Regional Banks Face Heavier Regulation After SVB

And then you've got you know that the nation's biggest banks here, certainly here in the United States, look to be close to a plan to deposit about thirty billion with First Republic Bank, which has been certainly under a lot of pressure. So let's get an update. Where are

we with us right now? Is Herman Chan He's senior Alice for US regional banks with our Bloomberg Intelligence team here in our Bloomberg Interactive Broker studio along with Shinali Bossi, Bloomberg News Wall Street reporter, who I'm convinced because every time I listen to Bloomberg Radio or Blueberg TV, she's there. So she's not getting any sleep. I'm sure Herman isn't either. Shinali, let's start with because I do feel like the headlines just kind of continue to come out. So where are

we credit suis First Republic? What do we need to know? Let's talk about First Republic first, because we are expecting this afternoon an announcement and it's in coordination with the big banks. We understand that these large banks have really brought forth this idea where each of them deposit. The biggest ones will depositif five billion dollars each, the smaller ones will do less than that. It will be a

package of nearly a dozen banks. And so it is a significant effort from the banking community to put money into First Republic, really stave off concerns in the banking system, and you are seeing First Republic stock at least upon the initial news reports about this. Remember all of this is still source material according to people familiar with the matter.

No official announcement has been made. There's another interesting thing about the structure of this deal that if you're a stock or bond holder, you would like and it's that by infusing this banquet deposits, you're not necessarily eroding the equity or debt. And so it's a way to kind of find a solution that is approved by the government that falls short of a Sale're right, certainly better than trying to do an equity offering in this environment, I think,

which is sort of what undid SVB. But you know, Shelly, I look at the KRX, the Regional Bank Index, and I see Pac West Bank WRP down fifty two percent year to date, Bank of Hawaii down thirty two percent, of more than ten bank stocks in that index down twenty some percent this year. Is this going to be a rolling crisis? Do you think where they just go from bank to bank to bank that are looking the

weakest in the market. Well, we should probably ask Kerman, right, Well, yeah, especially because me and him were researching the parallels between the F and L crisis, which is what everybody has been bringing up. Fewer banks failed, but larger banks are failing. Larger banks are failing. Signature and s maybe we're larger banks that failed. What I would say is that you mentioned Pac West, there's others like Western Alliance that are

sort of caught up in this vortex. I would say that the size of action and the unitsa yesterday or somebody came out and said Western Alliance was their top pick, right exactly. So, the unique partnership with the government and the private banks is essentially putting a line in the

sand and saying that SVB happened, signature happens. We're going to try to prop up First Republic, putting our own money at stake into the depository institution so the rest of the depositors at FRC First Republic can sleep well the night. How does this happen? Notionally, because what happens if there's another one? Do the does the private banking industry come in and help out? Like you know, like I was just surprit you could ask the same thing

of what happened Sunday night with the FDIC backstop. You're hearing today Treasury Secretary yelling kind of telling you that if it's a systemically important bank, your deposits are safe. I'm really curious about herman things of that as well, because you know, anybody who was watching in the market and the reason there are so fears under the market, there's at no point that the government said we are going to save the depositors of every bank. Should we

have a rolling issue here? And by the way, it's funny because I'm answering an email from one of our clients. They're like, why First Republic and not all the others when you're looking at this deposit infusion. Even probably was asking that and a great financial crisis as well, are right, it's a great question because First Republic, remember, this is something that was a very healthy acquisition target for a while. But it's not easy for a large bank to buy

another bank. There are limits, deposit caps, there's all sorts of other issues when they're buying a bank, and basically they just kind of want security from the government that if they were to buy something it would be okay. But right now, this is not a bank that is easy to buy by any fashion. And I would say to that effect with First Republic, it's not a bank that ran into issues when rates were low and then

subsequently are high. Now you compare that with SVB, and they had a very large fifteen billion dollar lost position in their security's portfolio and for signature, they were very much involved with the crypto business, So two very important issues that FRC First Republic just doesn't have. That's what I was asking, what's the connective tissue? But it's different cases, and we kind of keep pointing like credit suits different from SVB, right, different from signature, So I don't know

how to warm commonalities. I think one, I mean, the one of them being that a lot of smaller firms were always going to be under stress, given you know, their bond portfolios, given the deposited issues they had. I mean, we knew this is going to be a problem. We knew this from months. We didn't know that it was going to beat this much of a problem. And the deposit or flighted Silicon Valley, they had a much more to the concentrated depositor base. First Republica has a wealthier

clients by and large. They also have a very attractive loan book to a lot of banks as well, so again they're they're fine ish, Yeah right, You're still getting a thirty billion dollar deposit infusion, so it's a difficult situation. Another question I have for you is, you know, to mckey's sorry, to um Mike's point here, Sorry McKey and I've been only we all look alike customer. No, no, no, he's just in my mind because he's a central bank

to my banks. But you know what about pack West and Western Alliance, I think it's just more of an implicit vote of confidence for the overall industry if the government and the private publicly traded banks will come together to save one of their institutions. And I would also like contrast with what happened with SBB and the VC community, where where they abandoned their own personal bank, whereas these the peers of First Republic are banning together to save them.

So it's an interesting contrast. But with pressure, can we assume there was pressure from regulators? I think that's as safe as you know. It's an interesting thing because from what we understand, it wasn't just the regulators that are wanting this for First Republic, it's the banks as well. Remember First Republic. Usually what you're seeing when you look at these institutions they try to hire boutiques or kind of independent bank Silicon Valley Bank and hire its centerview

for example. But for a while First Republic have been working with JP Morgan. Okay, and after that Signature Bank, you know, an announcement we had on Sunday after they were taken over by regulators, they said they secured additional liquidity from the Fed and from JP Morgan. So the fates to the tied to First Republic for the biggest

banks are a little larger now. Silicon Valley Bank is another good example, because it's trying to go through this process where they're selling assets and they're hitting so many snags, and so it was more marginalized to them. This man, we know where this ends. Yeah, it's really hard to say at this point. Yeah, there could be some more twist concerns. But I think today's action really should be

seen as a photoconfidence. But but Herman, you know what I wonder is this crisis is so unique because typically a banking crisis is triggered by poor quality credit yea, whether it's mortgage delinquencies, whatever on the credit side. I wonder if that shoe perhaps is yet to drop for

the banking sector. You know, is there the chance with these this blistering campaign to raise hikes that in a few weeks, months, however long, we're going to start hearing about credit issues and have another sort of round of hair pulling over the banks. Well, we just heard about

Richard Clareno's comments earlier about a hard landing. I think what you've seen over the past week or so is that the regional banks are going to contract lending because they are really concerned about their deposits, with deposits exiting their balance sheets, so they don't have sort of like the dry powder to lend, because you're, in essence your deposits fuels future lending, and if those deposits are leaving, then the lending capacity is diminished and that could hurt

the overall economy. All right, we need to talk about Credit sueee. You know what we need to know about that, which has been We've talked about this already. They've had problems for a while and they've been trying to kind of write the ship, if you will. I think one positive sign from Credit Suez is what remember yesterday was a lot of panic. But even within the panic, I was kind of trying to take a couple of meetings out of the office to go into different offices to

see how folks are feeling. And what they were saying is, listen, Credit Suite has been in problems for a long time. Many people have reduced risk for a very long time as far as counterparty risk and other kind of you know, lending arrangements and whatnot. But the general sense was, listen, it's still a globally systemic financial institution. The Swiss government stepped up at the end of the day. The problem if it's Ciffy were to fail, the problem for Wall Street,

it's investors everybody else. Fewer options are not a good thing. When it comes to the banking system. We've learned you have to diversify where you keep your money. That is certainly true for large institutions. Corporations have learned it the hard way. What's the Wilicon Valley Bank? And you know, even for an individual depositors, diversifying is how the system works, all right, real quickly five seconds each you what are you keeping on your radar right now? Deposits It's the

name of the game. Anything else hitting into a problem. I mean, honest way, every day is like you wake up, you never know. Listen, look at the market moves every single day. I know different day to day. One day is bad. It's tough out there, yeah, which is I think very telling in its own right, which means it's a little bit trickier. I think for Fined Reserve chair Jay Powell when they meet next week, UM, thank you, thank you. This is how we like to do a

set up. Herman Chan, senior analysts for US regional banks, with our Bloomberg Intelligence Team and the Woman who Never sleeps. Shineli bask Our, Bloomberg News Wall Street Reporter. I want what she's happening. How do you keep sleeping? Just two cups of coffee today? I'm sure there's more, all right, Carol Master, Mike Reagan, you are listening and watching Bloomberg Radio.

You're listening to the Bloomberg Business Week podcast. Catch us live week afternoons from three to six Eastern Listen on Bloomberg dot com, the ihond Radio app, and the Bloomberg Business App, or watch us live on YouTube. We want to get to another name that was rolling in today's session, following their Ladies poorly update earlier this morning. We're talking about lands And which is a great check in terms

of what's going on in retail and the consumer. The company's first Quarternet revenue forecast beating estimates, helping to sound the small cap stock rolling around eighteen percent today. So let's get to it. We have the company's CEO, Andrew McClean. He is with us on zoom in Wisconsin. Andrew, nice to have you back with us here on Bloomberg Lot going on, Sorry, just trying to keep up here. How do you feel about the environment right now? You know,

I feel pretty good about the environment. We look at our customer like in some detail. We got seven million of them, so we got a lot of data to work with. We're seeing that they're they're relatively robust right now. They're sort of weathering inflation, they're weathering the political environment, they're weathering the banking issues that we're seeing over the last week or so. So no particular cracks yet and a little bit of momentum of anything. Well, Andrew, let's

get into that idea of the inflation. What are you seeing in your sort of supply chain. Is there any hope that this inflation, especially that cost input that you're dealing with, Is there any hope there that we've seen the worst of it, or or what what are we looking at? I mean, I certainly hope. So, I mean, you know, we've definitely we've definitely seen transportation costs become more favorable to us than they were last year, and hopefully we'll pick that up as a as a tailwind

for us this year. Um. Some of the prices of fabrics have moderated as well, and we're working with our factories closely to make sure that you know, we see those costs passed on. But you know, we're chipping away at it every day. I think everyone's trying to hang on so that the extra dollars that they made during the pandemic, and you just have to fight your corner. Is it easier to be a CEO today versus where it was twelve months ago? I think so. I think

it was more looking at uncertainty twelve months ago. I actually felt, and I said this one of the conferences earlier this year, I felt that retail went through its recession sort of like Q three early Q four. I think the sector was in recession. Whether the country was or not, it's up for debate, but I'm hoping, I'm touching wood here that the worst is the worst is pastors, and we can look forward to set ourselves out for a decent year. Having said that, you know, we talk

about customers trading down or looking for bargains. Are you seeing any signs of kind of some of the patterns in terms of how customers and consumers are shopping. That tells you a little bit more about the economic outlook. I have an eighteen year life on my customers. I mean, they come to us and they stay forever, and so we get a good read on them through various life stages. Um, you know what we're starting to see if anything is well. Actually it's a continuation of a theme. We're leaning in

more and more to leisure and vacation. Um. You know, I've talked a lot today on various calls about Swim and you know, we've continued to power ourselves from late December through to mid March off the back of Swim and really building out the vacation outfit for our customer.

And I can tell you she's really embracing them. And you know, we see that number of cohorts, We sell a lot of school uniforms, and we make connections, We make connections with with millennial late millennial moms and they're buying our swim. You know, she's thinking very much about vacation this year. Yeah, Andrew, what is how are you thinking about sort of the sales channels these days? Is the retail physical stores are they back? Is that is that the focus going forward? Or do you still have

sort of the online hangover from the pandemic. I think there's a place for our physical stores in any retailer at work for a lot of retailers that had physical stores. For Land's end, we have a different physical manifestation of our brand and it's through a catalog. We only have thirty stores. It's you know, we reported the relatively small revenue for us in the scheme of how we approach

the world. For us, it's about our digital ecosystem. And you know we have a we have two businesses, a B to B business and a B two C business in the digital world. And they're both scaled, scalable and profitable. And you know that that's where we're that's what we're leaning into and the physical manifestation of the brand that supports them kindly gives us that Midden upper funnel marketing

is really our catalog. Yeah, I think when you've been on in the past, I've definitely bought a school unif form from you in the past. Remind our audience though, and forgive me for not remembering, but your B to B or your you know, the school uniforms and the uniforms that you provide for hospitality and leisure. That is how much of your business, So that out there's business

which comprises three things. Is the sort of those the very large customers, you know, like in American airlines, there's small medium businesses in their um you know, autoparts companies, hotel chains, and then then we're into school uniforms. And then those three businesses together comprised sixteen seventeen percent of our total revenue base. Andrew, how is this high interest rate environment in affecting you? I mean, I assume it must be a headwind to some degree. Is it is

a huge challenge? Are you able to refinance in this environment? I assume that, Uh, you know, we talked about it on the call this morning. It's like you definitely saw our interest charges tacking up. That was partly driven by the inventory receipts that we had last year. It was

also driven by rising interest rates. And you know, we found ourselves in a situation where we had to place debt in the pandemic and then had a two year no call on it, which left us shut out by the time we got around to trying to get back into the markets again. And we're going to come back to the markets as soon as they open up. And it's that debt, and that's that's one of our priorities for us, But there's things we're doing to mitigate that.

You know, we're landing our inventory much more differently. You know, we're not holding as much of it. We're going to increaseable, we are increasing the turns in our business, and the reality is will chip away at that side of it as well. I think the question would be is how's the consumer doing with it? And it's like, you know, she's taken it in our stride. What does that mean?

What does an inner stride mean? Well, you know, it's just like she's I think she's probably finding ways to cut corners, but there are certain go tos that she wants. So if I look at my business, my best stats, or I've got a handful of best stats, and you know one of those is swim, one of those is out to where one of those is the fit of the fit of our product, particularly the bottoms, and we

see her leaning into those categories in night. She's she's still very much inclined to take those on the if I if I compare that with my business in Europe, it's been a little tougher with the business in Europe because you know, once once we got into the war with Ukraine. In Europe, we sort of business really sort of way back down, and when we felt that, we felt that resistance. But most of the last year, Yeah, Andrew, I wonder what sort of keeps you up at night.

As as the biggest risk, I mean, my guess is, um, this labor market has proven to be so strong, the consumers still remains strong. Is that the main risk? Do you think? Just um, a creepier in the in the unemployment rate and sort of less confidence among consumers. Is that a risk this year? Yes? It is. I mean, you know, but I have this amazing trove of data. Tropes are funny word, but I've been using that a

lot to day. I have this, I have this trove of data, and that's like I'm looking at my customer. You know, there's definitely a customer in there who is feeling is feeling the interest rates. But you know, again she's switching as I talked about two product categories that really work for her, and I can I can see the energy through the through the first Quarterman, I passed the midpoint of the first quarter, so I can see the energy of where she's at in the first quarter.

That'll carry through to the second quarter, but you know, some sort of system shot to that, and you know it's harder to see for the back half of the year. Hey, one last question, Andrew, if I'm in We've just got about thirty seconds. I mean, in an environment where we are so focused on what's going on in the banking community right now and we've seen it create some stress, certainly in financial markets, how do you factor that in at all in terms of your job? And again, just

got about twenty seconds. I'm just going to make sure that it's like we're appropriately financed, we have access to the capitol we need, and then I'm going to I'm going to just tell you the customers. I'm not experiencing it through my customer right now. She's not said I see a crisis, I'm going to react differently. She's trucked on right through that. And I hope that continues. All right. Well, really good to get your perspective, really appreciated, Andrew McClean,

his chief executive officer at LANDS. You're listening to the Bloomberg Business Week podcast. Catch us live weekday afternoons from three to six Eastern on Bloomberg Radio, the Bloomberg Business app and YouTube. You can also listen live on Amazon Alexa from our flagship New York station. Just say Alexa play Bloomberg eleven thirty. We want to get to another name that was rolling in today's session following their latest

quarterly update earlier this morning. We're talking about lands And which is a great check in terms of what's going on in retail and the consumer. The company's first quarternet revenue forecast beating estimates, helping to send the small cap stock rolling around eighteen percent today. So let's get to it. We have the company's CEO, Andrew McClean. He is with us on zoom in Wisconsin. Andrew, nice to have you back with us here on Bloomberg. Luck going on, Sorry,

just trying to keep up here. How do you feel about the environment right now? You know, I feel pretty good about the environment. We look at our customer like in some detail. We've got seven million of them, so we've got a lot of data to work with. We're

seeing that they're they're relatively robust right now. They're sort of weathering inflation, they're weathering the political environment, they're weathering the banking issues that we're seeing over the last week or so, so no particular cracks yet and a little bit of momentum of anything. Well, Andrew, let's get into that idea of the inflation. What are you seeing in

your sort of supply chain? Is there any hope that this inflation, especially that cost input that you're dealing with, Is there any hope there that we've seen the worst of it or what we're looking at. I mean, I certainly hope. So. I mean, you know, we've definitely we've definitely seen transportation costs become more favorable to us than they were last year, and hopefully we'll pick that up

as a as a tailwind for us this year. Some of the prices of fabrics have moderated as well, and you know, we're working with our factories closely to make sure that you know, we see those costs passed on. But you know, we're chipping away at it every day. I think everyone's trying to hang on so, you know, the extra dollars that they made during the pandemic, and you just have to fight your corner. Is it easier to be a CEO today versus where it was twelve

months ago? I think so. I think it was more looking at uncertainty twelve months ago. I actually felt, and I said this one of the conferences earlier this year, I felt that retail went through its recession sort of late Q three early Q four. I think the sector was in recession. Whether the country was or not, it's up for debate. But I'm hoping, I'm touching wood here that the worst is the worst is pastors, and we can look forward to set ourselves out for a decent year.

Having said that, you know, we talk about customers trading down or looking for bargains. Are you seeing any signs of kind of some of the patterns in terms of how customers and consumers are shopping. That tells you a little bit more about the economic outlook. I have an eighteen year life on my customers. I mean they come to us and they stay forever, and so we get a good read on them through various life stages. You know what we're starting to see if anything is well.

Actually it's a continuation of a theme. We're leaning in more and more to leisure and vacation. You know, I've talked a lot today on various calls about swim and you know, we've continued to power ourselves from late December through to mid March off the back of Swim and really building out the vacation outfit for our customer. And I can tell you she's really embraced sing and you know,

we see that number of cohorts. We sell a lot of school uniforms, and we make connections, We make connections with with millennial late millennial moms and they're buying our swim. You know, she's thinking very much about vacation this year. Yeah, Andrew, what is how are you thinking about sort of the sales channels these days? Is the retail physical stores? Are they back? Is that is that the focus going forward or do you still have sort of the online hangover

from the pandemic. I think there's a place for our physical stores in any retailer at work. For a lot of retailers that had physical stores. For Land's end, we've a we have a different physical manifestation of our brand and it's through a catalog. We only have thirty stores. It's you know, we reported the relatively small revenue for us in the scheme of how we approach the world.

For us, it's about our digital ecosystem and you know, we have a we have two businesses, a B to B business and the B two C business in the digital world. And they're both scaled, scalable and profitable. And you know that that's where we're that's what we're leading into. And the physical manifestation of the brand that supports them kindly gives us that Midden upper funnel marketing is really

our catalog. Yeah, I think when you've been on in the past, I've definitely bought a school uniform from you in the past. Remind our audience, though, and forgive me for not remembering, but your B to B or your you know, the school uniforms and the uniforms that you provide for hospitality and leisure. That is how much of your business, So that there's a business which comprises three things.

Is the sort of those the very large customers, you know, like in American airlines, there's small medium businesses in their um you know, autoparts companies, hotel chains, and then we're then we're into school uniforms. And then those three business together comprised sixteen seventeen percent of our total revenue base. Andrew, how is this high interest rate environment in affecting you? I mean, I assume it must be a headwind to some degree. Is it is a huge challenge? Are you

able to refinance in this environment? I assume that, you know, we talked about it on the call this morning. It's like you definitely saw our interest charges tacking up. That was partly driven by the inventory receipts that we had last year. I was also driven by rising interest rates. And you know, we found ourselves in a situation where we had to place debt in the pandemic and then had a two year no call on it, which left us shut out by the time we got around to

trying to get back into the markets again. Then we're going to come back to the markets as soon as they open up. And it's that debt, and that's that's one of our priorities for us. But there's things we're doing to mitigate that. You know, we're landing our inventory much more differently. You know, we're not holding as much of it. We're going to increasing well, we are increasing the turns in our business, and the reality is will

chip away at that side of it as well. I think the question would be is how's the consumer doing with it? And it's like, you know, she's taken it in our stride. What does that mean? What does an inner stride mean? Well, you know, it's just like she's I think she's probably finding ways to cut corners, but there are certain go tos that she wants. So if I look at my business, my best stats, or I've got a handful of best stats, and then you know, one of those is swim, one of those is out

of where. One of those is the fit of the fit of our product, particularly the bottoms, And we see her leaning into those categories and it's like she's she's still very much inclined to take those on. And if I if I compare that with my business in Europe, it's been a little tougher with the business in Europe because you know, once once we got into the war with Ukraine in Europe, we certain business really sort of way back down and we felt that we felt that

resistance for most of the last year. Yeah, and sure, I wonder what sort of keeps you up at night. As as the biggest risk, I mean, my guess is, um, this labor market has proven to be so strong, the consumers still remains strong. Is that the main risk? Do you think just um a creepier in the in the unemployment rate and sort of less confidence among consumers. Is that a risk this year? Yes, it is. I mean, you know, but I have this amazing trove of data.

Trope is a funny word, but I've been using that a lot today. I have. I have this trove of data, and that's like I'm looking at my customer. You know, there's definitely a customer in there who is feeling is feeling the interest rates. But you know, again, she's switching as I talked about two product categories that really work for her. And I can I can see the energy through the through the first Quarterman, I passed the midpoint of the first quarter, so I can see the energy

of where she's at in the first quarter. That'll carry through to the second quarter. But you know, some sort of system shot to that, and you know it's harder to see for the back half of the year. Hey, one last question, Andrew, if I'm in we just got

about thirty seconds. I mean, in an environment where we are so focused on what's going on in the banking community right now, and we've seen it create some stress, certainly in financial markets, how do you factor that in at all in terms of your job, and again just got about twenty seconds. I'm just going to make sure that it's like that, we're appropriately financed, we have access to the capitol we need, and then I'm going to I'm going to just tell you the customers. I'm not

experiencing it through my customer right now. She's not said I see a crisis. I'm going to react differently. She's trucked on right through that, and I hope that continues. All right, Well, really good to get your perspective. Really appreciate it. Andrew McLean, his chief executive officer. At Land's end. You're listening to the Bloomberg Business Week podcast Catch Us Live, Wait Do afternoons from three to six Eastern Listen on Bloomberg dot Com, the Had Radio Appen the Bloomberg Business

app or Want Us Live on YouTube. Well, with so much going on in the world, it's unfortunately easy to forget that. Turkey continues to struggle following the February six earthquakes that killed over fifty thousand people in Turkey and Syria. And if you add on top of that some flooding on Wednesday from torrential rains in turkey southeast that killed

at least fifteen people. I mean, Mike. The natural disasters have created a host of problems and health issues, so we felt like we wanted to get some thoughts on that. And with us is doctor Paul Spiegel. He's director of the Center for Humanitarian Health at the Johns Hopkins Bloomberg School of Public Health, supported by Michael R. Bloomberg, founder of Bloomberg LP and Bloomberg Philanthropies. Doctor Spiegel via zoom in Baltimore, Doctor Spiegel, nice to have you here on Bloomberg.

The earthquakes devastated infrastructure on so many different levels, and we know that makes it ripe for dangerous health situations throw on top, certainly in Turkey some of the flooding. What are you hearing specifically, Thank you, Carol. Yes, the situation is that remains dire even if it's not being reported on. But we're hearing. What I'm hearing and seeing my colleagues and friends in the field is that there

are two different situations in many ways. You have the situation in Turkey where people remain often in makeshift settlements, living in cars because so many of their homes and the apartments have been destroyed. Where you have in north West area, which has already been a humanitarian crisis for nearly eleven years now, with over four million people on

humanitarian assistance, still insufficient aid getting there. There was already a cholera outbreak which has worsened, and so the situation remains dire and sadly, despite perhaps not the same media attention, will remain dire for likely years. And it's very, very, very concerned. Doctor. I was wondering if you could just talk about what role the Hopkins Center for Humanitarian Health plays in a crisis like this. Is it as an advisory type of role or is it actually providing doctors

on the ground or coordination when a crisis hits. What's sort of the first order of business for you, right? So, I mean Hopkins the Center for Humanitarian Health is not an NGO, and so generally we don't provide aid as

an NGO would. What we do is we work with people on the ground and looking at the public health situation, so will be we will and have been supporting with technical responses in terms of surveillance, and we did actually have some people on the ground at the time that the earthquake occurred, unfortunately, and they were able to provide some assistance, but for the most part, what we're doing is trying to examine the situation and then provide technical

response as well as we continue to trainings both now and in the future, so that the future humanitarians that will actually be providing hands on experience have the latest evidence, the latest data to respond well. And you know you did serve as the emergency coordinator for the WHOS Ukraine refugee response last year. I mean, as you look at

this crisis, how does it compare? So for that, because of my background, I actually do respond sometimes as you know, with who set and others, and so in this situation, in many ways, you would imagine it would be very, very different because you've had an acute onset earthquake in Turkeys in northwest Syria compared to an acute conflict with Russia invading Ukraine. But in fact there sadly are many

still many similarities. Both were predictable. It was not possible to know when the earthquake was going to hit, but clearly the earthquake was going to hit, and so preparedness and much better preparedness was possible. Similarly, we knew that the through intelligence that the Russians were on the border for a long period of time, yet Ukraine and the

surrounding European countries were insufficiently prepared. But then things change because you see how in Europe, with the resilience and the strong health systems, how they were able to deal with millions of people flooding in to their countries. And you we have not seen that the increase. I mean, of course there has been some exacerbation of existing illnesses, but certainly not the death and certainly not the increase in morbidity that we're seeing in the northwest Ayria and

in Turkey. You know, doctor, it's obviously hard to make a building that's invulnerable to a major earthquake, but I have read that building codes in this region were an issue with this specific one in perhaps exacerbating the injuries and the that's is that true? Are building codes an

important part of the story? Yeah? Very important. I mean I think we sometimes building codes seem seem not tangible, but we should think of building codes like a helmet or a seat belt, where if you don't wear those, and if you don't implement and have inspections of building codes, buildings will fall down. And this is when you look at, for example, is some of the building codes in western

United States or in Japan. They're very strong and they're enforced, and the earthquakes that happened that there are not nearly as even if they're of a significant magnitude, the results are not nearly as bad as what happened in Turkey.

And in Turkey everyone knew that there the building codes are not being enforced, and bizarrely, they even had the possibility of paying a fine so that you should not We're not able to You're able not to follow the building codes because when you follow building codes properly, it is more expensive. And there was this push towards a economic boom in infrastructure and then building codes were not followed,

and so we see this, this is preventable. And I would add that the same issue incurring is occurring in Istanbul and in terms of not following building codes. And Istanbul is much more packed than many of these other cities in Turkey and has previously had massive earth quakes, and so there's going to need Turkey is going to need to do a significant amount of retro fitting, which is more expensive, to make these buildings more earthquake proof.

As you say, though, this is a situation that's going to be dealt with for years, and certainly the rebuild is going to take a long term. What are the longer term health implications as a result. Yeah, well, we're already seeing I guess these are more short terms in terms of diarrhea of watery diarrhea, increase in diarrhea. The longer term implications are there are many people that have had serious injuries, broken bones, crush injuries. There's there's going

to need to be physiotherapy and rehabilitation. We're also going to be seeing people that are not able to get the care and or are not prioritizing that care because they've lost everything else, and so issues will see increases and consequences of not taking care of diabetes and hypertension, and furthermore, one of the most difficult areas will be

mental health. I mean, I've been speaking with people on the ground just today, two people and not just the people of course that have been affected by the earthquake, but the caregivers themselves are not prepared for what they've seen. And what is even more difficult, I think is you have caregivers that are there on the ground who have also suffered, and so that you haven't just they're not just responding to a crisis, and they're being affected, and

so mental health remains a problem. Extreme stress, and I can only imagine in terms of mental wellness. Thank you so much. We really appreciate it and important to keep this on everybody's radar, Doctor Paul Spiegel, Director of the Center for Humanitarian Health at John Hopkins Bloomberg School of Public Health. You're listening to the Bloomberg Business Week podcast. Catch us live weekday afternoons from three to six Eastern

on Bloomberg Radio, the Bloomberg Business app, and YouTube. You can also listen live on Amazon Alexa from our flagship New York station. Just say Alexa play Bloomberg eleven thirty. All right, So, yeah, we're trying to figure out if the walls are coming tumbling down here. You know, we've heard a lot of conversations that this isn't another banking crisis. But let's get to the cover story. At Bloomberg Business

Week Magazine, it's a new double issue. It's available on newstands, Bloomberg dot com, Slash business Week always on the Bloomberg terminal. It's a finance section takeover. It could not be more timely. It is about the sudden unmaking of Silicon Valley Bank, which for for forty years really enmeshed itself in the venture capital community. So let's get to it. Lots of facets to this story. So with us is Bloomberg Markets

Finance editor of BusinessWeek magazine, Pat Regnier. He's in our studio along with editor at large Eric Shatsker and the editor of the magazine Joel Weber. And we're gonna start with you, Jael. This is a story we continue to track some headlines on the Bloomberg about the banking community overall. How did you and your editors and your team kind of figure out how to actually cover it and put

it to bed for this week? This was such a significant story and it broke it really a crazy time for us because of course also Silicon Value Bank not alone in this. You know, three banks and three US banks, and one week was significant. Obviously of those three, Silicon Value was the biggest, and that's why we wanted to really kind of lay make sure that we looked at that because there's a greater meaning to this bank. It relates to obviously Silicon Valley venture capital, private equity, and

interest rates. And so you know, we've I think we spent ten years talking about the financial crisis, if not longer. This at the moment doesn't look like it's going to become quite like that. But you know, on that's balance sheet,

Silicon Valley had us. As Eric writes, um, you know, really kind of strategy that you can call into question now, and that has raised a lot of eyebrows, and it's meant to me that you know, we might not be we might not through all of this yet, and so I wanted to make sure that in the magazine we

we we flagged that in a big way. And Pat was the architect that kind of I mean, frankly, he hit this structure where it was like, we want to talk about Silicon Valley Bank, we want to talk about what happened in DC, which we also had as part of that package. And then Eric put a bow on it just to say, like, you know, there's a greater meaning here that is about the financialization of everything, and so we'll talk about probably all those threams, those three

themes here. What was the thing that really stood out to you in this package of coverage in the magazine. One of the things that I really wanted to convey was how crazy the weekend felt. You know, I was sitting in a diner in Brooklyn and looking at my Twitter feed and watching not just the aftermath of a bank failure, but a very loud bank failure. This was probably one of the loudest failures of a regional bank

that we've ever had. You could see, you could see the VC community sort of raising alarms, I think, in some ways on purpose, and it created a scary weekend, even though I think probably you know it, there was there was reason to think all along that this was not going to be allowed to get too far if

people seem to understand it. But that but that anxiety that we came in on a Monday morning really said that, you know, we really just had to talk about something important has changed here that we could have a moment like this. Well, and I think, what's fascinating about this story. It's not like this was a household name in the

banking community SVB. Now it is, But I feel like that was a big part of telling this story of like who is this Pang and why are we also stressed out right, Well, obviously it wasn't an unfamiliar name if you were in the valley, and so like one of the one of the stories we wanted to tell was we have Ellen Hewett in who's our reporter in the valley, talking about just like how essential this was to to to sort of the wage, day to day

life work for people in the startup community. And she said it was like waking up to a hell fire in your living in your very own living room, Like what you know, what, what's suddenly on fire here? Um? And uh, that dynamic was really powerful because it was all the same kinds of clients at all the same bank, all talking to each other and with a lot of cash.

We've talked a lot about the fact that like there was something happening on the asset side of their balance sheet, but but the other thing that was happening was what was going on on the liability side of their balance sheet, which was they they had people who had who suddenly woke up to realize that they had reason to be nervous, which is not usually the case with most with most bank most banks, half of your half of the people who have half half of your money like, you know,

it wouldn't matter which you did in your on your assets side. They don't need to run to the bank. They're ensure that money's insured. This was a very different situation. Yeah, Eric, I want to bring you in a little bit here because I love the headline on your comment on this issue arrogance, incompetence or both. What svb's failure really means.

And I think, you know, it's interesting whenever we have a failure like this, the question often is, well, was this incompetence or was there actually sort of criminal behavior here? It doesn't seem like that with SVB, But I mean, can incompetence be so great that it sort of crosses the threshold into criminality? Incompetence is probably the best explanation for one half of what happened to SVB, and arrogance is probably the best explanation for the other half of

what happened to SVB. Incompetence applies to the asset side of the balance sheet. The fact that they mismanaged duration risk is unconscionable for any banker, certainly a bank of SVB size. It was the sixteenth largest bank in the country. The arrogance though, applies to the liability side of the balance sheet, and what we mean by that is the fact that they clearly not just SVB, that they is bigger than SVB in its management. It also applies to

the bank regulators the collective. They failed to recognize or appreciate that there was a different kind of con centration risk at the bank, and it had to do with the nature of the bank's deposits. Over the course of some twenty years, SVP SVB, excuse me, changed from being a bank that really did focus on the innovation economy, the startups in the Valley, in tech, in life sciences, medical devices, biotechnology, and became a bank that principally served

the VC and private equity communities. And those ended up being massive depositors at SVB. And we know now that founder Collective COATU Management, Founder's fund, Peter Teel's fund all in a heartbeat withdrew those deposits and ordered their portfolio

companies to do the same. That wouldn't happen, For example, at a Fifth Third Bank Corps that's the next largest bank after Silicon Valley Bank, it has six point one seven million individual accounts that fall under or the two hundred and fifty thousand dollar cap for Federal Deposit Insurance Corporation insurance. That means all of those six point one seven million accounts effectively were protected. And at Silicon Valley Bank that number was it was only equivalent to six

percent of their deposits. Pat likes to talk about hot deposits. You will not find hotterer deposits than the deposits that were and no longer are at Silicon Valley Bank. Still come on back in. Okay, so, Erica, You I think we're just a guiding presence and in a lot of just what we were thinking about in this package actually, and I do want to, you know, make sure that we spend this forward a little bit and think about what this could mean going forward. I mean, obviously this

interest rate thing that SVB got really wrong. Is it a question at this point of like, you know, SVB did it wrong, but like who else didn't? And you know this this lag that we've talked about a little bit before with interest rates, how else are you kind of just thinking about where else this could show up in the financial eCos Well? I was already thinking about First Republic and just to revisit a few of the

headlines of the past hour. It just got thirty billion dollars of deposits from a number of big banks, including Bank of America and JP Morgan. So yes, that was a problem, and there may be other regional banks that similarly mismanage their interest rate risk. We don't know all of the details. It's very important to say that because some of these banks actually are smart and do hedge. Some of that interest rate exposure didn't happen at Silicon

Valley Bank. Quite probable that it didn't happen elsewhere as well. But beyond the quality of the asset side of the balance sheet, there are other things to think about that we've been talking about and which undoubtedly we will end up covering here at Bloomberg in many different ways. The second, third, fourth, and fifth order effects like corporate treasurers asking themselves, do I really want to have money in deposit accounts any longer? Why shouldn't I take the excess cash that I've got

and sweep it into a money market fund. It'll earn a higher yield to begin with, and it will be protected because if it's a money market fund that's invested in treasuries, and agencies. It has the backing of the US government. This is not I mean, these things are going to play out over the next weeks, months, quarters, possibly years, and it might not be a serious issue in the short run because there are so many federal

facilities now in place to backstock the banking system. But these changes will happen, they will take place, they will transform the American banking landscape. I wouldn't be surprised if, maybe even as little as eighteen months from now, things look vastly different. Pat. I want to bring you back in here because I do think about this perfect storm of think about in a year, what has happened with the interest rate environment. That's one thing to think about.

Also the role of social media and creating a velocity, certainly with SVB. And then you've got what Eric writes about this financialization of our world and increasingly the role of private markets that don't necessarily have the transparency. You put that together and you're like, well, of course we're gonna have some problems. Yeah. You know, after we closed

this issue, I called my dad. My dad worked in the savings and loan industry during the savings and loan crisis, and he ended up working for the Resolution Trust Corporation, which was the government agency that did the bailout. So you called me in. He said, you know, I thought we had another five years before another one of these. Why do they keep happening so fast? And why don't

people learn? And I think, you know that's going to be the big question we're gonna be asking ourselves is why do we not understand how fundamentally risky a bank is? You know, we think of banks as safe. It's actually an important part of how banking works is that it they project safety. You know, they always used to build banks to look like Roman temple so that they would

look like they were very safe. But the reason we do that and we feel safe is because they're actually considerably riskier than putting your money in a money market fundance backed by t builds. They're actually doing something risky and they have to be watched and watched quite carefully, but they're doing something essential. Let's not forget about that. Without fractional reserve banking, I'm not going to get into details about what that means, please look it up on Google.

And without credit creation, which something we do understand the transformation of liabilities i e. Deposits into assets i e. Loans. We would not have the economy that we have. You couldn't take a dollar for dollar. You need one dollar of liabilities effectively transformed into ten dollars of assets. It correct velocity of money in addition to economic growth an opportunity. If you couldn't borrow to invest in your company, you know,

your hands would be severely tied. You wouldn't all of these things that that individuals and even and small businesses need. So many of those things would be effectively unavailable, which I can grab him a story. That's why when a bank fails, it's so essential to figure out what happened and ensure the same mistakes won't be made again. That's why we did this, and that's why we put it on the cover, and that's why we'll be talking about it. I think for you know, hopefully a little while longer.

And to that end, I do think that the repercussions of this are still playing out, and that's why I also we haven't talked about the second piece of this package, which is worth mentioning. But it's also why Jamie Diamond was in DC yesterday talking with Treasury Secretary Janet Yellen to make sure that you know, this thirty billion that ended up in First Republic could could happen, right, and that that actually, you know, it shows how much attention

there is on this stuff. And you know, of course you'd call in the guy from the financial crisis to make sure that everything goes smoothly. Eric I also wonder if he has sort of zoom out and look at it from a macro level. Was there a bubble in venture capital after a decade of low interest rates that just popped? You know? Is the is the golden age of the quote unquote founder over after this? I just

got a bat Well, that's an excellent question. I think you can only call a bubble after it's actually happened and the dust settles. And I don't think we're quite there yet. We're not there where we can look back and say it was a bubble. There's no question there was way too much liquidity there probably still is. We said it the other day, Carol je Powell secretly might be not glad, but boy, a bank collapsure does help to tighten financial conditions and make it easier to get

a rein on inflation. Now it's a really good point, right, because you've got to look at this all the big picture here robably not as preferred filing. You guys, all right, we gotta run Fat Regney or Market Markets and Finance editor a Bloomberg Business Week Editor at Large, Eric Shouts Garb Bloomberg News and Joe Weber, Editor Bloomberg Business Week. Folks, it's a finance takeover. It's the cover. It's a must read for the weekend. This is Bloomberg Radio, a journal. Yeah,

but you let me drive. Oh no, no, no, no, honey, please, I'll do the riding gravels. I want to drive. It's good question. This is the drive to the globe coming well, Brian up shoving down on Bloomberg Radio. All right, everybody, just under eighteen minutes left in today's trading session. You are listening in watching Bloomberg Business Week on this Thursday, Carol Master along with Mike Reagan. Let's get to it with our guests. Great to have back with us. Vans Howard.

He's CEO and portfolio manager at Howard Capital Management. They're a registered investment advisor, roughly five billion in assets under management. They've got mutual funds ETFs, growth tactics, income, dividend, lots going on. So let's talk about strategy and news and the markets with vans Um. Good to have you back. How are you? Thank you? It's great to be back. So is it great to be back in this environment?

Which wonderful to be here with you? Well, talk to us about this environment because you know, day to day the sentiment seems to change. We've got a rally underway in stocks. We've had some crazy treasury action, quite a move from peak to trough, if you will, right over the last week. If you look at that two year note, how how do you see the market environment and the

opportunities in it? You know, Carol, you and I Mike were talking a minute ago about the the the owaight crash and a lot of people maybe don't run around for that, or they don't remember how frightening that was when you you know, you went to bed at night and you know Bear Stearns was at thirty eight forty bucks,

a shaar. We woke come the next day there were seventy five cents, right, and for those of us covering it, we didn't even go to sleep because the news headlines just kept coming it just kept coming and it was unbelievably amazing and it was frightening. And that was probably the closest we've come in my gem, you know, in my age an you wait for a complete meltdown like the twenty nine crash. Is this that? Now? I don't

think this is that? But I got to tell you, whenever they say a bank has failed, it makes me I get to my attention really really quick, because that's the worst that you can have in a financial crisis. In a financial crisis like this garden variety of markets, they come, they go, But when banks implode, you've got a serious problem. It's like, you know, that's that's when hey, Houston,

you've got a problem, and so wake up. Yeah, and fans, you know, it's it's easy, I think, to get lulled into a sense of complacency when you look at the market reaction to this news, SMP up one point nine percent, you know, but this isn't over. I feel like, I mean, are we gonna be talking about a different bank tomorrow, next week and the week after? And I think that's what all managers are looking at right now, is where's

the real risk here? We de risk not because the HC on bioline, which is I propride to indicator with negative because it really came close to turning negative. But it's just right there on the cusp. We we de risk because it hit our stop, our stop losses for a bunch of positions there risk. We do risk on Friday and Monday and Tuesday, and so they took us out of a lot of more, out of a lot of out of a lot of the market there. So we're in about thirty five to forty percent cash right

now out of the five bigon that we trade. And I always want to know, is that normal? No, that's not normal for you. It is not normal. Only when the HC on bioline, well it hit stops. It just hit. It triggered stops that we had in and we're glad that we had them. But this market is going to be incredibly volatile. It's it's you know, you're walking, you feel like you're running in quicksand right now, and you're not sure which way to go right after, you know,

north or south events. I'm kind of a market nerd, So when I hear proprietary indicator, my ears perk up. Could you could you tell some of the inputs of the HCM byline indicator. The ACM buyline is a lot less complicated than people think. It's actually a number of of indexes that are averaged together to create our own proprietary index, and then our moving average is our own

mathematical equation to a moving average. Equity are various asset classic equities, all equities, because that's really what we're looking at. So we're not really thinking about bonds as far as investing in stocks. So but that did stay positive. But you know, Mike, another thing that's very disturbing is the two hundred day moveing average on the SMPA one negative. It close below that now. I think it might close back above there today, So that would be a positive sign.

And I know a lot of managers are looking at that, a lot of individuals are looking at that. We do hope that it closes above there. But you know, when banks start to come unwound, that is that is that's not good. So yeah, I do what so right, So cash is the place you would tell everybody to go right now or no, I mean you're still in it. You still have equity exposure. We do. We've got about

sixty percent. We were buying bil, which is bill. It's so one to three month treasuries, and I think flash US has got really if it was, it's just liquid, it's very fluid, and we're making a decent rate of return. But you know, I'll tell you what we've got to watch out for is what is the FED going to do? And you know, everybody seems to think that the Fed's mandate is to crush inflation. The fence mandate is to create stability in our markets. That's key one. Well did

the FED create this problem? Did the Fed create instability in our markets by raising rates too far too fast that nobody could keep up? Or the Fed keep keep create problems by keeping it low for too long? That one too, And there's a case on both sides of the equation, but it needs to be monitored on both sides of that equation. Too much, too fast or too

low for too long. Either way, they've got to get a handle on this and done because, like like you said, Mike, when you have treasuries that that that that kill a bank. That's weird. That's not something weird I think it is. It's not on my bingo card that You've talked about enough, right, Mike, Like we always talk about treasuries. That's your safe haven, that's where you go right right, Well, and of course in this case, it was well, what part of the

treasury curve were you invested in? They were clearly too far on the long end. But you know, not even the type of thing that's in a bank stress test typically, that's right. And you look at what happened there with with with SVB. But another thing too, when you look at that bank, they were doing loans they probably shouldn't have done. They're playing venture capitalist with bank money. Yeah,

and I don't really agree with that either. That the sixteenth largest bank in the country I know there and their assets balloon they did, and so you have to ask yourself why did they balloon? And that's the reason. What they were doing was what they probably shouldn't have been doing. You know, you talk about your HCM byline,

your proprietary indicator. Um, what you're seeing in that indicator, is it similar to what I don't know how long that indicator has been around for you guys, But take us back to some other kind of crisis moments or critical juncture, you know, junctures in the trade. Have you seen a similar move? Yeah, oh yeah. And we've had the HCM byline since the mid nineties, which we've worked on it and tried to make it better and better and better. But it called the Oeight crash really really well.

It pulled us out the second wee get January of O eight and we really sat in catch pretty much the whole year. And you know, as a trend indicator, it can get whipsawed occasionally. What about as the PoTA as we went into the pandemic, Oh, we think they called it beautifully and we made I made more money in the pandemic than any other year I've ever made. I mean, we pulled out almost sixty percent of cash

we're forty percent and invested at the bottom. We came back in on March twenty fourth of that same year. You know, the bear market only lasted twenty yeah. Yeah, And so we caught that whole up trind with sixty percent of our cash and actually made a fortune. And so it was really panned out pretty well for you. You know, That's what's so funny is we're talking about all these risks out there, all this sour mood I'm looking at SMP still up three percent on the year.

What would you need to see to get you know, double fisted bullish towards stocks. Do we need like that capitulation where everything sells and the markets just takes a steep dive. Well, like I said, the reason we de risk wasn't because the byline went positive. When the byline is positive, we liked to buy stocks and owned stocks and hold them for the longer term. We de risk because it just hit stop losses. We'll be looking to get back in due to the fact that the BIDO

line is positive. Now, it's not a very active indicator. I mean, I wish you'd never go negative none, I never have to de risk, But that's not realistic. You know, look at O wait, look at the pandemic. Look at what happened in January of twenty twenty two. Right, And another thing too, we got to look at Mike Carroll is you got to take the well, I don't know what the market's going to do next week, or Nikki or nobody else does. I don't know if we're going

to go into a recession. Nobody else does either. So with a good trend indicator at least you know what the trend's doing. Yeah. That's a really good point, right, because we all try to Yeah we all knew, yeah, but exactly. But if you have a better indication of the idea where the trendline is going, that can help them to pick your assets and certainly portfolio. Thank you so much, good to have you back with us fans Howard Chief executive Officer, Portfolio Manager and Howard Capital Management

Here in our Bluebird Interactive Burger Studio. This is the Bloombird Business Week podcast at Apple, Spotify, and any or else you get your podcast. Listen live weekday afternoons from three to six easterning on Bloomberg dot com, the iHeartRadio app, tune In, and the Bloomberg Business app. You can also watch us live every weekday on YouTube and always on the Bloomberg terminal.