Live from the Bloomberg Interact Day Brokers Studios. This is Bloomberg day Break for Monday, March twentieth. Coming up today, UBS takes on Credit Suis buying the troubled bank for more than three billion dollars to move up ends the bond market, wiping out seventeen billion dollars of the riskiest bawns at Credit Suite. Shares of UBS plunge as analysts point to potential earnings risk and global banking stocks slump
in the wake of the deal. A lawyer ally with Donald Trump testifies today before New York grand jury plus Chinese president. She meets today with the Russia's Vladimir Putin. I'm Michael Barr. More ahead, I'm down stash Aaron's boards. Another easy win for the Rangers, that Devils won, the Nets lost their down to the sweet sixteen of the
NCBA tournaments. That's all straight Ahead on Bloomberg day Break, The business news you need, disturn your day, and just one fifteen minute podcast each pointing on Apples, Spotify, the Bloomberg Business Appen everywhere you get your podcasts. Good morning, I'm Nathan Hager and I'm Kieron Moscow. Here are the stories we're following today. We begin with reaction to the hastily arranged takeover of Credit Suis. So far, the deal
is failing to calm fears in the banking industry. Shares of Credit Suis right now are down nearly sixty percent, while the bank that bought that firm, UBS is lower by nine percent. That's after UBS agreed to buy Credit Suie for three point two billion dollars. The chairman of UBS, Calm Kelleher, is trying to soothe concerns about the government broker deal. It's a historic day in Switzerland, then, a
day frankly we hoped would not come. I would like to make it clear that while we could not initiate discussions, we believe that this transaction is financially attractive for UBS shareholders, protects UBS from additional downside and should support earning his growth over time. UBS chairman Calm Kellerher says he will shrink the investment bank a Credit Suie, a unit that racked up losses in recent years, and Nathan, I mean
a global team. Coverage of this historic dl we begin with the Bloomberg's francy in Lakwise in Switzerland who attended the UBS Credit Suite press conference in Berne yesterday. They feel the questions for about an hour and a half. I think they thought this would last for about forty five minutes, and there are so many questions. First of all, UBS got this quite on the cheap. I mean, why
did they get it so cheap? I think it is probably one of the first questions when you look at the valuation on Friday and also the amount of liquidity of guarantees that they had to get from the government. Do they know something in Cretty sueee that no one else knows. I think this is one of the first questions that a lot of people will ask. Certain market participants will try and tell did they see a scary movie and so wanted to make sure that they were protected.
Bloomberg's Francy Laquais reporting from Switzerland and we continue our team coverage in Zurich now where a long time Credit Suice reporter man As Cranny picks up the story. This is about liquidity, a lifeline and ensuring the borders of Switzerland remain robust of financial borders. This could be the steel of the century for UPS. Colin Gallaher and Ralph Hammers. Actually, if they slept on it overnight, I thought, wow, your
credit space was worth eighty billions? Was Franks At one juncture they got a three and Bloomberg's menace Cranny reporting from Zurich, more team coverage on the way now as we assessed the fallout from this deal, Bloomberg Finance reporter Marion Helftermeyer says thousands of job cuts are likely on the way now. The next step to watch for will
be just how they actually combine these two banks. There will be massive, massive job cuts here because there is an incredible amount of overlap between the two banks, both in Switzerland and globally, and in particular UBS has said, you know, we have our own investment bank, so you know, watched out for a massive windown of the Credit swieas investment bank and Bloomberg Finance reporter Maryon Halftermeyer reports bondholders
are also angry about the terms of the takeover. The fourth sale means seventeen billion dollars of the risky of bonds at Credits Suite are now worthless well Karen. Reaction continues to pour into the takeover of THEE hundred sixty six year old bank. We got the take from Bloomberg opinion calumnist Muhammadhalarrian and Bain Appital CoA chairman Steve Pagliuka. This was not the best solution, but it dominated the other two, which was either nationalization or trying to wind
down the bank. But it's full of contradictions. When the first crisis happened in two thousand and eight, the whole issue was systemic collapse. We don't have a systemic collapse. Now we have a crisis of confidence, and that crisis of confidence can ratchet into a bad economy. Muhammadal Area and Steve Pagliuca made their comments on yesterday special edition
of Bloomberg Surveillance on Bloomberg Radio and Television. So how will this banking turmoil impact rates at this week's FED decision, Nathan, While we spoke with former Atlanta Fed President Denis Lockhart. At this stage, I am inclined to give a majority probability to a twenty five basis point hike, but a non trivial probability to a pause. And former Atlanta Fed President Denis Lockhart says the Fed's rapid rate increases have taken some bank executives by surprise. Now back here in
the US, Karen banking turmoil is also in focus. Signature was a three major banks that collapsed this month, and starting this morning, it's forty branches will operate as Flagstar. We get more in this live report from Bloomberg's John Tucker. Good morning, John, and Nathan. Flagstar Bank of Hicksville, a unit of New York Community Bankcorps, agreed to buy thirty eight billion dollars of Signature's assets from the FDIC. Well, the sale didn't offload all of Signature, it does show
there are buyers out there for such assets. Regulators hope it's a move that could calm some of the turmoil. Flagstar also assumed liabilities about thirty six billion dollars. That includes thirty four billion dollars in deposits a bunch. Like Silicon Valley Bank, Signature had a deposit base that was mostly unensured. Live in New York, I'm John Tucker, Bloomberg Daybreak.
All right, John, thank you. When it comes to Silicon Valley Bank, it looks like US regulators are getting closer to a breakup plan, and we get the details live with the Bloomberg. Steve Rappaport, Steve, good morning, Good morning, Karen and Nathan. Sources tell us the plan is to sell SVB in two parts. The FDIC set up a so called bridge bank to take receivership of the firm's assets and liabilities. Bids for that or do Friday. The regulator will take bids by Wednesday for SBB Private Bank.
That's the remnants of Boston Private acquired by the bank in twenty twenty one. The FDIC tried to sell both parts together over the weekend, but extended the deadline to attract more potential buyers. Live in New York. I'm Steve Rappaport, Bloomberg Daybreak. Thank you, Steve. And when it comes to First Republic Bank, those shares are plunging again this morning. There's still no word of a rescue plan there. SMP Global has downgraded the bank again. First Republic shares are
falling nearly twenty percent in early trading. It's thirty two degrees in New York. It's going to be sunny and mild today, heading the low fifties, and we'll get down to the upper thirties tonight under a clear sky. Time Now for a look at some of the other stories making news in New York and around the world, with Bloomberg's Michael Barr a Good Morning, Mike Call, Good Morning Nathan. A lawyer allied with Donald Trump, plans to testify before
New York grand jury today. Robert Costello is expected to make the kays the former president should not face criminal charges over hush money paid during his twenty sixteen campaign to poor and start Stormy Daniels. Costello says he has information raising questions about the credibility of a key witness in the investigation, former Trump lawyer and fixer, Michael Cohen. Democratic Senator Elizabeth Warren that investigation should be allowed to
go forward appropriately. If it's time to bring indictments, then they'll bring indictments. That's how our legal system works. Senator Warren spoke on ABC's This Week, which can be heard Sundays on Bloomberg. Trump says if he is arrested tomorrow, he is calling for protests if it happens. Among his supporters outside Merolago yesterday was this woman who traveled from New Jersey. It's just about everybody coming out together and
supporting altogether. It's like one big happy family Manhattan. DA Alvin Bragg is not saying whether he'll charge Trump, but he emailed his staff over the weekend saying we do not tolerate attempts to intimidate all our office. Instigations continue after five children from Connecticut, ranging an age from eight to seventeen, were killed in a fiery early morning crash
yesterday on a New York highway in Westchester County. Police believe the vehicle was being driven by a sixteen year old boy when it veered off the Hutchinson River Parkway and Scarsdale, hit a tree and caught fire. The only survivor was a nine year old boy. Russian President Vladimir Putin hosts Chinese President Chijingping for meetings today in Moscow. Fordham University professor Beth Noble says the ongoing conflict with
Ukraine will be a major focus. The Chinese leader, Shijinping is portraying his visit to Russia as a personal mission to help bring peace to Ukraine, but he's hardly been an honest broker so far. China has proposed a peace plan for Ukraine, but it's one that many world leaders have said is a non starter since it leans heavily towards Russia. Professor Noble as China and Russia is said to have a no limits partnership. About twenty five thousand
runners participated in the New York City half Rathon. Olympian Jacob to Plomo from Uganda won the race. Global teams twenty four hours a day, powered by more than twenty seven hundred journalists and analysts and over one hundred twenty countries. Michael Barr and this is Bloomberg. Nathan. All right, Michael, thank you time now for the Bloomberg Sports Update, brought to you by Trice State. Howdy you got Morney John Stash After morning, Nathan, the Nights of Fairlie Nakin. Soon
they'll be back on campus in Teenac today. They had a heck of a weekend at the NCAA Tournament Columbus, Ohio. The stunning upset Friday night of top seeded per DWO and FTU came out strong second half last night, had a five point lead on Florida Atlantic with the Owls, who are thirty three and three on the season, came back to win seventy eight to seventy When Marquette the two seed in the East was upset by Michigan State. Had meant that each of the four days of the
Attorney a one or two seed had lost. Michigan State will now play at the Garden Thursday against Kansas State, who'll be Kentucky. The other game at MSG will be Florida Atlantic again Tennessee. It was hockey at the Yard last night, and the Rangers tied a club record with a six goal first period. They meet in Nashville seven to nothing the night after the Blue Shirts. They had beaten Pittsburgh six to nothing. KeAndre Miller last night two
goals to assist just in the opening period. Devil's Lightning met for the third time in the six days. New Jersey one at Tampa five two, first career hat trick for Yesford Bratt at Barclay's Nets lost to Denver one O eight, one h two, thenothers Jamal Murray twenty five points in the first quarter. Nick's host Minnesota tonight, a US route at the World Baseball Classic semifinals in Miami, fourteen to two over Cuba. Pair of home runs for Trade Turner Paul goldschmid homer. They both drove in four
runs championship game tomorrow against either Mexico or Japan. Mets lost the Cardinals eight seventy. Yankees lost in the Oils five to three. Garrett Cole four scoreless innings, but then he gave up four runs in the fifth. Carlos Alcarez won the tennis at ending Wells regained the world number one night. Johnskashawar Bloomberg Sport live from coast to coast, from New York to San Francisco, Boston to Washington, DC, nationwide on Sirius, XAMP, the Bloomberg Business app, and Bloomberg
dot Com. This is Bloomberg Daybreak. Good morning on Nathan Hagar. The hastily arranged takeover over the weekend of Credit Suis by UBS does not appear to be offering solace to investors this morning. Worries continue about even wider fallout from a crisis in banking confidence that has now been going
on for several days. Let's bring in Alison william senior analysts for Global investment banks and asset managers at Bloomberg Intelligence, as well as Bloomberg's Mannis Cranny, who has covered UBS and Credit Suis for years, was in burn Switzerland, for the takeover announcement, and Mannis joins me from Switzerland. Now Mannis, I'm watching shares of UBS and Credit suis plummet this morning.
Before we get to the price action, though, let's just talk about how historic this is that a bank that has more than one hundred sixty year history is now being taken over by its rival right across the street. Made in a very good days year, Allison, This just symbody was never supposed to happen. Ever again post GFC taking my own back to Leahman's going under, to Namura coming in and scooping up the paths to RBS in the UK being nationalized, this was a marriage of very
unequal partners. This is a very uncomfortable, one could say, and many have used the phrase shotgun wedding. The issue with that is you never know what your in laws are going to be like. In other words, what is still remaining inside Credit Suites that UBS has not had the chance to do due diligence on the finance minister in Burne last night. Frantine was in Burne, I was in Zurich. And the phrase that was used, this is
not a bail ote, this is not a baylight. Well, if this is not a baylight, one hundred billion of a backstop in liquidity for credits for the new entity is there? And a nine billion backstop in terms of losses potential losses that the new entity may need to take in the event of winding down what are called highly liquid or level three instruments inside the credit police vehicles. So right now this is a bail in of bombs and that's the big spooky issue for markets, credit and
equity markets today. What kind of unanswered questions, manness, are there about Credit suisses books? I mean, we understand that they have had a number of scandals over the years, a number of crises over the years. Is that part of the reason why we're seeing this drop in both companies shares this morning, that we don't have a fully clear picture of what the books look like at Credit Suez. Look,
I think that's part of it. But be assured there's a liquidity boxtop of one hundred billions so stranks at the point one, this was a liquidity issue, not a capital issue that drove this shotgun wedding. However, Colin callaher the new chairman of the joint entity, and the chairman of UBS made it very very clear we're going to de risk. We're going to bring that investment bank dying to about twenty five percent of the overall size of
the combined entity. That is going to mean some serious addressing of higher risk assets that are inside the investment bank. The issue with that, and I take you back to twenty twenty fourteen, when you're trying to sell off assets that are highly a liquid, difficult to price and nobody really wants. That's when the difficulty comes in. And that's maybe where the losses are potentially to come. But there is a backstop and I will use that word time
and time again because that is yet to be fully comprehended. Here. Want to bring in Alison Williams this discussion and our senior analyst for a global investment big asset managers at Bloomberg Intelligence. Alison, what are some of the unanswered questions
for you when it comes to this UBS credit sweet tip? Well, I think the biggest the biggest question for UBS shareholders is you know the length of time it's going to take for this deal to be a creative and in some sense they're they're taking on some of the restructuring challenges that credit Swos is already facing. They're doing it
with a stronger balance sheet. Um, so that's helpful. But um, you know, the deal I think is a little unnerving to markets, just because of the treatment of the at ones and also that it's um not requiring approval of UBS shareholders. So I think those two things definitely are
not something that the market likes. The market doesn't like when when the rules change like that, I guess if you will, but I would say that you know, if you if you look at the deal from the long term perspective of UBS, Yes, they are going to as many said, they want to limit the investive bank. But it is important to note that credits we had already been doing a lot of work in that direction. So um,
they're already sort of at that twenty five percent. They've been selling off credits, we had been selling off assets to Apollo, and they're putting the remainder of those assets in the bank. And that does remain a big question. And to Manny's point, those assets can be hard to sell, and that is why you know they're taking the first five billion dollars of loss, and then the government is taking the next nine billion, so those those assets are
where they got the government guarantee. There's also the remaining legal risks, and I think that is sort of the playbook that a lot of US investors look to when we think about deals like bear Stearns and Washington Mutual and some of the legal risks behind. But I would say that two things. First, this is a very different situation than two thousand and eight. It's very different for the banking system as a whole. And second, most of
the legal risks are are identified. There are obviously there's always a risk for unknowns, but ubs did take an added provision related to those risks. And that gets back to a point that Manness made Allison at the very beginning of this discussion that something like this wasn't supposed to happen after the two thousand and eight crisis. A bank that's systemically important, the likes of Credit Suite wasn't
supposed to fail after this. Well, we have a deal like this where ubs is becomes the one systemically important bank in Switzerland. What kind of risk does that pose for UBS? Well, I think you know, one of the key drivers for Credit Suite to want to stabilize the situation is just a fact that these two banks do have ties to each other, and Credit Swee does have ties globally. And even though their capital and liquidity position were strong, as we know that liquidity, sometimes the situation
can change quickly. And I think there's you know, there there are big differences between Credit suits and what's happening in the US, but the one similarity is just um, the sentiment and the confidence and so at Credit Suitee, the issue was that, especially with you know, a lot of the social media that they saw, it was sort of reminiscent to what they had seen in the fourth quarter.
They saw significant outflows as a result of the sentiment sentiment and reports are that they were seeing significant UM outflows hopefully I use the word outflows earlier and um, but you know, and that was what the Swiss regulator pointed to as the reason why they they stepped in because they started to see those outflows and they really felt that they needed to stem you know, stem that
and instill confidence. You know. The issue with all of these measures is that I think, you know, bank regulators, it's tough because they have to walk a fine line. They have to do enough to install confidence and not do too much that you shake investors confidence for the need for them to have to step in man. So I want to bring you back into the discussion. The Swiss National Bank is bringing in a hundred billion franc
liquidity guarantee for UBS in this merger. What does that potentially mean when it comes to the type of confidence that investors can continue to have in this bank. Well, I think we've got to disaggregate here between depositors, people of Switzerland, people around the world, the rich, ultra rich and billionaire community around the world in terms of their allocation to credit suits in ubs, they probably have a kounds with both. So you have the depositor risk and
then you have investor. An investor confidence and depositor confidence are very similar, but they are slightly different things. The issue this morning, I'm just looking at g or Or on the stock six hundred on the banks page, Deutsche Bank dying five percent, Iron Dine six percent, Bodies down five percent. The issue is this what has happened here from my very first initial reading, Alison, you can maybe
help clarify this. Urinanalyst and just a vintage banker broker commodity drader, which is there has been an inversion of the capital structure. In other words, the at one bonds, those additional capital bonds have been subsumed to equity. There's a morsel of equity given to the shareholders, the pension fundholders, the pension people of Switzerland, your equity. You still get a morsel and a potential upside the bond. The eighty
one bondholders have been wiped out. That's what's dislocated banking markets in Europe this morning. The cost of capital for everybody has shot higher this morning. That is a material risk. You waken up this morning to a higher risk of the cost of capital in banking, and that as a potential fcom or defcon moment in terms of constricting capital to the real economy. That's the chronology of risk as
I see it from where I'm sitting this morning. Now, that is a big part of this story, the fact that we have something like seventeen billion dollars of these riskiest bonds now being completely written down because of this deal. Alison Williams, why do that? Why put the bondholders at risk rather than the shareholders, changing the order of who
gets hit hardest by this. So management made clear that this was a government decision, and actually the way that it structures the deal, it actually provides some capital protection to UBS. But I think that Manny is right that I that holders of these securities were surprised in terms
of the way that the capital structure worked. But there's actually a great note out this morning by your own Julius who covers these securities, and he does to Manny's point, you know, point out that precedent means that these type of investors for these securities will demand higher yields, and so obviously that puts us some questions about the future
of securities, and it raises the cost of capital. But there is you know, with the securities of both UBS and Credit Suites are a little bit unique in terms of the permanent write down. It's the exception in Europe. And he points to the fact that as these securities are issued, the language is likely to be different in the future. So that's a little bit of a technical issue, but I think that's also an important to note. I also want to ask about the future of this bank. Now.
Before the takeover happened, we know that Credit Suite had been in the process of cutting nine thousand jobs. Now, we do expect that there are going to be a lot of redundancies as this deal continues to play out work itself out over the next few months. Allison, where do you expect job cuts to come down between Credit Suites and ubs? I think you know the cuts are going to be broad. If you looked, you know, Credit sweets their plan as it was, a lot of it
involved simplic simplification and eliminating redundancy. I know that there will probably be a lot of stories about the investment bank UM and certainly there there might be some cuts there. But again I would just point to the fact that you know, those trading assets have come down a lot, and I think you know, the one remaining question is really what happens to UM the investment bank just in
terms of the underwriting and advisory business. This was the business UM that that was going to be spun out in the Credit Sweets first. Boston Harbout and the UBS did point to the fact that they feel that as a result of this deal they can and expand their global banking and research capabilities, add to some the M and A capability. So it does suggest that there is a place for some of that talent. Manis Cranny. Obviously
you've covered both these banks for some time. What are you looking for to come next in the fallout from this takeover, We've got to hear from tellahr and WELB Hammas In terms of strategy, how do you reduce the investment bank? Where are the duplications wealth management asset management? There is huge crossover in terms of human capital, in
terms of technology, and in terms of footprint. This is going to mean a fundamental reassessment of two of the biggest institutions in Switzerland, and that has a human cost and indeed an economic cost. I'm going to have to buy out of the conversation. Ladies and gentlemen. A busy morning forgives me Alison Nathan off to a rooftop near you, continuing the conversation on radio and on TV right now. All right, I appreciate you coming on with us. Mannis
thanks for your coverage throughout the weekend. I hope we can check in with you in the days to come as we continue following this story. But as we conclude this conversation with Alison Williams of Bloomberg Intelligence, Obviously we've been talking about the the overlap and the potential for future job cuts at Credit Suite and UVS. At our last twenty seconds here, Allison, what are you looking for to come next? I think we do need details on
the plan. It was clear from it it's clear that this was a few day process, and it was clear for management that they don't have a lot of the details. In terms of some of the numbers that they put out there, it seems like they could be conservative, but we'll want to know more about exactly where the eight billion cuts are coming from. Those cuts are being said to execute through twenty twenty seven, so how much and how are we going to see some of those reductions.
This is Bloomberg Daybreak Today, your morning brief on the stories making news from Wall Street to Washington and beyond. Look for us on your podcast feed at six am Eastern each morning, on Apple, Spotify, and anywhere else you get your podcasts. You can also listen live each morning starting at five am Wall Street time on Bloomberg eleven three zero in New York, Bloomberg ninety nine one in Washington, Bloomberg one oh six one in Boston, and Bloomberg nine
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