Latest / Bloomberg Intelligence / Brean's Tchir Says Deutsche Bank Not a Systemic Risk (Audio)

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Brean's Tchir Says Deutsche Bank Not a Systemic Risk (Audio) · Bloomberg Intelligence

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  Speaker 1: This is a Bloomberg Business Flag, Tom Bloomberg World Handquarters.
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  Speaker 1: I'm Charlie Pellett. That dal the SMP NZ stack all
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  Speaker 1: declining right now. With the SMP down seven tenths of
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  Speaker 1: one percent, banks are retreating amid growing concern that Deutsche
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  Speaker 1: Bank's woes will spread to the global financial sector. Shares
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  Speaker 1: of Deutsche Bank they're down six point seven percent now
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  Speaker 1: at eleven forty eight. NEZ stacked down forty one, a
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  Speaker 1: drop there of eight tenths of one percent down, Industrials
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  Speaker 1: down one fifty eight, a decline there of nine tenths
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  Speaker 1: of one percent. The tenure of four thirty seconds yield
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  Speaker 1: one point five six percent, Gold up to thirty then
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  Speaker 1: scaining two tenths of one percent of thirteen twenty one
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  Speaker 1: and crude oil West Texas Intermediate advancing one point four
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  Speaker 1: percent now up sixty five cents of arrel forty seven
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  Speaker 1: to Taking Stock with Kathleen Hays and Pim Fox on
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  Speaker 1: Bloomberg Radio. After the central role that big banks played
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  Speaker 1: in the last financial crisis, people could understandably nervous one
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  Speaker 1: of the world's biggest banks finds itself with its stock
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  Speaker 1: falling and people wondering about the future of the bank.
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  Speaker 1: Will Deutsche Bank's problems rise to the level we saw
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  Speaker 1: just some seven eight years ago. Peter Cheer joins us,
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  Speaker 1: now a head of Macro stress a g at Breen
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  Speaker 1: Capital here in our New York studio. So you watched
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  Speaker 1: all the signals so closely, Peter, you watched stocks, you
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  Speaker 1: watched derrivatives, the market. Is it really all that concerned yet? No?
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  Speaker 1: I don't think it's that concerned. I think today was
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  Speaker 1: one of those examples where we saw a headline hit
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  Speaker 1: about collateral issues or people pullying some collateral out of
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  Speaker 1: Deutsche Bank in terms of their prime brokerage business, and
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  Speaker 1: that led to us all off in markets. I think
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  Speaker 1: that was very quickly, you know, stopped and changed. And
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  Speaker 1: when I look at this right now, I don't think
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  Speaker 1: there's a systemic risk being posed by Deutsche Bank. Peter Scherer,
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  Speaker 1: Let's put Deutsche Bank just to the side. Per minute,
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  Speaker 1: you make any money less quarter this quarter, we've been
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  Speaker 1: doing okay. One of the things we caught early on
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  Speaker 1: was we shifted a lot of our investments to live
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  Speaker 1: ard based, so we took advantage of this rise on
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  Speaker 1: live or, we shifted to leverage loans, we shifted out
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  Speaker 1: of high yield, so we've been a little bit more
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  Speaker 1: on the conservative side and we've pushed away from the
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  Speaker 1: yield based investment. Why did the liveboard rate move in
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  Speaker 1: your favor? You know, I think there were two things
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  Speaker 1: going on. One, there's all this regulation that's going into
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  Speaker 1: full effect on the teenth of October, which means money
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  Speaker 1: markets have less ability to you know, invest in anything
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  Speaker 1: other than T bills. So there's a cost that's been
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  Speaker 1: associated with that. I think the other part is ICE itself.
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  Speaker 1: So ICE actually controls live or now and how it's
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  Speaker 1: calculated in intercontinental exchange. Yes, um, And so what they've
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  Speaker 1: been trying to do is make it more of a
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  Speaker 1: market based benchmark rather than just banks submitting where they
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  Speaker 1: want to. It's still is in that process, but as
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  Speaker 1: it shifts, I think that will have a permanent fact
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  Speaker 1: to make live or higher. It's a good thing for everyone, right,
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  Speaker 1: No one wants to go through another round of lawsuits
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  Speaker 1: associated with live or. Everyone wants to say that it's
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  Speaker 1: a clean, very fair and market you know, neutral index.
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  Speaker 1: And as that occurs, I think that's pushed live or
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  Speaker 1: higher to get rid of some of the artificial lowness
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  Speaker 1: of it. But of course, let's don't have library be
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  Speaker 1: a problem. Let's don't have big banks get themselves in
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  Speaker 1: trouble and have to pay millions of dollars of fines.
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  Speaker 1: And of course that's one of the reasons why Deutsche
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  Speaker 1: Bunk is under pressure and people are concerned. Why did
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  Speaker 1: you just say that this is not anywhere near rising
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  Speaker 1: to the level of systemic risk. So I think a
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  Speaker 1: couple of things, first and foremost, any for all banks
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  Speaker 1: we've seen a big pull back in terms of these
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  Speaker 1: bilateral swap trades. A lot of that counterparty risk that
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  Speaker 1: was extremely prevalent in two thousand and seven, two thousand
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  Speaker 1: and eight, even in two thousand and ten eleven when
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  Speaker 1: the European banking crisis was in turmoil, has been pulled back.
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  Speaker 1: It's not exchange traded, so I think it's much better managed.
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  Speaker 1: There's fewer potential surprises from that sort of a situation arising.
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  Speaker 1: Then beyond that, I think the reality is that no
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  Speaker 1: regulator will allow another Leman type moment. So we already
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  Speaker 1: have the ECB steps in. They've already provided a lot
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  Speaker 1: of funding to banks. They will provide more funding to banks.
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  Speaker 1: No bank will get into trouble because they can't fund
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  Speaker 1: themselves overnight or short term, because the central banks will
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  Speaker 1: provide for that. And then I think the governments at
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  Speaker 1: some level, they may extract a big pound of flesh
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  Speaker 1: to do so, but at some level they will step
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  Speaker 1: in to protect the institutions in the systemic risk. No
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  Speaker 1: one wants to even test another Leman type moment. All right,
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  Speaker 1: how just been trying to get this live ard number
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  Speaker 1: for you, so you can just we can put it
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  Speaker 1: into some kind of a context here, because you know,
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  Speaker 1: taking a look at what's going on right now in
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  Speaker 1: the bond market, you gotta you know you got buying right,
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  Speaker 1: I mean you got buying at the long end, the
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  Speaker 1: short end, I mean the thirty year is up nine
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  Speaker 1: thirty seconds to point to seven. You take a look
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  Speaker 1: at the tenure, we're talking about one point five five
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  Speaker 1: also a bid higher four thirty seconds now looking at
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  Speaker 1: liboru the fixes what one year live or at one
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  Speaker 1: point five five right, So you're almost the same as
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  Speaker 1: where you are on the tenure. So we've been looking
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  Speaker 1: to get people into one year live or type of paper.
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  Speaker 1: A lot of its home equity related and where you
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  Speaker 1: get that pick up and you give up and you
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  Speaker 1: don't have to take the interest rate risk. At the
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  Speaker 1: same time, I think, from a personal standpoint, anyone out
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  Speaker 1: there who has a home equity line of credit of
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  Speaker 1: any form or any sort of arm should be looking
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  Speaker 1: what it's benchmarks against. And if it is against libor,
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  Speaker 1: you're now paying much more than maybe if you roll
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  Speaker 1: this into fixed or some other or things. So I
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  Speaker 1: think from a personal level, you're supposed to be checking, look,
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  Speaker 1: is your home echory loan tied to live or if so,
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  Speaker 1: maybe you want to re examine whether floating is the
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  Speaker 1: right sense or whether you want to move to a
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  Speaker 1: different floating rate benchmark. Of course, rates at a lot
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  Speaker 1: of global forces that determine broadly where rates are heading
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  Speaker 1: central banks. But I'm particularly interested in your thoughts on
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  Speaker 1: OPEC because you, like others, are maybe a bit skeptical
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  Speaker 1: of where that's going. Yes, I think they had to
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  Speaker 1: announce some sort of plan. I think they felt the
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  Speaker 1: pressure to announce a plan because they wanted to control
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  Speaker 1: this recent slide again that we're seeing in oil. I'm
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  Speaker 1: sure also they wanted to detract a little bit from
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  Speaker 1: the fact that, you know, the U S was embroiled
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  Speaker 1: in legislation that would allow victims to sue Saudi Arabia.
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  Speaker 1: So I can't believe that it's a coincidence that they
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  Speaker 1: announced this plan at the same time that's coming out.
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  Speaker 1: Will they live up to these standards might don't I
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  Speaker 1: doubt it over time, right, I think their whole goal
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  Speaker 1: is to keep oil supported, and my view from a
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  Speaker 1: macroeconomic standpoint has been that oil will somewhere be in
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  Speaker 1: that forty to fifty five dollar range this year, and
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  Speaker 1: I think this just adds to that support. Maybe you'll
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  Speaker 1: trade up a little bit more. But as soon as
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  Speaker 1: it gets higher, it gets closer to fifty, we'll see
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  Speaker 1: selling pressure come in. We'll see cheating within the OPEC nations.
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  Speaker 1: I think as it gets down to forty, supply comes
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  Speaker 1: off the US and the OPEC members can say the
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  Speaker 1: right things to push it back. Trades you wish you
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  Speaker 1: had made during the quarter. You know, I was too
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  Speaker 1: pessimistic on the treasury market. I did not think the
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  Speaker 1: treasury market would rally to these new levels we backed
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  Speaker 1: up to, you know. You know, I think I'm seeing
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  Speaker 1: signs that the central banks are pulling back a little
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  Speaker 1: bit from KIWI, that maybe even the Bank of Japan's
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  Speaker 1: hinting at pulling back from KWI or seeing what way,
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  Speaker 1: like they're not buying something that they might buy less
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  Speaker 1: of or just stay the same amount in a world
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  Speaker 1: where everyone's been conditioned to see more and more buying,
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  Speaker 1: and I thought, we're seeing a little bit of signs
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  Speaker 1: of inflation, a little bit more hockey fed. So that's
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  Speaker 1: one thing I've definitely missed is what was the October fourteenth,
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  Speaker 1: the note that you want to offer, just in terms
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  Speaker 1: of because we've been talking about that on taking stock
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  Speaker 1: for a while. It has to do with money market
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  Speaker 1: funds that many people treat as if they are bank accounts,
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  Speaker 1: but they are not by any means bank accounts. They
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  Speaker 1: are not by any means bank accounts. Having said that,
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  Speaker 1: so this is all about breaking the buck, and there's
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  Speaker 1: all sorts of rules now to ensure that money market
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  Speaker 1: funds can have some else variations and value. I have
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  Speaker 1: not done the work. I saw some good work. I'll
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  Speaker 1: try and dig back up. But someone showed to me
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  Speaker 1: that the worst money market fund during the time the
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  Speaker 1: crisis would have had a price of like spot nine seven,
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  Speaker 1: so it would have lost maybe three cents on a
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  Speaker 1: market market basis, and that's back when you were getting
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  Speaker 1: four percent yields, so it's probably less than three weeks
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  Speaker 1: or a month's worth of interest. So some of this, again,
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  Speaker 1: I think we're trying to fix problems that were never
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  Speaker 1: as big of a problem, and I am concerned that
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  Speaker 1: the solutions are going to cause new problems that we're
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  Speaker 1: not going to be prepared for. How about another date
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  Speaker 1: coming up November eight. There's a lot of analysis being
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  Speaker 1: done in notes that saying you know, you better be ready,
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  Speaker 1: put your head down, getting a very defensive position because
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  Speaker 1: there could be a lot of volatility. And I think
• 9:59
  Speaker 1: people don't just mean stock depending on who gets elected,
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  Speaker 1: you know, I think that's a risk. I think we
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  Speaker 1: see that every election cycle, traditionally VIX actually rises coming
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  Speaker 1: into October of or sorry into during October of election cycles.
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  Speaker 1: There's a part of me that wants to be a
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  Speaker 1: little bit more optimistic here that we are more likely
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  Speaker 1: to get a surprise. And as a Canadian, I actually
• 10:22
  Speaker 1: don't vote um, so I'm not opinionated in terms of that.
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  Speaker 1: I would like to see if the Democrats win a
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  Speaker 1: little bit pullback on the rhetoric towards regulation. I think
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  Speaker 1: we actually do need less regulation both in our industry
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  Speaker 1: and across the board, and I would like to see
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  Speaker 1: that to be the surprise there. And ultimately, you know,
• 10:40
  Speaker 1: there's that old joke about the scorpion the frog, and
• 10:42
  Speaker 1: the scorpion stings the frog while giving them a ride across.
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  Speaker 1: That's what course scorpions do, they staying. While Donald Trump
• 10:48
  Speaker 1: is a builder, ultimately the thing that he knows how
• 10:50
  Speaker 1: to do is borrow money and build, so I think
• 10:52
  Speaker 1: we'd be Some people will actually be surprised by his
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  Speaker 1: ability to get infrastructure spending going all right, thank very much.
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  Speaker 1: Peter Cheer. He is the head of macro strategy at
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  Speaker 1: Bring Capital. We're going to take you through to the close.
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  Speaker 1: Next on taking stock and this is Bloomberg. H