SVB Collapse Continues to Have an Impact

Saxon more. He is here with Katie and myself in our Bloomberg Interactive Broker studio. So what's the most important conversation to be having right now? Gosh, I don't know. I mean, obviously, the worry that people have is how far this conpasion will go right. I mean, we've seen a couple of bank failures, and obviously there's a lot of action and a lot of other bank stocks that make it seem like people are not fully convinced throughout

of the woods. Are we I don't know. I would have had on Sunday night that it looked pretty convincing that the Fed was kind of step in to kind of prevent bank runs or deposit or losses. But I think people are still worried about capital at a lot of these banks. I think that a lot of them, it seems like, are probably under capitalized on a Marketer market basis. I might have to raise money and like that's spooking shareholders. So on Sunday night, I was thinking,

who do I want to talk to? Who's the one person in the world that I want to talk to the most about this? And after Janet Yellen, and then after a Jerome Pal, I'd landed on Matt Levison. You were third, But I mean, that's that's my triple crown right there. Can I just tell you some of the narratives that I've heard about this and maybe you can

mythbus for me. The first one is that basically this was the fact that SPB had a lot of long dated treasuries that when they got hit with all of these you know, withdrawal requests from their depositor base, which I understand was mostly you know, private equity backed startups, tech bros, etc. That's another narrative that I've heard thrown around. Then when they went to sell these that duration risk really came back to bite them. Is that the whole

picture or is that missing some nuance? Oh? I think that's most of it. Yeah, I mean I think they had a lot of duration risk in in a way that was not accounted for market and market day to day and their balance sheet. So they looked you know, if you just looked at their financial statements, they looked pretty solvent. But if you drilled down into the unrealized losses on their whole to maturity treasuries, they looked a

lot less solvent. Someone noticed. Basically, it seems like the you know, the tech bro crowd kind of noticed that. And it works, right. One person noticed and then they go to the slack and you know, they all get their money out. So are they on slack? Is that like the cool place to be? I don't I'm not in the cool slacks, But my understanding is there might have been some some slacks. I'm on ib personally. Okay. That leads me to my next question, though, why didn't

they hedge against this risk? Isn't this I don't know. I would think that if you run a rank went a one part yeah, right, like it was there any way to hedge against this at all. Well, they need to make money, right. I Mean, the thing that I think happened with the Lilicon Valley Bank is they got a ton of deposits in very short order over the last couple of years because all of their clients were just getting you know, huge they say in their financial

liquidity events. They were doing spacks, they were doing fundraisings, they're making it. They're bringing in a lot of money, and they're depositing it at SVB. SVB like kind of didn't have a place to put it, right, Like, you need to take some risk with your money to make money to like, you know, continue running your business as a bank. Traditionally you take some credit risk. They you know, all their clients were flush with cash and didn't really need credit, so they ended up taking a lot of

duration risk. You can't really hedge that in a way that you know, they could have been just buying short term assets, but then they wouldn't have made any money, or they wouldn't have made enough money. Obviously they were getting a little rudy and reaching for a little extra money. But they took into a straight risk because it's the

risk they could take. So mat is there a lesson already we're thinking that we need either increased oversight that beyond the systemically important banks, or is this just a

case of a bank that was poorly run. Well. I think we definitely are going to see calls for increased oversight over these non systemically important banks, and I think, like, obviously it's because they're systemically important, right, I mean, like if you look at their action to SVB, it was if we don't, you know, rescue SVBS depositors, there's going

to be a cascading run on other banks. That threat like seems to have been kind of, you know, reasonable, Like I mean, seems to be true that there's a lot of worries about other banks. And you know, if you believe that threat, then the first thing you do is you rescue the depositors. And the second thing you do is you start applying the same regulation we applied to systemically important banks to banks like SVB that have always said they're not systemically important but turn out to be.

I think it's really interesting that even though you did have regulators step in with this backstop pretty much what everyone expected them to on Sunday night, and yet you look across the market right now. I mean, banks are being sold off like crazy, especially some of these smaller regional banks. I don't know. It seems to me it kind of marries with what you were saying about. You know, you had all these tech bros in their slack chat and it sort of led to group think this like

herd mindset they all pulled out. It feels like that's still happening with some of these regional banks, even though theoretically the depositors would be safe. Yeah. Look, I don't know. I think that Um, I don't know that there are runs on these banks, but we know their stocks have gone down, right, And like there are a number of

possible reasons for that. One is that this is a problem that people were not focused on a week ago, and now the drama of this weekend has sort of brought focus to this problem, and so people who are maybe a little behind are saying, I'm going to sell

my bank stocks. I do think also, like there could be ways this goes poorly for equity holders, even if the depositors are totally fine, with one obvious one being that if these banks are kind of less solvent than they look, and if regulation is coming to basically make them be more solvent, and that's going to mean a lot of equity raising and a lot of dilution for

existing shareholders. So that's one possibility. But I agree, I'm a little perplexed by the price action because, like I would, I would not have expected big runs on all these banks after a weekend of the FED saying kind of we're going to do everything it takes to make sure that these deposits are fun. But without that online chatter, you do wonder, and there's been a lot written about this that if without that, would we be in this situation.

Because SVB sold rights and assets, they did what they needed to do to kind of shore up art. You don't buy that, well, I kind of do. I mean it's a bank run, right, I mean, like the problem with a bank run is you have all these assets that will eventually pay off and you have to sell them now, and you don't have enough money if you sell them now, right, I mean, if if there had not been a run, you know, they were they were sort of generally aware of this problem. They were rolling

off these long duration securities. They were like reinvesting it like they were you know, they would have been fine if they hadn't lost forty billion dollars of deposits in a day. Um, I mean maybe right, I mean, like it's not it's not great to be balance sheet in solvent as a bank, but it's something that's happened before and the banks survived. But when you notice it, when there's a when there's a big fast run, then like

there's not a lot you can do about it. So if I were in charge of a regional bank right now, if I were managing a portfolio and say, I don't know, I had a lot of duration risk, what should I do? Like, how should I go about managing that risk? Is that change? Now? Would the answer be different than it was a week ago. A week ago, a week ago, I would have said, raised a lot of equity, okay for sure, Now that

seems look, I don't know. I mean my answer to your question is I might sit very very very still. I don't no one notices me, because there's a lot of ton you could do, right, I mean, like the problems that a lot of these banks that they're health in healthy maturity accounting, where if you sell it like you trigger, like the losses become more visible, right, they'll get to account for the losses. So you don't exactly

want to do that right now. You probably could use more equity, but you don't want to go out and raise equity right now because like arguably that's what triggered the run an SVB is doing a you know, attempting an equity raise. So I mean your best bet is probably what you're already trying to do, which is to like let that duration risk roll down and reinvest the

money elsewhere and try not to do it again. But you know, like if someone notices either could be a problem, I'm glad that I only hypothetically run a regional bank I had TVD given a few years. The other thing I would do is like, you know, call up the FED and make sure all of like the you know, make sure I understand the program and be ready to borrow from the FED. You know, like, you know, being able to show up your liquidity with all these new

liquidity you know provisions is probably that seems helpful. Roth Slowstone have ever Core was on TV earlier and he reminded us of worn buffets. One of his famous it's only when the tide goes out to you learn who has been swimming naked, and we're increasingly learning that are we likely because of this unusual low rate environment that we've been in for so long, there's going to be more that more exposure of some problems. Yeah, I guess.

I mean, like, like all all you know, there are a lot of banks who are in roughly similar situations. I also think that, like it feels like this is a one time transition from that low rate environment to a normal environment, like when rates go from like zero to to like four percent, like this gets exposed the

next move. I think you're going to see less of this because like this, the problem is you had to really reach for a lot of duration risk when like you know, treasury bills are paying zero and your deposits were paying zero. But now if treasury bills are paying like four percent and your deposits are paying one percent, there's a lot more ways to make money as a bank without reaching for duration risk. Just got thirty seconds.

What about like commercial real estate exposure? Is that could be that another shoe, Thanks could always lose money on credit. I don't know. I mean, it doesn't doesn't have the same sort of like it doesn't feel to me like being is sort of like hidden and surprising to people as this as the durationists that these ranks about. This was great. This was the best eight minutes of my day so far. See. I mean, it's been a bad day, but this is definitely the highlight. Imagine if Jellen this

is pretty though. This is a pretty good third place. I gotta say it's not too bad to be in those top three. Um, Matt Levine, thank you so much, really appreciate it. Columnist with Bloomberg Opinion. Check him out on the Bloomberg terminal. Of course, at Bloomberg dot com, you're listening to the Bloomberg Business Week podcast. Catch us live weekday afternoons from three to six Eastern Listen on Bloomberg dot com, the Ion Radio app, and the Bloomberg

Business App, or watch us live on YouTube. Well. Our coverage and focus on banking continues and where and how we might find additional problems spots. Our in house analyst on regional banks back with us, Herman Chan. He is seen your alas for US regional banks with our Bloomberg Intelligence team. He joins Katie and myself here in our Bloomberg Interactor Broker's studio and then on Zoom in Chicago and a Koy Partner national financial services leader at whip Fly.

It's a global accounting, tax and consulting firm that's been around for nearly a century. So curious to see what if any of our banking clients are saying. But let's start with Herman, Herman, where are we? What's the latest here? What do you think it needs to be top of mind for our investor audience? Sure? So where are we? We are in a market that is very dubious about

regional banks. When we first chatted last week, our view was that the SVB situation would be a bit contained because SVB is a very unique atlier type bank that took a lot of interest rate risk in their investment securities portfolio and was also seeing some deposit outflow from their startup clients. There's no other bank of size in the United States that does that kind of business, that

structured their balance sheet in that way. We know that, we know that for effect, But the market is extrapolating from what happened with SVB and taking a very dim view of banks that operated either tangentially or had the same sort of geographic focus or product focus, and so banks like Signature have been felled by this. Banks like First Republic and Western Alliance today are being pressured because they operate in similar markets and customers. Well that's the thing.

When I was reading my email last night, I mean I read it all day, it was kind of a double whammy. First, we got a headline that said the US as SPB depositors will have access to all money Monday. That's good. The next headline that I read was that

USS Signature bank closed today by state authority. So, I mean it makes sense that even though to your point, I mean we sort of had an isolated case here, it does feel like there is this concern over who's going to be the next Signature, What's going to be the next surprising headline? You mentioned First Republic. I mean, nothing has been announced about them, But is that a name that we should be keeping an eye on the market's telling you it's a name we have to keep

an eye on for a better or for worse. I think it's a bit unfounded. The bank itself is a very conservative institution that caters to high networth clients, doesn't down fifty trading. That's amazing. I mean, and it has had the best one of the best credit quality type stories over the history of the company. Wow, And I want to bring you into the conversation. You know, remind all of us, you know, what you guys do and in terms of the types of clients you have and

what you're seeing in connection with this. I don't know whether to call it crisis, but certainly concern and worry in the banking site sector. Yeah, absolutely so. Whipfully is a top twenty financial um works with top twenty accounting firms that works with financial institutions anywhere is up to about fifteen billion dollars, so your regional size financial institutions, and you know we help them from compliance and regulatory as well as you know, consulting around digital and other ways.

So how are those clients. What's the conversation you guys are all having with those types of clients. You know, it's it's been around liquidity since the fall, and right now it's it's risk. What's on their balance sheet? How do they manage the risk and how do they not be the tansgential um ones that go down like you saw with the signature or the discussions are our first Republic. Well Herman way in on that thought managing liquidity risk.

We were just talking with Leaving about managing duration risk. If you run one of these regional banks, how do

you do that? Well, the new FED facility helped you manage liquidity is the whole issue in my view is that the announcements last night with the regulators backstopping the deposit tours of both SVB and Signature and also coming out with this new liquidity facility should give the market confidence that the banking sector can manage this liquidity risk because the banks can use their existing assets and pledge it to the FED and then get get liquidity out

to help support their their depositors if they want to take their deposits out of the bank. That's the whole point of this. It seems like it's fallen on deaf ears that the market doesn't feel like the liquidity risk issue has been taken off to take Yeah, I do feel like officials I mean at a command back, I mean doesn't do those banking clients that you guys have and customers feel like the government is going to be there to backstop whatever they need. Yeah, I think the

banks feel that way. I think the risk that we're seeing is a risk that maybe many didn't have top of mind before now. And that's social media risk. I mean, it's going around like like wildfire, whether it's Twitter, Facebook, Instagram, you name it, and so how do you manage against that, even though it's a very conservative bank that they're talking about.

That's the thing. I feel like I've seen so many tiktoks even on this, which is not necessarily a social media channel, that you would expect this to be penetrating. But I mean, anna to that point, I know that this is impossible to quantify. It's sort of a thought exercise, but how much did this sort of heard think that we've heard around what happened at SPB. How much was social media do you think actually a contributing factor here? I think it was significant, and I think we're seeing

it still with First Republic. Seems to be top of mind and at the tip of everyone's tongues right now, whether it's founded or not. Well, and this is where going back to you, Herman. You know, you guys have to do the fundamental and critical research, look at the balance sheets and understand it. So is there is there? From what you are seeing a true disconnect between the social conversations and the social narrative versus what the reality

is on a lot of these regional banks balance sheets. Right, I want to pull it back to what Matt had talked about in his prior segment with you guys. Yeah, and he mentioned the duration risk of the securities book at at SBB signature, and to a much greater extent.

First Republic has duration risk and its loan portfolio because they are mostly loan to high net worth customers and residential mortgages or home equity of type loans, so the duration of those loans are about ten years, and so those books are going to sit on the bank's balance sheets at fairly low rates because a lot of the mortgage activity that happened, as you probably recall, happened during the pandemic period when rates were zero, and so when

the bank did all these originations at that time, they were at very low levels. And so you have the same sort of duration risk, but in the loan book and not the securities book. I mean, Anna, my head is spinning a little bit. And right now I have to say, especially after being plugged in for like four days straight, what do you expect the next two weeks two months of conversations to look like with you in

between the banking clients that you do work with. Yeah, I think you're going to see a lot of folks going back to the basics and really looking at risk on their balance sheet, better understanding, you know, where they have current risks and truly trying to manage what that's going to look like in the future. And so a lot of talk around not just liquidity but overall enterprise risk management and you know, truly getting back to the

basics of what they were as a financial institution. Hey, Herman just got about thirty forty seconds to we even understanding of kind of maybe a window and time frame, like to understand when all the fallout should happen as a result of this. Wow, that's that's a tough one to answer. Um, I think we're Yeah, you'd be living on an island in the Caribbean. I get it if

you knew that, if I did. Yes, I think hopefully the market is being very forceful with what they're trying to tell tell the story in terms of First Republic and some banks like Western Alliance pack West, Um, they say, hey, here's the reality of it. We're okay or there's something is going to have to happen. So either way, I would expect it to something to happen in a very short order. All Right, it's gonna be fun, I know. Strip yourself in. Everybody, get ready for the ride. Herman,

thank you so much. Herman Chan, he's senior analysts for US regional banks at Bloomer Intelligence. Not getting any sleep right now because there's so much going on here in our interactive broker studio. And Anna Choi, thank you so much. Partner, a national financial services leader at whip Fly. Joining us via zoom from Chicago, 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, Jo Say Alexa play Bloomberg eleven thirty. All right, everybody, as you know, Saint Patti's day coming up. I've heard that on Friday. We can all use a stiff drink. Right, there's a lot going on right now.

We also do know that we are front and center on what's going on with banks here in the United States. We did see though exposure and activity overnight European equities they tumble the most in mid December. They extended Friday's decline. Concerns from the banking center lingering to bite measures by regulators to limit the fallout from Silicon Valley banks collapse. The world once again, Katie, looking at the global banking system, so we have a lot to talk about with a

global perspective. Is Mary Buckley. She is the Interim CEO of IDA Ireland. It's the Irish government's agency to attract inward investment. She joins us here in a Bloomberg Interactive broker's studio. Mary, as you know, a lot going on. Welcome, welcome, Nice to have you here with us. How are you. I'm very well, thank you, and good evening everybody. Good

to have you here. Let's start though, there's a lot to talk about, and I know you're doing an event here with Bloomberg also overseas, but I want to start with the global perspective. The world once again looking at our global banking system, looking for cracks. How do you see it and what do you think is the constructive conversation that we need to be having and that you might be having with your colleagues there at your agency. Well,

I think it's very early days yet for us. We're absolutely staying very close to companies in Ireland and we're assessing the situation. But at this point in time, I think from an Ireland perspective perspective, there will be limited fallout from it, So not seeing any kind of tightening as of yet or financial strains. Much too early to say at this point. What about sort of the psychological damage, if you will, because I mean we've talked a lot about how this will affect Silicon Valley in the US

in terms of the tech scene. When you think about the global tech scene the partnerships to be made there, do you think that this will have an impact. We have a lot of tech companies in Ireland and they are operating very steadily there, and many of the largest players globally are based in Ireland. And I think that it's safe to say as well that Ireland would be seen as one of the most innovative economies in the EU.

So I think from the perspective of that from the government focus on innovation and indeed moving on then to look at the very strong ecosystem that there is an Ireland. Hence we have the tech companies here. I think that Ireland is going to be fine and it'll be still remain a great location for tech companies. Mary, it's interesting too, like you've been with IDA for a while, right have indeed, yes,

so you've seen a lot of market cycles. No. I love folks like yourself who have seen different market cycles, different market environments. So if I think about the Internet bubble or the Great Financial Crisis, how does what we're going through here feel like what we've gone through in

some really severe times in the past. Yeah, And look, I think that's very clear, just to put some context on it, that we have over eighteen hundred overseas companies located in Ireland, and in tandem with that, there are about nine hundred and fifty American operations in Ireland, so

very strong US relationships. And I think it's very safe to say that, you know, Ireland is seen as a very steady location and a very secure location, and from that perspective, I can see that there is a huge amount of activity taking place in Ireland that is very very positive and the tech base of companies that we've seen lately, if you're to comment even on just in more recent times, some of the losses that we've seen

in the tech base. You know, overall it's about one one point four percent of the tech employment in Ireland. And as you rightly said, Carl, we do have you know, just gone through Brexit, we've just come through COVID, and I think one of the things that it's very clear to see is that we're a very resilient economy and that the FDI base in Ireland is really strong. So if you look at even last year, so investment for

indirect investments still coming in. Oh absolutely, last year alone we want two hundred and forty two investments and just as part of that, one hundred and sixty seven of those investments came from the United States. But of the two four two one hundred and three were brand new, first time investments. So I think it really demonstrates the value proposition for Ireland is strong, and in tandem with that, there is huge confidence in our existing base of companies

as well. So I think from an Ireland perspective, from an FDI perspective, it's hugely important to the Irish economy, but it will remain strong. And just to make sure I got those numbers right, So one hundred and three of those were new investments, right, Yes, So what is the outlook for twenty twenty three. Look, it seems like the book comes from the US, but beyond the US, I mean, where is the most opportunity. Well, the bulk

of the investments do come from the United States. And you know, we've just talked about technology, but I think it's spared to say that Ireland is very well diversified. So we have life sciences companies, both pharmaceutical and medical technologies. We also have financial services companies and we have engineering and other types of companies as well. So I think

across the board we're seeing a lot of investments. And while it might be a little quieter this year because of the global environment that we're operating in, that will be the case right across the globe FDI investments there will be you know, slower this year. Well that's what I would ask Mary, Like, you know, while I'll worry, like there's things that we think about, and whether it's concerns about geopolitics right or now we're worried about maybe

what's going on with banks at this point. Other things we're worried about, just a global slowdown, global recession. If you had to kind of pick one big macro event that you say you're strong right now but that is really top on your radar, what would you say it would be, Well, there's so many things happening, you know, across the globe at the moment, it's quite difficult to

pick any any particular one. We're certainly seeing. You know, obviously, for client companies, the environment in Ireland has been really really strong, but they have just like many other companies, they are coming through the challenges of inflation of interest rates and indeed the challenges of energy crisis and energy prices, all on the back of the conflict between you and Russia and indeed because of COVID. And I think again, you know, last year was our best year ever in

FDI employment. So again, I think it does demonstrate that resilience that I refer to and the stability of Ireland

and the pro business environment that's there. So I think that, you know, regardless of the challenges and there are many currently, you know, it's referred to as a poly crisis, I think you know, if you look at Ireland, we have really been very, very industrious and certainly from an investment perspective, Ireland is a great place in which to invest and I think that's what our investors and our clients are seeing.

Many of our clients are in Ireland, you know, fifty years and longer, and I think again demonstrating again the innovation that takes place within the country has been hugely important to Ireland's success as well. Mary. It's funny how narratives shift so quickly, because if this was a week ago at one of the first things I would have asked you probably would have been about a and we only have about a minute left with you. But when you think about, you know, bringing innovation to Ireland, where

does AI rank on that list? Well, AI ranks exceptionally highly and we have many companies that have come to Ireland, particularly to be involved in AI, and particularly from the US, and we have a significant number of STEM graduates in Ireland. In fact, from the perspective of AI and STEM, the graduate work for graduate graduate from Ireland is very strong.

It's the strongest in the EU on a per capita basis between the young graduates, between the ages of twenty and twenty nine, so right across the board, AI is really part of not just technology but life sciences, financial services, and many of the companies that are in Ireland are actually focused on AI. And the education system in Ireland is really really strong for bringing through that cohort of graduates to have the skills that are needed for a

focus on artificial intelligence, which is really really strong. I do want to point out that Bloomberg is going to be hosting it's inaugural European New Economy Gateway in Ireland in April and partnership with IDA Ireland, and I'm guessing they're going to be talking a lot about AI and innovation. So it's interesting a longer term perspective, which is what New Economy does with its partners and kind of gets

above the daily and talks about long term. Mary, thank you so much, but in my pleasure, thank you, our pleasure, Mary Buckley. She's interim CEO of IDA Ireland. Here at Bloomberg, you're listening to the Bloomberg Business Week podcast. Catch us live weekday afternoons from three to six Eastern Listen on Bloomberg dot com, the Ion radio app, and the Bloomberg

Business app or watch us live on YouTube. We continue to watch what's going on in the banking sector, and we continue to watch what's going on in the startup world, and just trying to assess the impact of the collapse of Silicon Valley Bank. The tech community, though, Joel, as you know, continuing with some of its major initiatives, such as the uberization of the freight industry, which this story is in the upcoming new issue of Bloomberg Business Week.

It's on newsstands later this week, already online at Bloomberg dot com, slash business Week on the Bloomberg Joel is still with us, but let's bring in also into the conversation on the reporter who wrote this story Bloomberg News Technology Report to Austin car on zoom in Boston. It's a great reminder, Joel, that things are moving on despite

some of the day to day gyrations. Okay, so that, yeah, there's like, you know, the big banking story, and then there's Austin's charming little story from from Europe which does relate to some bigger, you know, innovation stories here. So we're going to attempt to have this conversation not bring up Silicon Valley Bank. But you know, I have not done my due dealings there, hopefully Austin has. If there's any exposure we should to SBB here, Austin, we should

disclose that sooner rather than later to your knowledge. Is there any not that? Okay? All right, good now, let's just talk about Cinder who. I had never heard of this company until Austin was like, you should probably read about Sender. What is sender up to Austin. Yeah, so Sender is a digital freight for it or you might not know what that means, but it's essentially a part of this sort of growing batch of tech startups out

there that are trying to uberize the trucking industry. If you look around you right now, probably anything on your desk, your phone, it's likely been on a truck, maybe like three to five to ten times to get to where it is right now. We're talking about groceries, electronics, everything, and yet the industry is the most inefficiently run thing.

It's absolutely insane. I spent time in Europe with the startups and truckers and you just have no idea how much of it's still run on paper and pen and email. And phone calls, and so this is the europe this European company called Sender, which has really done some work

to consolidate the market. They actually bought Uber's European freight unit in twenty twenty, they bought one of Send, one of France's hottest startups, and a few others to sort of grow out this net work of sort of streamlined automated trucking apps to make sure things are a little bit more streamlined than they used to be when they were still run on fax machines. And believe it or not, things really haven't been changed much since then, despite the

fact that the amazons the world exists. Okay, you wrote in the first paragraph about what I had never heard this before. It's a sad joke for this industry that, more than anything, what is getting shipped is nothing. Talk to us about empty miles. Yeah, empty miles. Is this really tragic phenomenon in the business where essentially, most of the time, you know, because we have shipment's going from A to B, but not necessarily back from B to A, a lot of the times, the trucks you see on

the highway or empty. You know, we just have this assumption that goods are in the back of these big, big rigs rolling around expressways, but twenty percent of the miles at least in Europe or what are called empty miles, and that's part of the reason is just because they're not off demise too well, they're not loads aren't bundled, so you have again trips going forward as well as

for the back hall. So that's one of the things that these this batch of tech startups out there like Sender in Europe, Convoy and Uber in the US, and full Truck Alliance and China are trying to work on. They're trying to essentially use machine learning analytics to make sure they can piece together a map of different chipment to reduce empty miles, which can really lower the amount of emissions out there and also just make costs of goods go down because there's not so much inefficiencies in

the market. Okay, so how is how is Sender doing that or how did they set out to do that and how are they doing it now? Well, it was pretty difficult, you know, they started a couple of years ago really trying to break into the market, just expecting things would be able to be uberized, you know, we build an app, you'd expect truckers to use it, But what they ran into was just this crazy old world, antiquated dynamic where truckers did not want to use these products.

They were so used to doing things the old school way by sort of phoning in orders, by calling to say that they've arrived at a truck depot. Sender tried to send them out phones so they can track them via GPS, but the truckers really didn't like it, so they just took out the simcard or the battery from the phone. They had all these ways to upload documentation for delivery documents that you could automate the payments process,

and truckers would just mail them in. So what they were up against was really the status quo of just a way of business being done a certain way by drivers who were perhaps a bit older dispatchers that didn't want to change the way they were doing things. And

that's essentially why this industry hasn't been digitized. And even the biggest players out there in Europe like dB Shanker or Coolnaga that they've really been slow to adapt these technology standards just because the industry for so long has been operated by phone, email, and paper Austin. You know, it's interesting though, you know, I think about I spent a lot of time with UPS here in the United States.

I mean, they are totally into technology and tracking every move that their drivers do in picking up and then dropping off. So is it similar to you know, kind of that data dump of just kind of trying to figure out a better way. Is that what they're trying to do, is it's similar to something that a UPS is already doing. It's all what all these companies like

a UPS or DHL are trying to do. In Europe, It's a it's a bit more complicated because seventy percent of the trucks out there are owned by firms with fewer than ten trucks. So this market is like super fragmented. It's not the case that you have these massive trucking firms who own fleets of thousands and tens of thousands of trucks. Most of the time they're subcontracing out, subcontrac contracting out to smaller family run operations. And these are

the types of firm senders trying to go after. It's trying to say hey to this mom and pop, a trucking operation. We can connect you with the Coca Colas or ab in beds of the world and and sort of bridge that that that gap of capacity to sort of bring those mom and pop truckers to work with larger enterprise players through this technology. But it's it's really

not easy. I mean again, these are people who are very tech agnostic, who don't like using apps, and who have a lot of skepticism about what automation can mean from this industry, whether it comes for driverless cars or automated paperwork. There's a lot of skepticism. So it's it's not quite as easy as what UPS is perhaps doing with their in house network of trucks. How profitable is it to be a digital matchmaker of sorts? Then? Not

very profitable. That's the other thing is traditionally this business is operated with margins and let's say the two percent to five percent range. I actually ought talked to the former CEO of DHL Global Forwardings Freight Division, and he was just saying that, you know, when I was there, when I was running things, if I sneezed, the trucking

ministry would lose all its profits. I mean, you just couldn't make a mistake in this industry, and that's one of the other reasons why they were hesitant to make this huge risk and change all their technology, because if you did make one mistake, that could lead to huge write downs, as actually did happen when DHL in twenty fifteen tried to overall all their tech infrastructure and introduce apps. People just didn't want to use them. And all their

partners this this sort of interconnected mesh network. They were really hesitant to adopt this technology and that's why it's stayed So I guess stagnant for so long. Yeah, but you know Europe known for great tech companies. Um, so you know this is what you get. But I am I do think it's it's interesting. It's like they found this little market and like, let's see if they can make it work. Yeah, right, so good could be one of the bigger players, I mean the biggest players in

the market. In the market Europe still only have a two percent, three percent, four percent market share. So it is an insanely fragmented industry. It's not going to be one winner takes all sort of winner. It's going to be a fragmented, conditional players though all right, Austin Carr, tech reporter at Bloomberg News via zoom from Boston or thanks to Joe Weber, editor a Bloomberg Business Week, you're

listening to the Bloomberg Business Week podcast. Catch us live week 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 playing Bloomberg eleven thirty. I'm bromcl a journal now. But you let me drive? Oh no, no, no no, who's going to drive? Honey? Please, I'll do

the riding gravels. I'm want to drive. Good question. This is the Drive to the Clothes coming well up on Bloomberg Radio. All right, everybody, just got about seventeen and a half minutes left in today's trading session. Carol Master Long Katie Gray Felt live in our Bloomberg Interactive Broker Studio, Stooming on YouTube and of course on Bloomberg Originals. So let's get to it with Liz Young. She's head of investment strategy at the online personal finance company and bank

we're talking about so far. She enjoyed us on zoom in New York City. Hey, Liz, good to have you here on this fun day. A lot going on, kind of the understatement of the day. So if I also a bank, you guys are a platform, I'm just curious what you are all seeing in terms of changes when it comes to volatility, signs of stress, changes in user

behavior on the platform. What's going on. Well, Look, nobody likes to go through a weekend like we just saw, and no consumer or business likes to hear the term bank run. So obviously there's been a little bit of a shaken sentiment across markets, equity markets, bond markets, banking customers, everything that we've seen. However, we do offer a savings account with a pretty high yield if you're a direct deposit customer, so that has helped our deposit trends to

remain strong. We also offer yield offer yield on our checking account so in this era, so nobody's yanking. We have we have not seen meaningful withdrawals. So right now things are looking pretty stable, and I think given the news that we heard last night out of the government, I think they've done a decent job of really stemming, you know, and stopping the bleeding that could have happened if everything opened today still with no backstop. So you know, I'm not going to go as far to say that

this was an isolated incident. I do not think necessarily that this was something that we should ignore or that, you know, we've solved all the problems and we can all continue on our merry way. However, this is a time of really really heightened competition for deposits and obviously consumers. I mean, I tweeted this today about basically the mentions

of risk free rates and treasuries. There are consumers all over the streets talking about treasury yields and that's not something that the average American has ever really had in their in their daily conversation. So there's a ton of competition for deposits across the industry. Obviously, last year was a really tough year for the bond market. I don't think that SVB was the only bank that would have been affected. I think that, unfortunately, it was the first

big one that made the headlines. But I do think it's important that we prevented this from becoming a bigger crisis. And Liz, I mean, it's interesting to hear you say, this isn't something that we should ignore. But then you look at the stock market. I mean I see the SMP five hundred, it's up three tenths of percent. Then you look at what's happening in the bond market, and you had the two year treasure yield down by the

most since nineteen eighty seven at one point. So there's a lot of drama in bonds, not a lot of drama when it comes to stocks, at least for today. How sustainable is that dynamic. I don't think the move inequities is sustainable, and I'll be very honest about that. I think that valuations are still pretty rich here given what's going on in the environment. I think that today we probably avoided the biggest fear, right the catastrophic fear that could have occurred if there were more bank runs.

But if you look at just what's happened in the treasury market and serve take that as a signal of how stable things are, you don't typically see this size of moves twenty thirty basis point moves, fifty basis point moves in things like a two year treasury bond. So it's really important to watch that type of signal and look at things like the fact that we hit a curve and version between the twos and tens last week of over one hundred basis points. The VIX is now

back up to twenty six. I don't think that an equity market can chug along with a VIX at twenty six or higher. Treasury market seeing volatility like it is right now. CPI coming out tomorrow, we have a slew of other data that we will get towards the end of the week. So this is not a time where again, and I think I said this already, this is not a time where I would declare victory and say we're out of the woods. Everything is going to be fine.

I think that this is a really fragile environment right now, and we're waiting to see what the FED is going to do in the March meeting, and there continues to be a ton of uncertainty around that that fragile market. That fragility takes what kind of forms possibly in the next I don't know, six to twelve months. Well, when the market is fragile and poised for indecisiveness, it doesn't take much to send it in one direction or another.

What I would say right now is I think the risk is more to the downside because of where valuations are. I also think that there's risk in the investment grade and height particularly high yield credit market, because we have not seen spreads move like they normally would in a stressful environment. So I think that over the next six

to twelve months. You know, if you look out long term, let's say we hit some sort of big draw down that occurs in the next three months, and chances are in the next twelve months the market has recovered a bit of that. You probably also in that time frame see the FED back off, if not cut rates, we probably have economic data that has gotten worse, and you know, we're either well on our way or maybe even in

twelve months through some sort of contraction. So twelve months out right now seems like a really, really long period to wait. But I would say for a time when the market is fragile and not sure which direction to go, it does not take much to push it over the edge. And you brought up a high yield credit And something I've been thinking about is if you look at ETFs in particular HyG it's the biggest junk bond fund out

there short interest is something like fifty five percent. Then you think about what we're seeing in the arc ETFs. On the flagship fund, you're also short interest is near a record. It's the same thing if you look at some of black Rosth's emerging market bond ETFs. Just broadly, it feels like there's this appetite for investors to begin shorting. Have you seen that? Do you understand that impulse? Yeah, I mean I've been talking about it, so you know,

if you're shorting a high yield ETF. Obviously the expectation is in line with what mine is that I would expect spreads to blow out. I would expect there to be some stress in those markets. The challenging part is that it hasn't happened yet. There has not been a big credit event to tell the market that spreads need to be wider than they are. I think that there probably is something lurking out there, and we're going to hear about that as time goes on. I don't know

where it is. I don't have a prediction about where it's going to come from. But I don't think this was it. I don't think that this SVB situation Number one it wasn't a credit event. Number two. I don't think this was the big thing that is going to put stress on the corporate bond market. So I do understand absolutely the impulse to expect things to get worse there before they get better. I just don't know work can actually send a that direction. Great comments and great analysis.

Let's come back soon, Lucia, head of Investment Strategy. It's so far. Joining us be zoom in New York City. This is the Bloomberg Business Week podcast, available on Apple, Spotify, and anywhere else you get your podcast. Listen live week afternoons from three to six Eastern 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 Jerminal