:59
Speaker 1: perform naments or skills or business performance. Right, the importance
43:03
Speaker 1: of and the power of diversity, right, that is now
43:06
Speaker 1: might have been a question thirty years ago. Now that's
43:08
Speaker 1: a factual statement, right. And so you're seeing growing adoption. Now,
43:12
Speaker 1: could you pick up the pace of adoption? Could you
43:14
Speaker 1: pick up the pace of services? Without a doubt? So
43:16
Speaker 1: I put myself in hopeful confident would be a little
43:19
Speaker 1: bit strong. How about just the military? I don't I
43:23
Speaker 1: guess when I think about the versity, I don't think
43:24
Speaker 1: about the military so much the ranks. How about in
43:27
Speaker 1: financial services? Where are military veterans, because boy, there's lots
43:31
Speaker 1: of them over. I mean, we've been at a war
43:33
Speaker 1: for a long time and ramp up in man manpower.
43:37
Speaker 1: Where are they on Wall Street? Any sense? Look, certainly
43:40
Speaker 1: I think you know it's passionate mining veteran transition, right,
43:44
Speaker 1: you know, while at the Afghanistan war wound down, right,
43:47
Speaker 1: still twenty thousand plus veterans transitioning a month, right, So
43:51
Speaker 1: there is a massive opportunity set to capitalize on that.
43:55
Speaker 1: You know, the leadership capability is the problems on capabilities,
43:58
Speaker 1: I mean, that is one of our country's biggest I
44:00
Speaker 1: believe untapped resources. I mean, specific to Wall Street, I
44:03
Speaker 1: think you're certainly seeing at all levels of the entry
44:07
Speaker 1: you know, the entry level pipeline, greater participation by the
44:11
Speaker 1: veteran community in you know, at Wall Street, right on
44:13
Speaker 1: the on the buy side, on the cell side, capital
44:15
Speaker 1: market side, research side, right. I think certainly employers, the
44:19
Speaker 1: industry as employers is recognizing the benefit and the value
44:22
Speaker 1: of quote unquote the veteran community and is making active
44:26
Speaker 1: outreach to bring them into the fold. And what is
44:29
Speaker 1: the connective tissue there? How how are they kind of
44:31
Speaker 1: funneled into this industry which is I think notably very
44:35
Speaker 1: hard to break into. Um. Certainly there is what I
44:38
Speaker 1: call the hand up. Right, the more veterans you have
44:40
Speaker 1: into I think about how I got my first job,
44:42
Speaker 1: and my second job and my third job, there was
44:45
Speaker 1: a veteran on the other side of the equation that
44:47
Speaker 1: was either explicitly pulling me in or implicitly behind the
44:51
Speaker 1: scenes helping me guide the path. So I think there's
44:53
Speaker 1: a natural kind of self fulfilling, self fulfilling mechanism. And
44:58
Speaker 1: I also think, you know, you know, the organizations like
45:00
Speaker 1: VOWS right, veterans on Wall Street right, where there's conscious
45:03
Speaker 1: form of deliberate effort for quote unquote Wall Street and
45:06
Speaker 1: decision makers to approach that community, build programs, onboarding platforms,
45:11
Speaker 1: and the right training and resources required to better capitalize
45:15
Speaker 1: on that audience. All right, Greig, thanks so much for
45:18
Speaker 1: coming in and joining us. Really appreciated. Greg Parsons. He's
45:20
Speaker 1: a chairman CEO of KABU Securities. What's that stand for again,
45:24
Speaker 1: Ceiling and Visibility Unlimited boom. I like that. That's very cool.
45:27
Speaker 1: He's a US Marine veteran. Street thank him very much
45:31
Speaker 1: for his service on this day, the two years to
45:34
Speaker 1: the day the US invasion of Iraq, so kind of
45:36
Speaker 1: puts time kind of into perspective. Here, you're listening to
45:40
Speaker 1: the tape Cancer Live program Bloomberg Markets weekdays at ten
45:44
Speaker 1: am Eastern on Bloomberg Radio, Tune in a half, Bloomberg
45:47
Speaker 1: dot Com and the Bloomberg Business Half. You can also
45:50
Speaker 1: listen live on Amazon Alexa from our flagship New York station.
45:54
Speaker 1: Just say Alexa play Bloomberg eleven thirty. I'm gonna get
46:00
Speaker 1: to John Arthur's here, folks. We need some adult opinion perspective,
46:06
Speaker 1: maybe a little bit of Cromodgeney stuff. I think we
46:09
Speaker 1: established the lifetime John was in here. He John was
46:12
Speaker 1: not cranky though, No, never cranky, Never cranky John Arthur's
46:16
Speaker 1: He's a senior editor for a Bloomberg opinion. John, I
46:20
Speaker 1: loved to get your opinion on this ubs credit Swiss.
46:24
Speaker 1: I guess resolution here. What's your takeaway from what we learned?
46:29
Speaker 1: To be honest? If she's so far, I'm a little
46:30
Speaker 1: surprised that it seems to be being received quite as
46:35
Speaker 1: calmly as it is. I'm not saying I expected continued
46:41
Speaker 1: meltdown or repeat of what happened after Lehman or whatever,
46:44
Speaker 1: but I am pleasantly surprised and actually almost a little
46:49
Speaker 1: off put that the market reaction has been so calm. Thus,
46:53
Speaker 1: bar you want to see chaos. It just makes me
46:57
Speaker 1: think that not only I, but everyone in the market,
47:00
Speaker 1: or a balance of people on the market is missing
47:03
Speaker 1: something in just the same way that I had never
47:07
Speaker 1: myself ever thought of Silicon Valley Bank as being something
47:11
Speaker 1: that was going to cause you know that I was
47:14
Speaker 1: ever going to need to write about, and I was wrong.
47:18
Speaker 1: On Credit suite, it will be fascinating. The critical issue
47:22
Speaker 1: I think is on whether the credit suite deal manages
47:29
Speaker 1: to work at least to keep the sorry about it,
47:34
Speaker 1: to keep contagion under under control for a few days.
47:37
Speaker 1: Is what happens to eighty one additional Tier one bonds.
47:44
Speaker 1: It was certainly a very contentious thing for the Swiss
47:47
Speaker 1: authorities to wipe them out when it didn't wipe out stockholders. Yes, completely.
47:53
Speaker 1: And now I've I've had one email so far from
47:57
Speaker 1: people trying to start a class action on this. I'm
47:59
Speaker 1: sure they'll anymore. My understanding is they probably won't win
48:05
Speaker 1: because there you know that that was the language in
48:09
Speaker 1: the original perspectuses. That was the point of introducing at
48:12
Speaker 1: one as a new category to really make UM banks safer.
48:19
Speaker 1: But from now on, why would you buy one as
48:23
Speaker 1: opposed to you know, equity in a bank that might
48:27
Speaker 1: actually give you a capital gain. It's that that could
48:30
Speaker 1: be a real problem. Yeah, I'm just I think it's
48:34
Speaker 1: for everybody else here is out here wondering too, and
48:36
Speaker 1: especially the AT one bond holders, why the equity holders
48:39
Speaker 1: are getting anything in this situation? Is there anything that
48:44
Speaker 1: switch regulators the Central Bank have said to explain as
48:48
Speaker 1: to why that may be? Not? That's I mean, I
48:52
Speaker 1: it was quite difficult to follow the press conference last
48:54
Speaker 1: night with a continuous sponsor continuous translation. No, not as
49:00
Speaker 1: not that I can see. I think there is a
49:04
Speaker 1: big element of internal Swiss politics going on here. That
49:08
Speaker 1: you know, there's a lot of Swiss people who have
49:12
Speaker 1: small amounts of shares in Credit Suite. It's an incredibly
49:15
Speaker 1: both these banks are obviously hugely important corporate citizens of Switzerland,
49:20
Speaker 1: and not wiping them out completely mattered. I think calling it,
49:26
Speaker 1: in some sense a takeover rather than a rescue mattered.
49:30
Speaker 1: Although if you're going to do that, presumably you could
49:32
Speaker 1: have allowed, you know, allowed eighty one holders to at
49:36
Speaker 1: least hold on to ten percent on the dollar or something.
49:40
Speaker 1: So I but that you know that there certainly are
49:43
Speaker 1: soft political issues within Switzerland which would make them you know,
49:49
Speaker 1: very nervous, very very reluctant to admit that that Credit
49:55
Speaker 1: Suite had become worth nothing at all. But that's my
49:58
Speaker 1: best guess. I can't see a really good reason from
50:02
Speaker 1: any of the normal things that we would look at
50:05
Speaker 1: about financial stability and so on, Why why you would
50:08
Speaker 1: do it? So? So, where do you think we are, John,
50:10
Speaker 1: in terms of broad pan European banking. Has this deal
50:15
Speaker 1: kind of calmed the nerves or do you think there's
50:17
Speaker 1: still this underlying at the very least a crisis and
50:21
Speaker 1: confidence and maybe in some of these banks both. I mean, certainly, yeah,
50:28
Speaker 1: it's only one day. The market was up of the
50:32
Speaker 1: week after Lehman incredibly yea, So let's not build too
50:37
Speaker 1: much on that. But certainly, so far it has bolstered
50:41
Speaker 1: confidence to some extent. We're not in, what you know,
50:45
Speaker 1: in a free falling condition at this moment. Longer term,
50:50
Speaker 1: if credit Squeez can get sold for three billion dollars
50:55
Speaker 1: when it used to be a more than a hundred yeah, yeah, right, exactly,
51:00
Speaker 1: that's really not good. And if eighty one bondhold is
51:04
Speaker 1: in one of the biggest, most secure banks on the
51:06
Speaker 1: planet can get wiped out completely, I don't see how
51:10
Speaker 1: it cannot affect confidence. I would worry if it didn't
51:14
Speaker 1: affect confidence and to the extent that tightening money monetary
51:20
Speaker 1: policy is supposed to tighten general financial conditions and limit inflation,
51:25
Speaker 1: it should dent confidence, it should make people more nervous.
51:29
Speaker 1: And since this is like a real hole, as you're saying,
51:32
Speaker 1: crisis of confidence, want to bring in the regional banks
51:34
Speaker 1: here in the US, since a lot of that storyline
51:37
Speaker 1: is similar. Yes, and we're just seeing a headline crossing
51:40
Speaker 1: the terminal here from Wall Street Journal that Jamie Diamond
51:43
Speaker 1: is leading the efforts to craft a new First Republic
51:46
Speaker 1: rescue plan. Yes. What I'm wondering is we've seen so
51:50
Speaker 1: many of these rescue efforts in the past couple of
51:54
Speaker 1: days week now as it relates to First Republic, as
51:57
Speaker 1: it relates to crowded squeeze, So are the measures just
52:00
Speaker 1: not enough or fragile? Or sentiment and carbonace right now
52:04
Speaker 1: it's Joseph fragile. I think in the case of First Republic,
52:09
Speaker 1: it has gone so far that somebody has to buy it.
52:15
Speaker 1: If Jamie Diamond, who who is seriously good at these things,
52:21
Speaker 1: has let the Journal get hold of that story and
52:24
Speaker 1: run it, we can assume it has a big element
52:27
Speaker 1: of truth to it. And now that it's out there,
52:31
Speaker 1: you begin to get this analogy to This is what
52:34
Speaker 1: I wrote in my column yesterday, that Jamie Diamond is
52:37
Speaker 1: uncomfortably close now in the role he plays to the
52:40
Speaker 1: original JP Morgan. Yes, in the Panic of nineteen oh seven,
52:44
Speaker 1: when there wasn't a FED and basically the reason the
52:47
Speaker 1: entire financial system didn't collapse completely was because he JP Morgan,
52:52
Speaker 1: by far the most powerful banker on the planets at
52:55
Speaker 1: that point, banged heads together. If Jamie Diamond looks at
53:00
Speaker 1: a deal and this science he's okay with it, then
53:03
Speaker 1: his cachet, the money JP Morgan the bank has and
53:07
Speaker 1: the fact that he actually did pretty well out of
53:11
Speaker 1: buying wamu's branch network and bear Stearns in A eight
53:14
Speaker 1: he actually was glad he'd come to the rescue, unlike,
53:18
Speaker 1: for example, Lloyd's back home in England, which suffered in hindsight,
53:24
Speaker 1: says well, I wish I didn't have to do oh,
53:27
Speaker 1: you know bear Sterns or what WOMU I think he
53:30
Speaker 1: has to say that, doesn't it? Okay? I mean, I
53:34
Speaker 1: mean Jake Jamie's Yeah, he's not necessarily always that guarded
53:39
Speaker 1: in what he says. Shall we say even on the
53:43
Speaker 1: record and even more off. But I think he has
53:46
Speaker 1: to say that I'm kind of surprised, just based upon
53:48
Speaker 1: our experience John, Yes, from two thousand and eight, that
53:51
Speaker 1: we didn't wake up on a Monday morning and this
53:53
Speaker 1: was all done in a night. Little nice little bow,
53:55
Speaker 1: somebody bought farc, somebody bought Silicon Valley Bank. Were those
53:58
Speaker 1: deals that we had back into, doesn't it? Well? What
54:01
Speaker 1: surprised me was how little newsflow there was about First
54:06
Speaker 1: Republic over the weekend, right. I thought that needed to
54:09
Speaker 1: be cleared up over the weekend to some extent. Again,
54:11
Speaker 1: the fact that we don't have real, you know, Monday
54:16
Speaker 1: after Lehman's style panic going on in the market, even
54:19
Speaker 1: though First Republic hasn't been resolved, is quite positive. But
54:25
Speaker 1: you do, I guess there's a lot of things going on,
54:30
Speaker 1: and yes, I guess, gosh, no wonder you're a senior columnist. Ye,
54:38
Speaker 1: so um um. When it comes to First Republic, I
54:43
Speaker 1: don't see at this point how it can how it
54:48
Speaker 1: can write itself. The fact that money continued to go
54:51
Speaker 1: out of it after all the other banks have put
54:54
Speaker 1: so much money on deposit is very damning. It really
55:00
Speaker 1: ought to be a bank that it's perfectly profitable to rescue.
55:04
Speaker 1: It doesn't appear to be anything insolvent about it. It's
55:07
Speaker 1: it's got an unfortunate business mix, and it's got too
55:10
Speaker 1: many muni bonds on its balance sheet. But neither of
55:13
Speaker 1: those things are a problem if you if you've got
55:15
Speaker 1: JP Morgan's banatch sheets exactly, I guess aside from those
55:19
Speaker 1: a handful of West Coast banks do you feel like
55:21
Speaker 1: within the regional banking space in general in this country, John,
55:24
Speaker 1: there's a crisis of confidence of boy, you know, because
55:29
Speaker 1: we're seeing deposits move around quite actively. Well, I mean,
55:33
Speaker 1: that's the great concern, isn't it that? And this wasn't
55:38
Speaker 1: really the case, at least at the consumer level in
55:41
Speaker 1: O eight. There never was a significant bank run in
55:45
Speaker 1: O eight, something approaching at in Wamu, but no real
55:50
Speaker 1: none of the major events of OH eight happened because
55:52
Speaker 1: of deposit runs. And that's basically what has driven things
55:57
Speaker 1: this time around. And thanks both to the development of
56:00
Speaker 1: social media since then and the development of internet banking
56:04
Speaker 1: since then, both of which just about existed but had
56:07
Speaker 1: nothing like the power they do now, that is much
56:10
Speaker 1: more of a concern. The other thing that does bother me.
56:16
Speaker 1: I covered regional banks back in the nineties, some of
56:20
Speaker 1: the very best banks which basically had fantastic franchises. The
56:26
Speaker 1: bottom has fallen out of them, the wonderfully named Fifth
56:29
Speaker 1: Third in Cincinnati being which at one point traded for
56:33
Speaker 1: five times book value. Everything it touched turns to gold.
56:37
Speaker 1: Just wonderfully frugal, good bankers that no longer seems to
56:42
Speaker 1: be a model anybody wants to touch. And that's a
56:44
Speaker 1: lot of name. All right, John, We always appreciate getting
56:47
Speaker 1: your learned perspective there. John Arthur's senior editor for Bloomberg Opinion.
56:52
Speaker 1: And again, these banks I continue to be front and
56:54
Speaker 1: center for investors as well as we're going to learn
56:58
Speaker 1: into the Federal Reserve coming up because they're they're gonna
57:00
Speaker 1: meet on Wednesday. How about that? This is Bloomberg. Thanks
57:04
Speaker 1: for listening to the Bloomberg Markets podcast. You can subscribe
57:08
Speaker 1: and listen to interviews with Apple Podcasts or whatever podcast
57:11
Speaker 1: platform you prefer. I'm Matt Miller. I'm on Twitter at
57:15
Speaker 1: Matt Miller nineteen seventy three, and I'm fall Sweeney. I'm
57:18
Speaker 1: on Twitter at pt Sweeney. Before the podcast, you can
57:21
Speaker 1: always catch us worldwide at Bloomberg Radio.