'Bloomberg Surveillance: Early Edition' Full (03/10/23)

'Bloomberg Surveillance: Early Edition' Full (03/10/23)

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This is Bloomberg Surveillance early edition with Francine Lacqua. Good morning, everyone, and welcome to Bloomberg Surveillance early edition of Francine Lacqua here in London. Here's what's coming up on today's program. European banks slammed after Silicon

Valley Bank plunges 60 percent as a startup lender struggles to restore confidence in its financial health. We'll bring you the premarket latest in just a moment. Traders dump stocks and buy bonds over concerns of broader economic distress. U.S. bank shares slumped to their lowest since 2020. We speak with the founder and chief executive of ISE David Westin.

Plus, we get the payrolls report later today for February. We'll be watching for direction of the Fed's rate hiking path. That first thing first thing is first, it's a big day for the markets. If you look across the board, a lot of these banks are getting slammed by far the biggest industry group, you know, losing the most four point four percent lower than the German 10 year yield. I know there's generally a risk off mode. But the question is and we will spend probably the next hour to really try and deep dive into this is what exactly is happening with the banks. Do we worry about contagion risk?

The big question, of course, that started yesterday is not only what happens with SBB, but Wall Street and analysts are pondering a crisis. This, of course, is because rising interest rates have let banks slide in with low interest bonds that cannot be sold in a hurry without losses. Who would have to sell some of these if there wasn't a run of the banks? And does it mean longer term that the business models, some of these banks will be put under pressure simply because they'll have to hire or they'll have to offer more to make sure that some of their clients stick to them to some of the deposits? Now, some of the questions that we have is, first of all, why Deutsche Bank is down seven point six percent. Is this a modelling problem going forward? And then if you look also at the investors and what they've done over the last five to six months was actually piling to some of these stocks simply because the Fed is also raising interest rates.

So the easiest way to get protection was ice rink to interest rates is actually going to some of the banks, but of course, is a vicious circle. If then there are questions about whether they need to sell some of these bonds at a loss. Santander done 4.5 percent and you can see it terms of some follow over and into the three point two percent lower. I think we also have premarket some of the U.S. banks. This is critical as our Tom Metcalf, who

oversees our financial coverage, was telling us. It'll be interesting to see, first of all, about how VB Financial is opening yesterday. They were down 60 percent premarket. They're down 22 percent. But as soon as some of the American Wall Street banks stabilized, it could also give us a floor for some of the banking stocks in Europe. So Silicon Valley Bank, this lender that is little known, frankly, outside tech circles, has sparked this wave of panic.

And that, of course, has dragged down banking shares around the world. That comes after SBB announced a surprise, 2.5 billion dollar share sale. Meanwhile, the bank's top executive has urged calm.

Earlier, we spoke to prominent investor Mark Shuster, who warned against overreaction. The reason I'm urging calm is I do not believe that anybody will lose money if they leave money and SBB. Why? Because in the United States it's been since the 1980s. Since there has been an insolvency and a

bank in which people lost deposit moneys all throughout the global financial crisis. Depositors were made whole. Let's bring in Bloomberg's Dani Burger, who explains this beautifully and in simple terms. Danny, what do we know exactly? One, two on SBB? Well, it's this toxic mix between a weird accounting quirk, the Fed hiking rates and trouble in D.C.

land. So the weird accounting quirk thing is that banks are able to hold bonds on their balance sheet and not mark to market them. In other words, when bonds fall, they don't have to show that on their balance sheet. If they call them held to maturity as the BS, that they had about ninety one billion dollars worth of these bonds. And look, if they're taking a loss, they're not putting it on their balance sheet. It doesn't really matter in normal times.

When it matters is if you have to liquidate them for some reason and you take a big hit. Now, why might you need to liquidate them? Because there's troubles in B.C. land, V.C. companies need money back. You have withdrawals. And that's the fear it SBB and the thought behind why they put out that release saying they needed a capital injection, that maybe there was this mismatch.

So it really is all about that bond portfolio and having to sell it down. So, Dan, explain to me like could this be the start of a much bigger problem? And actually, when do we find out if it is giving some of these European banks are really getting slammed? Again, I'm looking at Credit Agricole, three point seven percent lower. HSBC, five point five percent lower. Well, look, there are a lot of idiosyncratic things about SBB.

For one, its client tell isn't going to look like UniCredit client tell, for example, it's it's a lot of V.C. founders, V.C. companies, people with a lot of money. It's not sort of everyday people depositing money at as VB. So that's one aspect.

There's no diversification within their client base. The other thing is we need to know what the bonds are on the balance sheet. SVP had really long duration type assets that were especially hit hard.

Now what European balance sheets look like, I mean there's so much regulation. It's not the same type of thing that's going to be hurt as badly if there are liquidations. There are also swaps that a lot of these banks may use. So there's more protection there. But when it comes to the US regional banks, perhaps there is more there are more similarities, maybe not, you know, so many that the exact same thing would happen, but that's why you saw a lot of those regional banks get hit especially hard. Yeah.

Danny, thank you so much for the great explainer. Dani Burger there with the very latest on SVP. Now for more, let's also bring in Van Ram from Bloomberg and Life Team Van. I know you're a big thinker on some of these things that we cover.

So the drag from history into Europe is quite serious this morning. How is the banks a little known outside of the tech hub in the US causing so much shockwaves this morning? In front at the moment, what we are seeing in Europe is blind panic as opposed to informed panic, blind panic because most traders are first selling anything that is associated risk first and then asking questions later. So it's not an informed judgment. Okay. There is going to be another systemic crisis, another crisis that is going to be in fringe across the Atlantic, across the Atlantic and in bench. Local bank CEO. That's not the concern. But the thing is, this is about investor

psychology rather than fundamentals. And then psychology takes over the markets. You see Yvonne Man. You see what we are seeing now, i.e. stocks being sold down and bonds, government bonds being bid up. But we know that rising interest rates

would hit some of the bottom. So is it only a problem if there is a potential run on the bank? And can you talk to us about it? I really don't understand why Deutsche Bank is down eight point five percent unless investors piled in too much or whether they're worried about how much or, you know, whether they have to mark this down. I think the as I was saying, the investor traders are selling down all risk assets and then asking questions later.

They don't want to be caught holding the day. They are fearful of what if the next shoe drops. And I don't think there is any evidence that this is going to morph into a systemic crisis just yet. But it's it's panic psychology in the markets at the moment. And therefore, investors want to be safe rather than sorry. And that's why they're seeing what we are seeing at the moment. All right, Van, thanks so much, fun

round there from R. Bloomberg. Life teams will have plenty more, of course, from this fallout. What it means for banks and what it means for Wall Street. Coming up later in the program, algebraic investments founder and chief executive officer David Setup joins us live.

We'll get his thoughts on the banking system. Of course, we'll talk about fallout from the Silicon Valley Bank, panic and potential risks to the wider banking sector. That interview. Don't miss it. Nine thirty a.m. U.K. Time for 30 a.m. in New York.

And this is Bloomberg. This could be a team example. There are many other banks out there, so it's very rational for investors to be asking, is there contagion in train right now? I really don't believe that that's likely. I don't think there's any greater risk to the financial sector. I do think some of the banks that tend to cater to the riskier sectors in the market, the venture capital, the cryptocurrency, those types of banks do have risks. This is a classic bank run. And when the bank run starts, you don't

want to be the last guy. They're wondering what happens if they can raise the capital. You know, it's not an existential issue. Top business leaders weighing in on the panic spreading across the startup world after Silicon Valley Bank punch 60 percent as a lender struggles to restore confidence in its financial wholesale markets. Still absorbing the impact of these financial problems with European banks selling off this morning. Venture capital firms are at the center,

of course, of the fallout after Peter Seales Founders Fund advised its companies to pull money from SVP. Bloomberg has also learned that a warning from venture investment from Green Oaks led to its companies withdrawing one billion dollars from its bank in recent months. So let's look at, of course, what this means for venture capitalists and in general capital access for some of the startups. So we're joined by Eileen Burbage, a founder at Patton Capital Investments. Eileen, always great to have you on the program.

So thank you so much for coming in, first of all. This was a bit of a shock to a lot of people. Do you have any exposure through some of the companies that you're invested in? We do. You know, you might have seen the stats and I heard the sort of run through of a lot of analysis you've had in the last 24 hours, which is great and super comprehensive. Clearly, I think, you know, some people are testing the fact that about 50 percent of American startups had their money with Silicon Valley Bank and they were clearly making a large push across Europe as well.

They've been operating in the UK for more than 10 years. They've recently expanded in the Nordics as recently as just three months ago. And so making a really good question. So there is a lot of exposure across the

startup and the venture ecosystem here in Europe. So what does that mean, first of all? Can you give us a sense of what kind of companies are exposed and what do you tell them right now? Do they keep their money with SBB be it's also, I imagine, very difficult. If you're a smaller startup, you may not have a second bank account.

It's difficult to get your money out and put it elsewhere. Yeah, there's been a range of reactions and it's really interesting to see because obviously a passion we have more than, you know, about 50 active portfolio companies. We also do banking as well for the fund and for our fund manager. And then we've also seen what color investors and others are telling their portfolios, as well as how founders are reacting. And there's clearly one sort of set of

reaction, which is let's move our money. And just to be clear, the reason for that thought process is why wouldn't you or looking at a cost benefit analysis, why would you not look to be risk exposure? And so it just seems like very little action or investment or resource would be required to simply diversify yourself away from this. On the other hand, there's probably just as many people saying, listen, this is overblown. The bank still has more than 200 billion dollars worth in assets. What happened and what triggered, you know, it's need to raise capital was, you know, bond performance.

That is pretty separate from what's happening on the deposit side as well as in terms of it's a run. And so this should all blow over. But you're getting both. Yes. Is it too soon to make a call on that? And again, you know, we don't want to fill anyone with panic, so I guess cool heads need to prevail in this kind of environment. How many calls have you fielded since this happened? Four from founders that actually aren't really sure what to do. So we have fielded calls from founders. That's true. We have also fielded queries from our limited partners or our investors in our fund to ask us about our opinion.

And the earliest of that came in the beginning of this week. So I think it's the right thing. And I'm quite reassured if I'm honest with you, that founders are asking for advice and sort of wanting to stick their heads up and see what others are doing. We have the same sentiment as you did or as you just expressed, which is cooler heads will prevail. Think about the long term viability and sort of indicators that this on the sector overall on the bank.

You know, for companies that have a large number of deposits at banks, clearly there should have always been a Treasury strategy in place. This is maybe a good wakeup call to put in place. If that wasn't already the case. But in terms of, you know, early stage startups or people with what I think Silicon Valley Bank would term as in material sort of deposit sizes of prospects. We don't think this is existential. To borrow a term from somebody that you read through in the run through and your recap, just opening up the segment.

Yeah, I mean, I have to say, I mean, it is quite incredible to look some of the banks in Europe also being slammed. Deutsche Bank down seven point eight percent. Mohamed El-Erian I always follow very closely says, well, there's a lot of chatter about a generalized U.S.

banking system stressed due to some of the troubles. And he says, look, although the system as a whole is solid, it does not mean that every bank is. Does this have repercussions? We don't know how this will end daily, but does this have repercussions to how startups will access capital? So I think that it will.

I think startups will consider the fact that, you know, maybe having all of its funds, depending on how much it raised. You know, let's be clear, certain early stage startup, which might have raised a million, two million, three million, I don't think it's going to be existential for them or necessarily something they should invest a huge amount of time in. But certainly for your growth startups who have raised tens, if not hundreds of millions of dollars or pounds, who might also have debt facilities, for example, through SBB or other banks, there should be a Treasury function in place. They should be thinking about

diversifying and in order to hedge against risk of any single exposure or point of failure. And so that is a good it is a good reminder of just, general, I think, prudent fiscal and treasury policy. I think that as we've seen overnight, a lot of the U.S.

banking sector actually took a lot of losses. As you've just alluded to, it's happening in Europe. Now, again, just as it's a reminder to startup founders and startup investors to go back to fundamental and prudent policy.

It's the same in terms of, I think, the sector looking at all the other banks that have probably had a pretty good run for the last few years unchecked in order say, OK, let's just look under the covers here for. Eileen, thank you so much. Smart and measured, as always, Eileen Burbage, founder at Passion Capital Investments.

Now, coming up, the prime minister, but she soon travels to France to meet with the French president. Emmanuel Mark Crumpton is the first such state visit in five years. So we're live in the French capital. We'll discuss what's on the agenda next. This is Rupert.

Economics, finance, politics. This is Bloomberg Surveillance early edition of Francine Lacqua here in London. Let's get straight to the Bloomberg First World News. Here's the difference. Hi, Leon. Hi, Francine. Chinese lawmakers have voted unanimously

to give Xi Jinping a third term as president. She won the vote in the National People's Congress by two thousand nine hundred and fifty two to zero against giving him five more years in power and demonstrating his unrivaled grip over the ruling Communist Party. Li Kwang is expected to be named premier in tomorrow's session. Now, police say eight people have been killed in a shooting at a Jehovah Witness church in Hamburg during the night. Police in Germany's second biggest city say they believe that there was only one shooter, but it's unclear if they are among the dead.

The US and India are to sign an agreement to boost coordination on chips and are discussing how to avoid overt subsidization. Commerce Secretary Gina Raimondo has travelled to the country as she looks to boost incentive plans for chip producers. Both countries are pouring government money into subsidies for the industry. Cable news powered by more than twenty seven hundred journalists and analysts and over one hundred and twenty countries.

I'm the Karen's and this is Flame. Francine, thank you so much. Liane now. UK Prime Minister RTS meets with his French counterpart, Emmanuel Merkel in Paris today. After years of post Brexit strains, all eyes will be on whether the two leaders can patch up this relationship. Well, are UK correspondent Lizzie Borden joins us now from Paris. Lizzie, what does this summit actually mean symbolically? Well, Francine, Bromance is in the air here in Paris, where she Sue DAX on his way here to the LDA for a bilateral meeting with the French president, Emmanuelle New at 10:00 a.m.

U.K. time. This is after, as you say, years of acrimony between the two countries. But already it looks like there's better chemistry between the two, even more so. Well, much better so than with Boris Johnson or Les Truss. The two sooner can Mark Gurman both ex bankers. Of course, they're both funds of skinny blue suits and the foundations have been laid with the Windsor framework. The New Deal on Northern Ireland,

they're expected to then meet with business leaders from both countries. And then we'll have a joint press conference at 2:00 p.m. And it's ahead, of course. Later this month, a visit from King Charles, a state visit. So really, this is being presented as a

watershed moment in Franco British relations. On the substance, they're going to talk about defense. Of course, they need to present a united front on Ukraine, especially when Russia will be watching. They need to heal some of the wounds left by the orcas deal the US, UK, Australia deal on defense, which essentially sidelined the Franco Australian submarine deal that had been on the table. But see, DAX also going to want to come

home with a win on small boats. The flow of migrants crossing the channel is a thorny issue to unpick, a difficult one to solve. Neither side is going to want it to overshadow the rest of the talks. And it's controversial because this week the UK government introduced legislation to deport almost all asylum seekers who reach Britain despite regardless of their asylum status. The timing before this visit, as I say, interesting. But Eurasia Group's Mojtaba Rahman

observed that perhaps it was less about putting pressure on macron and more about distracting from how little realistically sooner it's going to be able to bring home on the issue. Yeah, although I guess a tone the tone is shifting. Of course, that probably means something also on the clearinghouses, on financial services. Thanks so much, Elizabeth and their Bloomberg's UK correspondent for us at the Elysee Palace in Paris. Now, of course, we'll be covering all things UK every week on Thursdays 930 in our half an hour special. The main story, of course, today is what's happening with VB Financial, but also the fact that there was another abrupt shutdown at Silver Gate.

Now, the issue at both of these Californian lenders was an unusual fiscal base of depositor. So keep that in mind. But actually, the big, big question is raising interest rates have left banks with these low interest bonds that cannot be sold in a hurry without loss. So what does that mean? If there's a bank deposit, a run on banks and this is a vicious circle, free open premarket as will be financial. A further 22 percent lower. And it's really impacting infecting a lot of these European banks. Deutsche Bank down seven point five

percent. HSBC here in the U.K. down 5.5 percent. Coming up, a roundup of our main banking news with David, the setting up of Al Jihye Lee. This is Bloomberg.

European banks slammed after Silicon Valley Bank plunges 60 percent as the startup lender struggles to restore confidence in its financial health. We'll bring you the U.S. premarket latest in just a moment. Traders dumped stock and buy bonds over concerns of broader economic distress as U.S. bank shares slumped to their lowest since 2020. We'll discuss that with the founder and chief executive officer of algebraic investments that would set.

Plus, we get the payrolls report later today for February. We'll be watching for direction of the Fed's rate hiking path. So good morning, everyone, and welcome to Bloomberg Surveillance Early Edition on Francine Lacqua here in London. Returning to the top story this morning by far. A U.S. bank known for lending to start ups has sparked panic across the sector.

Now worries over the financial health of Silicon Valley Bank prompted some venture capitalist advice portfolio businesses to withdraw their money, even as the bank's top executive urged calm. Wallets get straight to algebraic investments. Founder and chief executive officer David Seda, who understands the banks intimately. Rising interest rates have left some of these banks.

David Yeah, of course, with some of the low interest bonds that they cannot be sold in a hurry without losses. We're seeing a lot of the European banks slapped Deutsche Bank down more than 7 percent. The same for HSBC, down 5 percent. Is this justified? Listen, this is just pure panic because what has happened in this Tools Mall, California and Silicon based Valley firm one was into intimately linked to the cricket world. We know what a huge fraud RTX has been. And that's basically a silver gate demise in the case of Silicon Valley Bank. First of all, the name says it all. It's a Silicon Valley bank. This bank tripled its deposits in one

year. Now, this doesn't happen to anyone in the world. And basically, they got deposits out of D.C. and then this bank was lending money. So it was part of the D.C. bubble in Silicon Valley. Then what happened? They had to buy treasuries so they didn't make a mistake. They're both very safe assets. The sharp rise in interest rate force them to realize some mark to market losses because eventually the same B.S. that deposited the money panicked.

So I think it's a one off intimately linked to the Silicon Valley, in fact, bubble and reminds everyone that you need to keep your deposit yet. Diversified. Right. And this is the point is that if you're a small and mid-sized bank, then maybe your funding is less diversified than the others. But talk to me about the big banks. So I don't believe that analysts are getting it wrong or shareholders are getting it wrong and selling off some of these big holdings just because they don't understand the story.

Is there a longer term concern that the revenue will have to change because actually they'll have to compete higher or harder to, for example, you know, by offering some of the higher interest payments to savers to keep them there. Actually, the opposite. So I think today is a reminder that you should keep your deposits on the inhabited safe deposit and a well regulated large institutions. When people chairs, returns or services and small instead, financial institution builders run a huge risk. You know, the Financial Stability Board has created a list of globally systemically important financial institutions, which is the one we focus on. So the HSBC, the spring, the BNP, the UBS being phase of the Santander. These institutions have more capital and

more regulation. That is the reason. Then as a depositor, you are safer. Clearly, they're not going to pay on your deposits in a huff money. Some startup and V.C. firms will. But then you can sleep at night. And so what I think is going to happen is every institution around the world is going to look at it. Why am I keeping my deposits?

And they're going to move them down to the JP Morgan, Morgan Stanley, Bank of America of this world, enhance if you're being, let's say, riding victory to the tech bubble in V.C. and health money, you're probably in trouble. Many think tax will end up in trouble. I've always said it. FinTech are great for TV. I want to keep my Kashmir and many institutions are going to do the same. Yeah. That was just a reminder for the moment

it's alleged fraud with RTX. Otherwise, I'm going to get a call for the lawyers. But ironically, right. A lot of equity investors piled on to some of these big banks, Wall Street banks or some of these big European banks, because financial stocks are a good way also to ride out the Federal Reserve's interest rate hikes. Will that take a pause or a breather? I think, you know, certainly let's save the interest rates have gone up faster than have it in history enhancing in way market this petition are. But this is going to come up in huge profits short term. The sharp rise in interest rates has

second round effect and we're seeing some now in California, in Europe in the opposite is going to happen. So is going to be a slow increase in net interest income revenue. And the safe and strong deposit institution are going to make more profit because of the smaller one. And that isn't because at the end of the day, financial institution, it's all about trust and the level of capital that protects depositors. And hence, in a way, I think we're going to see a concentration of profit in the stronger and large institution. That is one good news here.

This time of the Silicon Valley Bank didn't have fake assets. It had US Treasury, let's say, the highest quality assets on the planet. And and so there's nothing wrong on the asset side of financials.

Remember, and this is to me is the reason why today it's a good investment opportunity for long term holders. And the reason is because European financials are now yielding 8 to 10 percent between dividend and share buyback, and they have 10 times the level of capital and less risk than they used to have, and hence they provide a good, safe long term investments. So does it mean that you're buying some of the stocks of the bigger banks today? And again, someone who I immensely respect and follow is Mohamed El-Erian. And he wrote a couple of tweets this morning saying, look, while the U.S. system as a whole is solid, it does not mean that every bank is. So would you also have concerns that we have to remain measured? But do you also have concern for some of the smaller banks maybe that are less diversified? And when do we find out about those? Yes. So let's say there is one day in the

U.S. some of the smaller regionals can account basically part of their bond portfolio in a different way than the larger U.S. financial institutions. So first of all, largest financial institution, zero risk. Secondly, they're going to get the business out of the smaller one has even more positive in Europe. None of that applies. And hence, in Europe, that phenomenon never happened for the simple reason we never had a tech bubble in Europe. Secondly, no banks grew up deposits by

three times in one year and no one just landed to start up basically getting deposits. Will B.C.. So that's a pure one off phenomenon in California does not apply to the rest of the banking system, which in effect is as safe as it's ever been. But it's not. You need to trust me. You need to trust the Fed and the central bank ECB that on stress test, on all the major financial institutions. The smaller one might have some troubles. And again, a lot of people are saying, and this is in no way an even indication of the ones that said, look, it's just almost impossible to go from interest rates at 0 5 or 1 percent to 4 and a half 5 percent without something breaking in the system.

If it's not this, is there something else that you worry about? Or overall, do you think the financial system is strong enough to withstand even more interest rate hikes? So the core of the financial system, again, the top 70 largest financial institution in the world are super safe. And if anything out of this turmoil, we're going to get even more deposits and becoming even safer. Then clearly the excesses of high leverage bubble valuation, whether it's RTS creeped the tech part of the real estate sector end up in trouble. Visibilities on why I think of a sharp rise in interest rates now deserve a pause because we have too many uncertainties in the world in the second round. The fact it takes times enhance. I think in the end that we're going to

see central banks realizing that the second round the Fed are coming through and hence it's time to pause because you might run the risk, if anything, of breaking the weak path of the system and then not understanding again around the effects. Thank you so much, David. As always, for, of course, your thoughtful messaging on the banks, Algebra is founder and chief executive officer David, etc.. Now, earlier this week, we also spoke to economist Mariana Much Staccato about her new book, The Big Con. The book takes aim at the consulting industry and its role in business and government today. It's the consulting industry's turn to respond.

Well, we're now joined by Thomson is like son of the chief executive of the Management Consultancies Association. Thompson, thanks so much for joining us. I'm sure like me, you've read the book. I'm sure like me, you've looked at exactly what the what the way in which the government relationship with maybe some of the big four or some big consultancies will change on the back of that. What's your response? Well, I think it's full of inaccuracies and disinformation, to be honest. And our industry is focused on delivering brilliant results for our clients. We work with tens of thousands of clients across the private and public sector very successfully.

And the reason why we're experiencing 25 percent growth, the reason why we're employing 10000 more people over the next couple of years is because of that delivery. We transform businesses, we transform government departments, we bring in specialist expertise and work world class capabilities. And it's really about short term projects. It's not about displacing government resources. It's about short term projects and providing real value for our clients. I mean, is there something that would make the industry better? Given the criticism that they've received also on not only revenue, but actually how they treat some of their employees? I think as an industry, we are always striving to set the very highest standards for ourselves.

So we invest hundreds of millions of pounds in terms of training and developing our staff. Their members I represent some of the best companies for Apprentice says, for diversity and inclusion. They are leaders in the private sector for the way they treat and the way they employ and recruit and staff. So I reject that claim totally. And you know, we as professional services fans need not always become better. I mean, you can't say you're you know,

you're a leader in industry. And there have also been taking issues with some of the things that, you know, others have claimed about the industry. But you can always improve from what you have right now. Where would you improve? The setting standards is really important in helping clients to be better buyers of consulting is what we help them with. And that's exactly why we supported government with the consultancy paperwork, which is a brilliant set of guidelines for government buyers about how to reach to the entire market, how to make sure that you're clear on the outcomes that you want to achieve before you contracts consultants that you have a clear governance process during that project. And fundamentally, at the end of the contract, you are transferring skills to the government department.

You are upskilling civil servants and you are leaving them in a better place. And that's what our members, MTA members deliver. Thompson Thank you so much for joining us, Tamsin. Isaacson Their Management Consultancies Association chief executive officer responding to some of the claims in this explosive new book. Now coming up, we're joined by the former EU chief Brexit negotiator Michel Barnier. We'll get his thoughts on today's UK

France summit today in Paris. That exclusive interview is next. And this is Bloomberg. Now, later today, the UK prime minister, where she soon meets with the French president, Emmanuel Mark Gurman in Paris. It will be the first summit between the two nations since 2008 and it comes after the announcement of the Windsor framework deal on Northern Ireland trade. While we are delighted now to be joined by Michel Barnier, the former EU chief Brexit negotiator, for an exclusive conversation on this, Mr Barnier, thank you for joining us. Talk to us a little bit about what the relationship looks like now between France and the UK. Certainly looks less difficult than when

you were in charge. Good morning, Francine, for. I think he did this summit between France and the UK. Good news. After six years of good mistrust or even disappointment. Remember the forum we face with the submarines crisis? About two or three Jihye Lee. And where we see we saw the UK, not only the UK, but also the United States acting and not as its allies must do normally between allies.

So we are going to turn this page and I think it's a good news. And I see is it good news because we have so many challenges to face to get her global shut ups that we have to look at and more done to looking at the past with nostalgia. But sometimes you banya, when you look at, of course, some of the discussions that they will focus on between prime ministers who NAC and President Mark Gurman, this will be, of course, on energy, on security, on migrants and on Ukraine. What do you think can really be achieved? I'm not involved in the details of this negotiation and preparation of this summit, but I can expect that a new arena where we'll find a way to consolidate together the support to do it. Korean people, even by sending arms and migration, we have a very strong and very serious issue with so many that's no to China. We have to tackle this issue is

being firm and rigorous, but also with humanity respecting the international law. And I think that the UK has to be careful not to be too far from the European policy. We have to tackle some other issue, an economy or perhaps a if I may, to to reflect together what could be the common unsolved UK and France. You can Europe to the new protectionism of the US, which is very serious.

DAX take many strong parts of our industry culture. So what if I may say there is so soul shop drills where old Boris Johnson refused to engage any kind of negotiation to raise a Brexit negotiation about Persian Africa, which is a common challenge for all of us and our defence and security. So these two chapter are now for the future of open, and I think it would be a good idea for France and the UK to get a two to push in that direction. Mr. Vanya, when you look at the finance and actually the fact that a lot of Wall Street banks had to choose almost a European capital outside London, it does seem that a lot of investment and a lot of bankers have moved to Paris. Is there anything else that France can

do to roll out the red carpet? The promise is the governor of France is always acting to stress and to support him because he did it affectively ness. But to be frank, is the chief of the UK to leave you? That's our choice. London. Wars, in a certain sense, is still the

main center for finds in Europe, but until the end of the participation of the UK to the EU. London was also the main door for international investment, financial investment in the common market and single market. It works as long as the door is into the building. The door now is outside of the building. So that explain why Barry's fault or Amsterdam as the new place for the financial investment in the single market. Because you have to be part inside a

single market to do to work with have to respect the regulations as you practice for provision. Michel Barnier, thank you so much for your time. I hope next time we get to do an interview face to face here in London, Michel Barnier, the former E.U.

chief Brexit negotiator. Now, coming up, how big is the contagion effect on the banks are dragged from Silicon Valley? Bank fallout continues in Europe. So we'll have more when we return. This is a Bloomberg. Economics, finance, politics. This is Bloomberg Surveillance early

edition of Francine Lacqua. Here in luck now about two hours into the open and European banks and financials really getting slammed. Trading deep in the red. Investors spooked by the troubles overnight from Silicon Valley Bank. Despite the bank's top executive calling for calm. Now for more on all this, we're joined by Bloomberg finance reporter Tom CAC CAC.

First of all, Tom, we understand a lot more about what's going on at SBB. Are you surprised by the contagion into other big banks? Yeah, the ripple effects are pretty surprising, really. Just saw on the screen there like Deutsche Bank down 7 percent. Well, these massive big institutional banks really getting slammed, as we saw in the US and now in Europe. And I think, you know, it's partly that sentiment, the fear, the uncertainty. And, you know, the other thing people

are wondering is maybe in a different form. How are these banks kind of also exposed to this disconnect between how much paper you've got and what time frame that is? And he's very sort of mobile depositors. So what are you looking for in our reporting? I know you just spoke to David said. He says, look, perversely, a lot of the big banks are getting slammed, but they are they could be safer for smaller you, the smaller ones that aren't as diversified in their deposits. Yes, absolutely.

That would be my take. Like, you know, you look at a big bank like HSBC, they got, you know, millions of retail depositors. They have a very, very different business model to a Silicon Valley bank. So I think, you know, the risk that maybe this is what shareholders are pricing in is just this contagion. And yeah, that's the thing. We're looking at two elements. One.

Are there any other banks like Silicon Valley, that bank out there? And to just what are investors saying? You know what? ISE sort of the market going to do and react and will it come down or will it sort of continuous the U.S. Open? I mean, some of the other questions are, for example, if you even if you're a big bank, you need to make sure that your deposits stay with you. And so you need to offer them more interest to basically entice them. So does that change the revenue model? Yeah, I mean, it's basically a bit of a flip on what we've seen previously when you saw that net interest margin increase. And, you know, increasingly these interest rates stabilize and certainly not gonna be many big increases going forwards. So, you know, they do have to work a little bit harder to keep those depositors.

But, you know, I think whenever something like this happens, one of these, you know, so-called bank runs, there's always going to be that flight to quality flight to trust. And, you know, that's where I think those big banks are going to actually benefit because put your money where the JP Morgan Chase, if you're worried about where it's going to be. I mean, it's pretty ironic that also a lot of investors piled into these banks because as interest rates go high from the Fed, it seemed like a good place to be. But now we have to start like revaluing

some of the bonds that they're holding. Yeah, exactly. This is all dating back to that low interest rate era, you know, where banks were really chasing yield. So the thing for folks to look out for, what were the lenders out there kind of chasing yield and stuff where, you know, you're going to have this sort of liquidity on that side of things. But now with higher interest rates, you're going to be paying for it today. Really? Are there any other types of I mean, in your question? Very good question.

No, we have reporters on it. Is there anything like as be potentially in Europe? When do we I know we're investigating, but is this really the only other question that we need to try and answer in the next 24 hours? Well, yeah. That's the sort of thing where you can kind of try and find out a similar. You know, obviously, the banks, of course, there are. But we tech focus and they're probably none of them like household names. The bank I always thought of in this sector was Silicon Valley Bank when I sat in San Francisco. You really do hear and see it a lot more

now back in the city of London. You know, I think a lot of people will be like, who is this bank? What do they do? And I think that's reflective of kind of the different economies. So for me, very West Coast focus. Yeah. Tom, thanks so much, as always. Metcalf, who oversees a U.K. banking coverage. Bloomberg Surveillance EARLY EDITION

continues in the next hour of Credit Gupta in New York. And Edwards here in London. And this is goodbye. This is a classic bank run. And when the bank runs starts, you don't want to be the last guy there wondering what happened.

There are many other banks out there. So it's very rational for investors to be asking, is there contagion in train right now? Now, the question is, will this Silicon Valley thing have legs? Yes, to a point. But I don't think it's it's cause for contagion. This is Bloomberg Surveillance early

edition with Anna Edwards and Matt Miller. It's 10:00 a.m. in London, 5:00 a.m. in New York and 6:00 p.m. in Hong Kong. Our top stories today. Panic in the startup world. Prominent venture capitalists are urging portfolio businesses to pull their money out of Silicon Valley Bank because of fears about its financial health.

The latest U.S. jobs report is out today, says a New York Times that could help determine what Fed policymakers do at their next meeting. And the summit in Paris, Emmanuel Macron. And we see soon that we'll try to end years of acrimonious relations between their countries.

The meeting comes as the U.K. reports a better than expected economic rise. Welcome to Bloomberg Surveillance Early Edition. I'm Anna Edwards in London with Christie Gupta in New York. Matt Miller is off today. And boy, what a Friday. Christie, we've been asking for some time as rates go higher and higher. What breaks and I guess we know the

answer to that now, though, mercifully, perhaps I see that U.S. futures are looking a little flatter. Yeah, a little flatter. It's interesting, Ana, because this day was going to be a pretty volatile deal anyway because of the jobs report that we see stateside. We're going to see stateside in just a few hours time, but we did not see the bank turmoil. Nevertheless, it is having a macro

effect. Check out futures right now, dollar by about four tenths of one percent, but tenuously, a little bit of a risk off sentiment. I think that's really shown by what you're seeing in the 10 year yield, because, look, if you are expecting a hawkish jobs report, which, by the way, the consensus is that would you kind of pave the way for higher yields, not lower yields. Yet here we are seeing the 10 year yield at three eighty five, really retreating even more from that 4 percent level, which shows you there is that global flight to quality, that global flight to safety that is showing up in the Treasury curve. So really kind of changing the game when it comes to that. Deduce Ten's curve, by the way, is the other one I want to watch negative ninety nine.

Now that curve has kind of steep and just a little bit. We are still in inversion territory, but significantly less so than the 110 basis points we saw earlier this week. I want, of course, talk about bitcoin because that's going to be a major game changers while we're talking about SBP shortly throughout the show and in the coming hours as well as Silver Gate is also a major story and that is affecting risk sentiment in terms of how X bunch exposure you want to the cryptocurrency. A nineteen thousand handle on bitcoin

down just shy of 2 percent. And I want to quickly talk about what happened overnight in Asia as well, because risk sentiment was pretty bad there, too. Asia Pacific index down about 2 percent. But a lot of the losses were concentrated in China.

You can really see that with the Hang Seng down about 3 percent overnight and Japan, which has really been the outperforming in Asia in the last week or so. Also not part of that this time around. Down about, well, if you called up 2 percent to round up there. But to me, it's all about the BMJ when it comes to Japan. They stuck with their easing policy. No major changes. There it is, the last day for their governor, of course, that actually creating a little bit of weakness in dollar yen 136, 74 is where we're at. Well, let's have a look at the European picture then, Kristie.

And it's really red. And this this very bright red suggests markets that are down by more than one and a half percent. To what extent is this reflecting yesterday's story on Wall Street, I suppose is important to ask, because this is really read across from what we saw in the banking sector on the KBW index and in the major banks over in the United States yesterday. And some read across from the US into

the banking sector here. And when you're selling banks here, are you doing that because you think there is any direct read across? Possibly not. Are you doing it just because banks have done really well based on expectations of higher interest rates and higher net interest margins? Or are you doing it? Are you selling these banks because you're concerned? You know, if there are on crystallise losses on treasuries in the US, either on crystallise losses on other things here in Europe, maybe property, that was one of the conversations we had earlier. And given that I picked a few companies to focus on today and this is a private equity business in Scandinavia down by eight point eight percent. They they invest, of course, in real

estate in some tech investments as well. And so you might expect that that sector would be in focus. And it is that sector selling off Safina kind of vague other names in that sector, also weaker at Deutsche Bank.

The German banking sector seems to be suffering here. Commerzbank is weaker. Deutsche Bank down by seven point six percent. HSBC down by five point three percent. So it's pretty broad based. The banking sector is the worst

performing sector here in Europe, as if the market is is selling first and asking questions later about whether there really are links, real ones or sentiment driven links between these two sectors on different sides of the Atlantic. And we are talking about a flight into safety here in Europe, selling stocks and getting into government bonds. And as a result, we see movement in the German 10 year yields.

This is the buying of the bonds and the and the yields coming down, which makes a change from what we've seen of late, but is not providing a boost to stocks, which you might have done if it were for other more positive reasons Christine. An element of panic across the world. And it's interesting, you're starting to see overnight, even from the commentary saying, look, are we in a place where some of these banks could be perhaps too big to fail? Is that the sentiment from some prominent investors? We'll get to that in a second. One of them, Marcus Ulster, warned

against overreaction, falling SBB surprise to point to five billion dollar share sale. Take a listen. The reason I'm urging calm is I do not believe that anybody will lose money if they leave money in SBB. Why? Because in the United States, it's been since the 1980s. Since there has been an insolvency and a bank in which people lost deposit moneys all throughout the global financial crisis.

Depositors were made whole. Bloomberg's Dani Burger joins us now. Danny, now Silicon Valley Bank isn't necessarily a name you hear from around the world, but if you are in the tech capital of the world, in Silicon Valley, this is one you hear a lot. Walk us through what exactly happened over there. It really is a case of when we talk

about unintended consequences from higher rates. This is one of them to lie on exactly what happens. It comes from this accounting quirk, from banks like as VB, they're allowed to hold bonds on their balance sheet and not mark to market them if they call them held to maturity. So SVP had a lot of these. Ninety one billion dollars is what they valued them at a lot of duration type assets. The thing though is, is they probably

weren't worth ninety one billion dollars. The Fed has been hiking, so the value of those has fallen significantly. Usually that's not too big of a deal. But what happens if your clients want money back and you have to sell those bonds, you're not going to get all of that money. So we know a lot of the V.C. space B.S. companies, V.C.

funds themselves. They've been burning through funding. They likely turn to the bank to get more capital. And SBB had to liquidate all of its securities and then, of course, release that statement that they were looking for a capital injection. So it is this mismatch that finally came to a head. Danny, good morning. Let's think about some of the customers then SVP. We were just hearing from a guest about,

you know, they would deposit insurance schemes in place in the United States and say that's worth thinking about when we think about customers. Yeah. In these situations, this is the bank that had a lot of V.C. funds as its customers.

These are the companies that these bases invest in. Of course. So what does it mean for them? What's it mean for the customer? Well, that that insurance is two hundred fifty thousand dollars. If you're a V.C. fund, it's gonna be a whole heck of a lot more than that. So that is the problem. And already this problem stems from these. She's having troubles burning through

funding, needing more capital. So if they're struggling to get their capital out of a bank, if that happens, that's going to be a problem for them. There have been some reports that some voices haven't been able to get their capital out of SBB. We've had other reports that, yes, they

have been. So there's a lot of back and forth, but it's just yet another headache. They're likely going to say, OK, maybe we don't bank with the likes of these regional banks. Maybe we need to go to the big boards bracket from now on to make sure this doesn't happen. Yeah, maybe they want to put that. They're going to be looking to put that money somewhere, don't they? Donnelly Thank you very much. Steve ISE Dani Burger with the latest on

what happened to SVP and what impact it has on the client base. Banks Following Ties title joins us now for a closer look at the broader market fallout from ISE surprise share sale. And Valerie, take us through what we've seen in markets here. Look, that European session was a bit

rocky this morning. And at HSBC, BNP Paribas, Deutsche Bank, Barclays, all shares plummeting. I mean, look at this. Deutsche Bank's share price down 7 percent. All of this due to the rocky clothes that the U.S. had yesterday. The big four U.S. banks losing a net combined market value of forty seven billion.

But let's check on how they're trading so far in the premarket today. Those big for Citi, Wells Fargo, Bank of America. They are sliding. They're continuing the slide today. A lot of these shares are down over 1 percent.

J.P. Morgan down over 1 percent. Wells Fargo and Citigroup also nearing 1 percent vs 4. Yesterday, as I mentioned, the slide yesterday capped a forty seven billion loss in market value. Many are raising an eyebrow to this and saying these four U.S. banks, they're they're very large,

they're highly capitalized, highly regulated. It's very unlikely that they'll have to sell those high quality liquid assets, those treasuries, at a loss due to do a deposit flight. So, you know, perhaps this is a dip that's going to be bought later, but the free market is showing a direction in the red flag.

You know, it's interesting if the equity perspective and the bond perspective had some conflicting factors here, you start to see a flight to quality in the bond market, but then it's also competing with that narrative of a 50 basis point Fed hikes where the two for us. Yeah, it's just surprising the move we've seen in the two year yield of this here in the yellow. That is when Palin made that statement on upping the pace. You can see that we have traded through that. Now we're at a lower yield level now than when he mentioned that the market has basically taken out that pricing in the two year yield.

Even what we've priced in for March, Kristie. We were pricing almost 50 basis points. Exactly. That's pulled back a bit. It's now around thirty five. But the big question is, we were all very sure that a consensus print on NFP or even any slight beats on the payroll print number today would almost submit. Fifty for the Fed. That narrative has gotten a bucket of cold water thrown on it today. That's for sure.

Yeah. Things got a whole lot more complicated, didn't they? And this dynamic is also having an impact on the pricing of European rates as well. Valerie, thank you very much. Beyond the Bell title with the latest on the market fallout. Now European banks falling here in Europe amid concerns of the SBB fallout. France is in the news earlier this week

with Citi passing a new trading floor in the capital as London struggles to keep up after Brexit. That set the stage for UK prime minister. She soon CAC meeting his French counterpart, Emmanuel Macron, today. Joining us now from Paris is being IBEX UK correspondent Lizzie Borden. Lizzie, what does this summit mean symbolically? Well, on a brew, man says in the recipe sooner arrived at the inn is a just a few minutes ago shook hands with Emmanuel Macron and they both had it in for a bilateral. Behind me is really an opportunity to reset relations between the two nations.

After seven years of our company, especially under Boris Johnson and Less Trust, but soon CAC and Annmarie Horden seem to have much more in common. They're both ex bankers. They both like skinny blue suits and of course, they've laid the foundation with the Windsor framework.

The New Deal on Northern Ireland. So they're expected to talk one on one. And you can see that their right hand ministers are arriving as we speak to speak to business leaders from both nations. And then they'll have a joint press conference at 2:00 p.m. London time. And then later in the month, of course, King Charles is going to be coming for a state visit.

So really, this is being presented as an opportunity, as a watershed to reset Franco British relations. But as you hinted, it's a tricky moment for Britain as more banks choose to uproot staff to Paris are lazy. They can't help. The skinny blue suits will give them a little bit of flack on that. In terms of substance, though, what can we actually expect? They're not just skinny blue suits.

They're among coals on shows. Well, but in terms of the substance, we're expecting a lot of discussion of defense. Of course, because Russia is watching closely to see if there's a united front on Ukraine, particularly in terms of how the war ends. They also have some wounds to heal after the orcas deal, when Australia, the UK and Australia and the US signed that defence deal that tanked the Franco Australian submarine deal. But Sue DAX also going to want to bring something home for the domestic audience on small boats stopping the flow of migrants across the English Channel. It's a very thorny issue, hard one to

solve. Neither side will want it to undermine the rest of the talks. What McCall wants of boots on the ground, funding for police on the northern beaches of France. Sue is expected to agree to that because it's cheaper than paying for asylum seekers in British hotels. But what we don't expect my to agree to is to take back asylum seekers who've already landed in Britain. He's likely to say that one's for Brussels.

Lizzie BURDEN in Paris on, of course, a snack and macron watch and fashion watch. I might add, we thank you. As always, we want to continue to watch the drop in SVP. Right now we are seeing the shares drop about 35 percent in the pre market amongst some of the movers. Remember, we're going to be watching this throughout the day as well as the contagion effect or assume the contagion effect across the financial sector. But this is not the only mover you want to keep an eye on this morning. Some earnings stories from after the

bell, perhaps not going

2023-03-12 16:00

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