Credit Suisse, UBS Facing DOJ Probe

extremely contentious House committee. He says operations will come from within the US China me while says we will have to approve any attempt to sell while denying direct control. I'med Baxter with Global News. That's all straight ahead on Bloomberg Daybreak Asia, the business news you need to start your day in just one fifteen minute podcast available on Apple, Spotify, the Bloomberg Business App and everywhere you get your podcast. Good morning, I'm Dog Prisoner and I'm Brian Curtiz. Here

are the stories we're following today. Treasury Secretary Janet Yellen tried to soothe the US lawmaker concerns about whether American bank deposits are safe. Here's Yellen speaking before a US House subcommittee. The strong actions we've taken ensure that Americans deposits are safe. Certainly, we would be prepared to take

additional actions if warranted. On Wednesday, bankstocks tumbled after Yellen said that Treasury officials had neither considered nor examined the possibility of expanding federal insurance temporarily to all US bank deposits. She said that such a move would require congressional approval. Well, we are told that both Credit Suite and UBS are among the banks under scrutiny now in a probe by the US Department of Justice. That story from Bloomberg's Charlie Pellett.

Those sources say investigators are looking into whether financial professionals helped Russian allegs evade sanctions. The sources say the Swiss banks were included in a recent wave of subpoenas sent out by the government. The information requests were sent before the crisis that engulfed Credit Suite and resulted in UBS's

proposed takeover of its rival. According to one of the sources, the Justice Department inquiries are focused on identifying which bank employees dealt with sanctioned clients and how those clients were vetted over the past several years in New York Charlie Pellett Bloomberg Daybreak Asia, while the payment company Block said it will explore legal action against Hindenburg Research after a damning report. It comes after the short seller issued a

report following a two year investigation into Block. The report alleged that Block facilitated scammers taking advantage of government stimulus programs back during the pandemic. Block called Hindenburgh's claims inaccurate and misleading. More from Bloomberg's Jenny Seraine. I think any implication that criminal actors are using Blocks cash app to facilitate their transactions is really bad news. I think that's

when you get regulators looking at you. They could impose different kinds of penalties, whether that's monetary or different remediation activities. So that's something that investors will really keen on and want to see further proof of Blocksher is slid as much as twenty two percent after the news today, closing down fifteen percent, the company's biggest intra day decline in three years. Well US prosecutors have charged the co founder of Terraform Labs Do Quan with fraud after he was

detained earlier in Montenegro. We have that story from Bloomberg's David and Glass. Quan was caught while trying to fly to Dubai allegedly using falsified cost The weekend travel documents his whereabouts have been the source of constant speculation since September. Quan was earlier accused of fraud by the US Securities and Exchange Commission. The entrepreneur presided over a forty bill

million dollar cryptocurrency implosion last year. The terror USD stable coin he helped create and its sister token Luna, suddenly cratered. South Korea also issued a warrant for his arrest. The country stripped him of his passport and said he's the subject of an inner pole red notice. In Hong Kong, I'm David Ingless lumbrig de Brick Asia. The Bank of England raised its benchmark lending rate as expected, by a

quarter percentage point to four and a quarter percent. The central bank brushed aside concerns about the banking system after the rescue of two major institutions abroad. It suggests that policymakers see inflation as the main priority, and BOE Governor Andrew Bailey signaled that further rate hikes may be required. We've seen signs of inflation really peaking now, but of course it's far too high now. We think it's going to come down sharply really from the early summer onwards,

but we haven't seen that happen yet. We had some news this week which was unfortunately going a bit the other way with it was probably some one off elementths of that, but we need to see it starting to come down progressively and get back to talkt The Bank of England is predicting that the UK will avoid the recession it had predicted earlier this year, and the central Bank upgraded its growth outlook over the coming months. However, the BOA did not comment on its forecast for the

second half of the year. I'm Brian Curtis along with Doug Christener. Paul Allen will join us in a short while, so Doug. The SMB five hundred is flat over the past month. So here are some of the numbers that promise you. The Russell two thousand, an index of smaller sized companies down ten percent in a month. Microsoft up nine percent in a month, so that's a nineteen percentage point swing. The KBW Bank Index is down twenty eight percent in a month. Google or Alphabet is up sixteen percent.

That's a forty four percentage point swing. Now, these trends, I would suggest to you, would seem to be a little stretched, and the read through that is probably that the benchmarks will need to fall from here. But I think you have to put your finger on the banks. I mean, the weakness that you cited in the Russell has to do with the high concentration of small and medium sized lenders, and I think it's fair to say that these stocks have been just under enormous pressure right now.

And this is one of the things I think that Janet Yellen is trying to address, to solidify that customer base so that those folks aren't inclined to continue to move assets from those perceived weaker institutions to stronger ones, right And this is the thing that is I think troubling the market right now, particularly when you consider a situation like First Republic. Really that problem has not been

solved yet. I mentioned that the KBW Bank Index was down twenty eight percent in a month, and that's not even the regional index. But think about it. You have four four forms of tightening at the moment, the new rate hikes and the Fed said they may not be done yet, qt the long and variable lag of the previous hikes, and then the bank's cutting lending. Now we can argue that we are probably close to the end of the new rate hikes, but we're probably only at

the beginning of the bank's tightening. And then on top of that, how has this impacted sentiment, not just on the part of consumers but businesses as well. That's probably going to contribute to a little bit of contraction, I would imagine, assuming that a sentiment begins to decline or is declining already. And we'll see whether these implicit deposit

guarantees are enough. They're not explicit, but I think that many people do realize that the authorities are prepared to step in if there is a run coming at a particular bank. Anyway, lots more to talk about. We'll get to our guests in a few moments, but now it's time for Global news. TikTok CEO show ch ran into a pretty hostile group of lawmakers in the House Energy and Commerce Committee Today at Baxter is tracking that he

has global news from the nine to sixty newsroom in Strancisco. Ahad, yeah, boy, you talking about a tough crowd, Brian. The tone set by Representative Kathy Rogers TikTok is a weapon by the Chinese Communist Party to spy on you, manipulate what you see, and exploit for future generations. Now, one of the allegations is a China demand's removal of some content the massacre in Tianamen Square. That kind of content is available on

our platform. You can go and search it. I will remind you that making falls from misleading statements to Congress as a federal crime. I understand again. You can go on the platform. You will find that content. So show says assurances should come from Fars in order to assure everybody here and all our uses, while a commitment is to move day data into the United States to be stored on American soil by an American company overseen by

American personnel. But Bloomberg's Alex Baranca says this is the most contentious and hostile hearing she's heard in a long time, and there was another exchange with Arab Zona Republican Debbie Lasco that I think was really illustrative. She laid out that other countries like India have banned the app, the FBI has voiced concerns about the app, and ask you, why then, do all of these folks have concerns if you're sitting here in front of us today saying nothing's wrong.

He came back and said, look, those concerns are hypothetical. They are theoretical. That kind of gap has been kind of the theme all day where she feels like he's not getting enough substance to combat with the facts that he loves to bring to the table, and the lawmakers meanwhile, are just not believing anything he said, leading to kind of a really contentious back and forth at the hearing today.

So even Democrats or o'kanna, for example, saying the only solutions of sale, Senator Marc o'rubio coming out saying two options or sale or commerce deprivment regulation. Now, China has issued a statement saying that it would firmly oppose any sale if TikTok forced by Washington, saying it would undermine confidence in all commerce globally Bloomberg's Dan flatly says, I'd

really dnded any argument by show of any separation. Now that's been a very big concern of you concluding this national security review that TikTok has been working with the US government is whether China would have any say in how that would be concluded. And it also kind of cuts against his arguments that TikTok will not share data with China, because if they have to approve the sale of this business, then you know they are obviously involved operations.

But Henrietta Treys Veta Partners on Bloomberg says about more than just TikTok today, it's a more holistic approach to social media because we're talking about domestic problems from mental health to national security issues, and it's not unique to just TikTok. So what they're looking at in legislation that I think can actually pass is more akin to passing the back onto the Department of Commerce to have it regulate TikTok in all social media apps. Yeah, and she

says regulation as opposed to sale here. But very interesting, by the way, political Tight wrote for democrats as a younger demographic group is more heavily TikTokers if you will, and the fair would be they could just set out twenty twenty four. This is just the beginning Global news. I'm more than twenty seven hundred journalists and listen over one hundred twenty countries. In San Francisco. I'm Ad Baxter, and this is Bloomberg. And I'm Brian Curtis here in

Hong Kong. This is Bloomberg Daybreak. Agia Paul Allen joins us now in Sydney, and our guest is Joanna Gayegos, co founder of Bond Blocks, on her market outlook, Well, let's start off with that gap that I mentioned. You've got bank stocks going down a couple of percent every day, and you've got Microsoft going up two percent every day. That can't continue, can it. Yeah, it's hard to make calls right now. I think it's been hard all quarter to understand where the markets were going to be going.

And some of that recovery and technology may be reflective of the actions that those firms are taking to manage costs and think about what's coming up in twenty twenty three. But what we think about for twenty twenty three is bonds. Obviously, we're a nasset manager that focused solely on fixed income, and we think there's a lot that we can lean into right now because yields have changed so dramatically in

twenty twenty three. It helps investors really take advantage of the power of that carrying their portfolio and actually do something in the total return space their portfolio, which just isn't straightforward in equities right now from where we sit, is it particularly straightforward and bonds though either. I mean, you say it's a place to hide up from volatility. But take a look at the two year. You know, a couple of weeks ago, we're about five. Now we're

three point eight three. Yet the whipstoring seems to be happening in across assic classes. For sure, there was a volatility this month in the two year, But think about this very simple trade. You know, if you're in the short, shortest part of the curve, it may be a great place to wait out and figure out what you're going to do next, because you're getting paid, you know, upwards of four and a half percent for at least being invested.

And I think that's the action that we want to see investors take, is consider that we also maybe recharacterize looking at credit because of some of the fundamentals that look pretty strong across credit, not only what you mentioned, but the capital appreciation is there too, that movement that Paul brought to It's basically the bond is going up,

so the yield is falling a lot. If you think that that's the trend that will hold in, that recession could be coming and bonds will go up and the yields will go down, you're not only getting the hefty yield that you bought, but you're getting the capital appreciation too. Yeah, I think, but you're referencing is somewhere in between the two year and the three year. Just this month year to date, sorry, month to date that ranges from being up two to three percent in a month on the

price return plus the yield. So bonds really need to be part of your consideration for twenty twenty three, really need they're They're very powerful in your portfolio a way that they haven't been for over a decade and longer. And you know it's you hear people say bonds are back, but we want to see investors really consider taking action

in their portfolio with them. Yeah, we've also got trade as effectively pricing and cuts from the fit by yeah, and do you feel that's a realistic scenario, So the markets pricing that in the FED definitely didn't say that yesterday. They didn't indicate that there'd be any rate cuts in

twenty twenty three. But if you do want to again lean into the end of the rate hiking cycle and possibly the softening of the economy or downturn in the economy, you might consider adding more duration your portfolio, taking on reposition your portfolio to go longer out on the curve, just even in treasuries with you no credit risk. But we are seeing some activity in our products that even just this week we saw, you know, a little bit taking stepouts in the two three years also the five

and seven year traded for US. And so we think that people if you do take that view and the market does have that view that rates may be going down at the end of the year, you can step into that. In a way, I think it's really smart using treasury products. Well, you have four forms of tightening

that I mentioned earlier. I just run through them quickly again and get your response to the last one, because that's the only one that's kind of controversial new rate hikes QT, the long and variable lag of the previous rate hikes. Those are all working to suppress the economy and bring down inflation. The last one, the fourth one, would be the bank's cutting lending and the tightening that that provides. And even if you think that the new the new rate hikes are almost at the end of

their run, the banks are only just getting started with this. Now, how pervasive would this be? Yeah, I think it's complementary. Um. It's not a great thing to talk about when you're thinking about tightening um liquidity or lending standards at the banks, because that does affect companies and starts to really put a little bit of pressure on the economy. But at the same time, it just it would help the other inflationary fight that's going on that the Feds waging. And

so it would be complementary. And you know, if we have to get the only way forward is through that may be inevitable, and that may be a side effect of this UM financial stability issue in place or in today that you know, could help us get through this UM. But hopefully it will be you know, as as soft landings as we would hope it would be but that is what market expects. That market expects some kind of downturned right now and is looking at rates reducing by

the end of the year. That is not with the FED is saying. And you know, if you take that view, you have ways to the risk to your argument. The risk to your argument and your thesis is that inflation doesn't come down because you're not going to be very happy getting a bond yielding three to four percent of inflation is running at seven percent, So that's the main threat to your argument. Do you think that inflation is that sticky? I don't. I don't I really have a

view if it's that sticky. I think this quarter is just so dramatic in terms of what we thought we were going into the year expecting, and we need more time to process all the conflicting economic data, the confounding banking situation. So I think everyone needs more time, but I think they're still You can't deny the opportunities and using yield in your portfolio this year to help combat any of it. Some of it you need to need

to really consider it before you just you know, go away. Yeah. Look, we also had Jaipal this week reiterating its commitment to that two percent inflation target that does seem very little, very far away. Yeah, do you think it's realistic? And if so, how long before we get there? Well, the thing is is that even through all of last year, when we ignored what the FED said, the FED double down, and the FED has just demonstrated conviction and vigilance against

this fight on inflation. So m realistic if if, if you know, some of the other confounding factors come to be with either financial stability or an economic downturn or tightening lending standards, like, it's realistic that the Fed's going to continue their fight, and they reiterated it yesterday. And we know many many were calling for a pause, many were calling for you know, a lookout point to see what would be next. But they seem that they're going

to charge ahead and that's their goal. And I think other central banks have also conveyed the same. So you mentioned we talked about sovereigns, so we haven't talked about munis. You did also mention credit. For you what's the sweet

spot in credit? So we we really like UM people to consider high yield and one of the sweet spots we see is in UM we have a product that focuses on credit ratings, and there's a we have a product that only has single b names in it, and so we really want people to think about, you know, some of the fundamentals that are in high yield right now, either in the credit rating side or even in sectors.

Because there's a lot of resiliency in corporate balance sheets UM, that would lend that some of these some of these hild issuers have resiliency through this downturn and may actually be rising stars out of high yield and maybe being upgraded to UM investment grade. But we would think the single bum space is one of the sweet spots because of its lower duration related you know, in relative to investment grade, and people should consider looking at different cuts

of credit are closely even in hygyel. This is Bloomberg Daybreak Asia, your morning brief on the story's making news from Hong Kong to Singapore and Wall Street. Look for us on your podcast feed every day on Apple, Spotify and anywhere else you get your podcast. You can also listen live each day on Bloomberg eleven three zero in New York, Bloomberg ninety nine one in Washington, Bloomberg one oh sixty one in Boston and Bloomberg nine sixty in

San Francisco. Our flagship New York station is also available on your Amazon Alexa devices. Just say Alexa Play Bloomberg eleven thirty plus. Listen coast to coast on the Bloomberg Business app, Sirius XM Channel one nineteen, the iHeartRadio app, and on Bloomberg dot Com. I'm Bryan Curtis and I'm Doug Prisoner. Join us again tomorrow for all the news you need to start your day right here on Bloomberg Daybreak Asia