Yellen Warns on Debt Ceiling; Morgan Stanley Plans More Job Cuts

From the Bloomberg Interactive Burger Studios. This is Bloomberg Daybreak for Tuesday, May second.

Coming up today, Janet Yellen warns the Treasury may run out of cash in a month.

President Biden invites leaders in Congress to meet on the debt ceiling.

Morgan Stanley plans to cut three thousand more jobs.

And writers for some of the most popular TV shows.

Walk Off the Job.

Testimony continues in the civil trial AGAUS former President Donald Trump, plus a grim discovery as seven bodies are found in rural Oklahoma. I'm John Tucker. More Ahead, I'm John Stash.

Aaron's Wards.

The Devils shut out the Rangers in Game seven.

The next played tonight, the Mets split, the Yankees lost again.

That's all straight Ahead on Bloomberg day Break, the business news you need to sturn your day in just one fifteen minute podcast each morning on Apples, Spotify, the Bloomberg Business app and everywhere you get your podcasts.

Good morning, I'm Nathan.

Hager and I'm Karen Moscow. Here are the stories we're following today.

Karen, we begin with a warning on the debt ceiling. The Treasury Department now says the US could risk default as soon as June one. Bloomberg's Doug Prisner has the details.

Secretary Janet Yellen said her department's ability to use special maneuvers to stay within the debt limit could be exhausted as soon as the start of June. She also said since revenue and spending flows are variable, the actual date could be a number of weeks later than these estimates. The current statutory limit of thirty one point four trillion dollars was hit in January. Since then, the Department has been staving off a possible default by using special accounting maneuvers.

Y Doug.

Thanks. Meantime, President Biden has invited top congressional leaders to the White House on May ninth to discuss the debt ceiling, and Bloomberg's Ed Baxter has that part of the story.

This could be the first sign of any progress. Speaker Kevin McCarthy, Minority Leader Hackeim jeffrees from the House Majority Leader Chuck Schumer, and Minority leader Mitch McConnell from the Senate, but the White House was emphasizing before the summit that it does not mean a softening of the president's position. Spokesmen Kareeine Jean Pierre he's happy.

To meet with mc McCarthy, but not on whether or not the dead limit gets extended.

There are very few congressional days left after May ninth and before June first, so the pressure for a very short term solution is great. In San Francisco, I'm at Baxter Bloomberg Daybreak banks Ed.

We now turn to a bevy of news involving the banking sector. The top US regulator wants a sweeping overhaul of deposit insurance. It's after recent bank failures drained some of the money used to protect banking clients, and the call comes after JP Morgan Chase had to rescue First Republic b and Y Mellen CEO Robin Vince says, we need a sound banking sector, so all of.

Our interests to have a safe and sounds, trustworthy, reliable bankings to the sector.

That's important.

It helps to power US growth and USGDP. At the end of the day, it's to no one's benefit. To have an unsafe.

Sector bnymel And CEO Robin Vince spoke with Bloomberg from the Milkin Institute Global Conference in Beverly Hills, California.

In Europe, Nathan shares of HSBC are up five percent. The bank is planning a share buyback of up to two billion dollars after pre tax profit tripled in the first quarter. Speaking of Bloomberg, HSBC CEO nol Quinn says the results are proof he is the right strategy for the bank.

We said all along that we believe fastest and safest way to get increased valuation, increased profit, increased dividends is by focusing on the current strategy, and I think the Q one results is powerful evidence of that statement.

HSBC CEO nol Quinn says the bank will also resume paying quarterly dividends for the first time since twenty nineteen.

Back here in the US, Karen Moore job cuts are on the way at Morgan Stanley, Bloomberg News has learned senior managers are discussing plans to eliminate about three thousand jobs by the end of this quarter. Morgan Stanley currently employs roughly eighty two thousand people.

Well, Morgan Stanley's not the only one cutting jobs here. Nathan City Group CEO Jane Fraser says she is willing to make adjustments to staffing levels inside the investment bag. City and its rivals are dealing with an industry wide slump and deal making and underwriting activity, So.

This pens up demand is building and building. I just don't think it's.

Going to get released as early as we would like it to, and it's more certainly builds much more like the back end of twenty three for all of us than as we'd all kind of beat hoping would be early falls. I think, like every institution, you make some adjustments around the capacity. But we're playing a long game in investment banking.

City Group CEO Jane Fraser spoke with Bloomberg at the Milken Conference in Beverly Hills, and we'll bring you more in that conversation coming up in just a few minutes.

IBM expects to pause hiring Karen. It's examining roles that could be replaced with artificial intelligence in the coming years. In fact, CEO Arvin Christa tells us about thirty percent or seventy eight hundred back office jobs at IBM could be replaced by AI in five years well.

The FED begins its two day policy meeting today. Nathan and economists expect the Central Bank to raise rates for a tenth straight time. Steve Off, chief investment officer for equities for Federated Hermes, says the central Bank is likely done after tomorrow.

We think it's their last hike. They've been a backward looking operation all through. This relate to the hiking cycle, which is one of the reasons we're having all these problems now in the banking system because they've just forced people to adjust their books way too quickly, and you know, they're still backward looking and on a backward basis. Probably another hikes in order. But the good news is I think this is pretty much probably the end.

Steve Off at Federated Hermes thinks the Fed may actually cut rates at the end of the year and the market degrees pricing in a cut as soon September.

Finally, Karen Hollywood is on hold. This morning. Members of the Writers Guild of America have gone on strike. They're demanding better pay, saying the studios have cut their salaries with the transition to streaming TV, and the writers say the studios are also stonewalling on issues like artificial intelligence in scriptwriting. Time now to take a look at some of the other stories making news in New York and around the world. For that, we're joined by Bloomberg's John Tucker.

Good Morning John, Good Morning Dathan. Authorities in Oklahoma have discovered the bodies of seven people. It came during a search for two missing teenagers, and they were believed to include the girls and a convicted sex offender. The bodies are likely to include fourteen year old Ivy Webster and

We believe that we have found the persons. We just started waiting for.

A comprom well. Sheriff Rince won't say how they died or provide other details. A dust storm that blew through southwest to Illinois caused dozens of cars to crash in a massive pile up. At least six people aren't dead over thirty injured south of Springfield. Montgomery County Emergency Management Director Kevin Schantz is the biggest challenge for the first responders was reaching the victims.

Multiple vehicles involved, some were on fire, so we had vehicle fires to extinguish. We had to search every vehicle, whether they were involved in the accident or just pulled over to check for injuries.

Kevin Shoant with Emergency Management says, clean up we'll continue throughout the morning. On I fifty five, after a judge denied a defense motion for a mistrial, the testimony resumed at former President Donald Trump's civil trial in New York. During cross examination, writer Ejen Carroll, who claims Trump raped her in the nineteen nineties, to that she didn't report the alleged attack to police because she felt it was

We want to make sure.

That every new Yorker can pay their.

Water bills, so DP has extended the embassy program by one extra month.

May thirty, first, Mary Adams is threatened to shut off water to customers who haven't paid their water bills. After that. Global News twenty four hours a day, powered by more than twenty seven hundred journalist and analysts, you know, over one hundred and twenty countries. I'm John Tucker, and this is Bloomberg. Nathan.

Thank you, John. Time now for our Bloomberg Sports update. For that, we bring in John Stash.

Are all right, Nathan tookom those three decades for the Devils to get some Game seven revenge on the Rangers, the first Game seven between the two teams since nineteen ninety four double overtime with the Garden. This Game seven was in Newark. It was still scoreless midway through the second period of the Rangers were on a power play.

Oh here's a takeaway by Pullot Crop Fox recovering Thoughie Skrider. It's taken back by Pullott Plot still with. It was in Fus one of.

A Cloud backhead start michaelback Cloud, It's what nothing.

DEVLS Radio McCloud's first goal of the series later in the second period, the first of the series for Tomas Tatar. The Devils added two late goals, and after the Rangers won the first two games of the series, both by four goals, the Deviles last two wins of the series were both four nothing victories and shutouts for the young Devils goalie Kira Shmid. The Devils win a playoff series for the first time in over a decade. They'll play Carolina in Round two, Game two Nixon Heat tonight at

John stash Elle.

Bloomberg Sports.

Live from coast to coast, from New York to San Francisco, Boston to Washington, d C. Nationwide on siriusxam, the Bloomberg Business app in Bloomberg dot com. This is Bloomberg Day Break. Good morning, I'm Nathan Hager. Wall Street leaders continue to express confidence in the US financial system, and the CEO of City Group, Jane Fraser, is no exception, and in conversation with Bloomberg Shnelli Bassic at the Milk and Global Conference, Fraser called the US banking system the envy of the world.

Right now, if you think about that first rescue that was made by eleven large banks just weeks ago, why wasn't there an inclination to step up and say first Republic a second time.

Well, it's always a.

Sad day when you see a bank fail, but we are all very pleased to get the major source of uncertainty that was remaining from the recent.

Bank term all addressed.

And that is a good thing because fundamentally the US financial system is sound. This is a case of a small handful of banks that were poorly managed.

And getting this address is very important.

When we stood up, I think it's a statement that the major banks, the eleven major banks in the country in thirty hours, for thirty billion dollars to work to buy the time to get the right solution and answer put in place.

And that was our intention. It wasn't to provide the answer.

It was to give the time for confidence to get restored and our regulators to do their job.

Which they did with First Republic being out of the way. Now, certainly that was the wail in the room.

But what do you expect next in terms of any future fag failures or even hiccups down the road.

So I am I'm more optimistic around it.

I do think the US financial system is extremely strong.

The large American banks globally are.

In an enviable position. Our financial system has a particular structure to it. Large banks, regional banks, and commodity and community banks.

Everyone plays a different role.

We played different scale, different customer basis, but it's a strong system. I am anticipating there will be some more consolidation.

We do have over four and a.

Half thousand banks, and it's likely that the minimum efficient scale will rise, but I don't think that brings into question a system that is the MV.

Of the world.

This is a strong and highly desirable financial system, which it works.

The big just got bigger today, right, this is JP Morgan. Rather than regional banks consolidating among each other. Does that create more competition for the smaller banks?

Given that the big are getting so big in this country, I.

Think there's room for everyone to play their roles. And you know, the larger banks are also.

Playing on a global scale.

When I look at our own bank, our strategy is around being the pre eminent partner for clients of crossworld and needs. That is a very different role from the role that a community bank plays, which is also very important in the context of the local economy. I think it's about different banks playing different roles and let's make sure that we have a strong and successful system that works.

There's a lot of worries about the credit contractions that could be seen in the United States, particularly among that sector, small medium sized banks. They tend to smart a bake small and medium sized businesses. Do you expect that there will be a significant contraction and how do you handicap the ripple of backs.

To the economy?

So certainly the risks now are more to the downside.

Than they were at the beginning of the year, and no one anticipated the turmoil that we've seen so far this year at the beginning, and I think it certainly makes the second half is not going to be a strong macroeconomically or in terms of investment, banking, wallet and the like that we had hoped. That said, I think, as you say, one of the big questions will be, to one extent, does credit titan and you know if that is material that will have a on the economy.

Of the year.

But the amount of pent up demand, the amount of the strength of the corporates, the strength of the consumer coming into this the usual amplifiers of a contraction.

And not in place.

And I think we'll see the US economy, unlike others, pull out of whatever a recession environment could be pretty quickly.

So the so you see that recession finally come nearer, what exactly does it look like always impacted.

What feels pain?

Well, I think we'll see, as everyone always does, more pain being felt in among some of the consumers at.

The lower PI COO. The benefit we've got at.

The moment has been very strong employment, and that's terrific, But the health of the consumer and that has remained the same.

The corporate sector is particularly strong, and I think that's why you hear so many.

Of us talking about this being a more manageable or moderate recession if one does indeed come about, and one in which the economy should be able to pull out a bit pretty strongly.

And to the extent that you're preparing for a recession, you know, City Group itself has just written off a lot of credit card debt to begin with in the first quarter.

Do you expect you're.

Going to have to tighten lending standards even more for consumers and even corporates.

We are a long way from being in a situation where the credit levels are even normalized where they are pre COVID, So we're probably only seventy percent of the way to the pre COVID levels of normal credit losses that you expect, So there's still quite a there's a lot of room still to go before we start using the stress word. The city is probably a little biased

Be a little bit more strous there and everyone's going to need to keep an eye on that.

I want to pivot a little bit here and talk about other area of stress that it's being seen in one of the safest markets in the world, that is the treasury market.

You have a front row seat here.

It's a kind of the ripple effects that are being built in Washington from the discuts around them dead limit.

What does that look like from your view, Well, I think.

The market is stilting to have a sense of humor failure around some of what's going on. So we've certainly seen more than we have in recent debt ceiling concerns and impact on the treasury market in the short term.

The pricing for the.

June September has definitely come down. The CDs market is seeing quite.

Unprecedented why thing there, So there is a lot more concern.

I'd say the last week or so we were seeing three times a volume of questions for investors and it's silli early, but it is a concern around it.

This could be quite dire.

For consumers, for corporates, and indeed for the markets if.

This goes down to the wire or worse.

How does the rest of the world look at this dispute in the United States and invest in the treasury as the last thing that the world needs right.

Now, particularly in the market.

So, you know, we want to see strength in the US capital markets. We want to see confidence in what's going and the banking sector very well positioned.

The banks are very strong as we see.

So we're in a position, as we did in the pandemic, as we did in the turmoil, to be there to support markets, to be there to support our customer bases, consumers and corporates. So I think from that perspective we're.

In a good position.

But it is the last thing that the world and America needs is to have a debt sealing crisis.

The other classer and gore to the treasury market is another big bed meeting and the prospect of even higher interst rates. Where do you think the direction of travel has had a.

Services inflation is painfully persistent. We've seen the goods inflation come way down. Supply chains are now in far better shape than they were. So it's really about services inflation and the tightness of the labor market and Shair and how it has been and we.

Need him to stay resolute on inflation.

This is not good to have long term inflation into the US economy. Some is fine, but his resoluteness is something I think we can bank on. So we're anticipating higher than the market would like, for longer than the market would like. There's so much pentof demand in the market at the moment and it keeps wanting to get ahead of this, but that's just not where the economy is.

So do you think that the market is discounting the potential for higher rates for longer and what does that mean for asset process?

Many of us here at Milkin do believe that the market is too enthusiastic here, partly because the economy is so resilient. This is a strong resilient US economy, and that is part of the challenge. We anticipate, you know, a tough end of the year and a recovery in twenty four.

From the market.

Perspective, though it tends to enter debate these things, so towards the end of the year, the market should be anticipating the recovery and in stronger position, just a little later.

Than it would like it to be.

I just want to.

Reset here for a global Bloomberg TV and radio audiences. I'm here with Jane Fraser, the CEO of City Group. Jane, I want to give it back to the cigaret and your business plans. You had mentioned kind of the softness expected to the end of the year.

How do you expect that.

To weigh on investment, banking, and particularly not just activity but jobs.

Look, our corporate clients come to us from the full way dilemma, and that's or the cash that they have on their balance sheets. Their balance sheets are in good health. Should they be keeping us cash for a cushion, Should they be doing dividends and buybacks, Should they be paying down debt because they anticipate being more expensive for a little while longer, or should they.

Be investing in transformation.

Our pipeline in investment banking is bigger than it was pre COVID, and it's big transformational transactions.

There's a lot of pent up demand. We're seeing it.

A little bit more IICO activity and interest a little bit more in leverage finance, the investment grade markets better.

So this pent up demand is building and building.

I just don't think it's going to get released as early as we would like it to.

And it certainly feels much more like the back end.

Of twenty three for all of us than as we'd all kind of be hoping would be early whole.

And what does that mean for the dance story?

Then?

Do you keep the bankers on board until that comes back or do you think you're going to have to make some reductions were I think, like every institution, you make.

Some adjustments around the capacity. But we're playing the long game in investment banking. I'm very like to say, we have a lot of talent that wants to come and join us, and we've been bringing some terrific talent in in the healthcare sector, in the technology sector and investing in that.

Now.

Yeah, we're playing the long game here, So I think that's important.

I think there's another part.

Of the business that's we're talking about. It's your treasury and trade services business. You're a lot of people don't realize you will for trillion dollars worth of money for cooperations.

And clients around the world. But how do you get the market to value you for that?

Yes, so it is a This business is a thing of beauty. It's for five thousand multinationals four trillion dollars every single day in payroll, in cash.

Management, in recurement and supply chain.

It's also very very sticky, which is I think of note at the moment, because there's a lot of services attached to it. There's data, it's embedded into the clients businesses, into their technology systems. It helps make them more efficient, manage risk, manage.

What's going on.

So this is a highly desirable, very very sticky deposit base that sits there, and I think the market's.

Beginning to realize that this is a thing.

Of beauty that has absolutely been firing on all cylinders as we've been investing behind it in the last few years.

It's unique.

Is this the race that you're going to win at Because the beginning of your tenure was really marked by exiting certain businesses. So what is the new City Group story to hold on to to kind of bring that stuck and line the performance of your life.

We have never been clearer about what our strategy and our vision of our firm is. It is the pre eminem banking partner for clients with crossworder needs. The focused set of businesses that connect very well together with strong synergies. It's a better quality business mixes diversify, It's resilient with a very very good balance sheet beneath it.

This is ninety.

Percent of our credit is investment grade internationally, eighty five percent of the corporate credit is investment grade, and our consumer businesses prime. So it's a strong balance sheet off the back of a business model that is resilient, and we'll be there to meet our medium term targets.

So we're on a very clear path. We know exactly who we are, we.

Know what we need to do, and we've been getting a move.

On getting it done.

So I'm pleased with the progress, but we've still got a bit more to do.

I want to look to future technology.

How are you thinking about the renewed interest around AI got on by track.

Gto this is a game changer.

And I think in a way when we look at blockchain and some of the other technologies have come in the last decade, they've been part of the tool kit. But I think we're all beginning to realize what a

And lastly, just in a minute here, Jane, is there anything that can really change your view of this mild a session going into a deeper one.

Yes, if something happens on a gea political front. None of us anticipate in the war in Ukraine life last year and that had major impacts, second and third order impacts on energy security, on food security and the other pieces. So I think we've all learned never to never to say never anymore, but nothing will surprise us. So you know, if something happens on that front, that could be very challenging.

Let's hope that same minds prevail.

This is Bloomberg Daybreak Today, your morning brief on the stories making news from Wall Street to Washington and beyond.

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I'm Nathan Hager.

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