FRANCINE:
WELCOME TO OUR SPECIAL COVERAGE OF THE HEIGHTENED PRESSURES ON
THE GLOBAL FINANCIAL SYSTEM AND THE BANKING BREAKDOWN.
I AM FRANCINE LACQUA. MORE TURMOIL IN THE FINANCIAL
WORLD THIS WEEK WITH CREDIT SUISSE FRONT AND CENTER.
WE WILL UNPACK THE BROADER PRESSURES OF THE BANKING SYSTEM
AND WHAT LIES AHEAD IN TERMS OF REGULATION AND ACCREDITATION.
THE STORM SWIRLING AROUND CREDIT SUISSE DATES BACK YEARS.
IN MARCH 2021, THE LENDER WAS HIT WITH THE DOUBLE NEWS AFTER
THE FALL OF ARCHEGOS. THE ZURICH-BASED BANK HAS ALSO
BEEN ROCKED BY LEGAL TROUBLE AND INSTABILITY IN THE
EXECUTIVE SUITE WITH THREE CHIEF EXECUTIVES AND MULTIPLE
CHAIRMAN SINCE 2020. SOME INVESTORS HAVE HAD ENOUGH.
PARIS ASSOCIATES THE BIGGEST SHAREHOLDER IN THE BANK --
HARRIS ASSOCIATES, THE BIGGEST SHAREHOLDERS IN THE BANK, HAS
LEFT AFTER TWO DECADES OF MAJOR OWNERSHIP.
WHERE WILL CREDIT SUISSE SPIRAL AFTER THIS INJECTION OF CAPITAL?
BLOOMBERG HAS SPOKEN TO CURRENT AND FORMER CREDIT SUISSE
EXECUTIVES ON THE PAST THREE YEARS. >> IT IS TOO PREMATURE TO MAKE
A PREDICTION PAST 2021. >> IT IS CLEAR 2022 WILL BE AT
LOWER LEVELS THAN LAST YEAR. >> WE CAME TO THE CONCLUSION
THAT THE LEADERSHIP, WE HAS A COMPANY WAS UNDER FIRE AND HE
AS A SEES UNDER FIRE. >> IT WILL BECOME PROFITABLE
DEFINITELY FROM 2024 ONWARDS. >> WITH THE HISTORICALLY LOW
SHARE PRICE, THIS IS A GREAT MANAGEMENT TEAM, A PLAN THAT IS
CONVINCING THE MARKET AND OUR SHAREHOLDERS BELIEVE IT. >> WE SAID WE ARE GOING TO MAKE
A LOSS UNFORTUNATELY THIS YEAR. A LOT OF THE RESTRUCTURING
COSTS INCLUDE A TRANSFORMATION COMING IN 2023 BEFORE WE SEE A
LOT OF BENEFITS. FRANCINE: IN A MOMENT, OUR EXPERT PANEL,
BUT FIRST, OLIVER CROOK IS IN ZURICH. WHAT OPTIONS DOES THIS
SITUATION LEAVE GOING FORWARD? OLIVER:
A BANK IN TROUBLE INTO A BANK IN CRISIS THIS WEEK, AS IN BE
TRYING TO STEM THE FLOW AND RETURN STABILITY AND CALM TO
THE MARKET. THE QUESTION IS HOW LONG THAT
WILL LAST. AT THE END OF THE DAY, THE MARKET WILL BE THE
DICTATOR IN THIS, WHAT HAS TRIGGERED THIS ENTIRE CRISIS,
AND ANALYST OUT THERE ARE SKEPTICAL THAT CREDIT SUISSE
CAN KEEP GOING AS A BANK AS IT IS FORMED TODAY. CREDIT SUISSE IS MOVING IN THE
DISTANCE, UBS AND JP MORGAN'S MOST LIKELY OUTCOME IS A
TAKEOVER, BUT ONCE YOU START LOOKING AT WHAT THAT LOOKS
LIKE, SOME OF THE LOGIC FALLS APART.
UBS IS TRYING TO PUSH INTO THE U.S. AND CREDIT SUISSE DOES NOT
OFFER THEM A LOT THERE. THEY DO NOT NECESSARILY HAVE
THE SAME RISK APPETITE AND UBS MAY NOT WANT THE SAME KIND OF
CLIENTS THAT CREDIT SUISSE HAS. ALSO ANTITRUST AND SWISS
GOVERNMENT. THE LAST QUESTION IS HOW MUCH
UBS ALREADY BENEFITED FROM THE FALLOUT OF THIS WEEK.
HOW MUCH OF CLIENT FLOW AND MIGRATION WILL THERE BE?
THAT IS A QUESTION WE WILL GET AN ANSWER TO THE NEXT FEW WEEKS.
FRANCINE: TO OUR EXPERT PANEL, WE HAVE
OUR GLOBAL TEAM ACROSS BLOOMBERG THAT HAS BEEN KEEPING
AN EYE ON THE BREAKING NEWS CREDIT SUISSE AND THE OTHER
EUROPEAN BANKING SYSTEMS. JOINING US NOW IS BLOOMBERG'S MARION HALTER MEYER,
BLOOMBERG'S GLOBAL BANKING ECONOMIST, AND PAUL DAVIES.
WHEN YOU LOOK AT THE CHIEF EXECUTIVE AND THE TEAM RIGHT
NOW, IS THE ONLY STRATEGY THEY CAN DO STICK TO WHAT THEY HAVE
SAID THROUGH THE PLAN AND HOPE THAT CLIENTS AND DEPOSITS STICK
AROUND? >> THERE IS A LOT OF HOPE.
THE SIGNS WE ARE GETTING THE PUBLIC MESSAGES WE ARE GETTING
FROM THE EXECUTIVE TEAM IS WE HAVE OUR PLAN, WE ARE STICKING
TO IT, AND NOW THAT WE HAVE RESOLVED LIQUIDITY QUESTIONS
AND MARKET PANIC AT LEAST IN THEIR VIEW, THIS GIVES THEM A
BIT OF BREATHING ROOM TO CONTINUE ON THEIR PLANS AND
ACCELERATE THEIR PLANS WHERE IT IS POSSIBLE.
THAT BEING SAID, YOU HAD A COUPLE OF DAYS AGO WHERE
SHAREHOLDERS HAD PATIENTS FOR THAT, AND IT LOOKS LIKE IT
BUFFERS, THE PATIENTS THAT IS INCREASINGLY DECREASING.
FRANCINE: HOW INVOLVED AT THIS POINT DOES
THE GOVERNMENT TRYING TO FIND A SOLUTION FOR THE GOVERNMENT AND
THE REGULATORS? THEY CANNOT FORCE ANYONE TO
BREAK UP, BUT IS THIS ULTIMATELY THE ONLY THING THE
BANK CAN DO? >> THEY CERTAINLY CANNOT FORCE
UBS TO BUY ALL OF CREDIT SUISSE. I CAN TELL YOU WHAT WE KNOW,
AND THAT IS NOT MUCH. ALL OPTIONS ARE BEING
CONSIDERED BY THE GOVERNMENT, I.E. THE SWISS NATIONAL BANK AND
ALSO THE FINANCE MINISTER -- FINANCE MINISTRY.
YOU TRY TO ASK UBS, CAN YOU BUY THIS AND FIX IT, OR YOU FIND A
SOLUTION FOR THE SWISS BUSINESS. WE UNDERSTAND BOTH BANKS ARE
AGAINST A NEW FOREST OF MEASURES AND THAT IS THE STATUS
QUO, SO WE WILL LEARN MORE FROM THE WEEKEND.
THE LIQUIDITY LINE OVER TIME, AND THE MARKETS ALSO KNOWS IT
IS DIFFICULT TO BET AGAINST THE SWISS NATIONAL BANK. FRANCINE:
CERTAINLY IF THE YIELD WENT BACK TO TOP, PEOPLE WILL NOT
WANT TO TAKE THEM ON. CONGRATULATIONS ON ALL OF YOUR
COLUMNS BID AT THIS POINT YOU SAY IT IS FAITH AND NOT
FUNDAMENTALS ON CREDIT SUISSE. HOW DO YOU SEE THIS PLAYING OUT?
WHAT OPTIONS DO THEY HAVE? >> THE ACUTE PHASE HAS PASSED
IN THE SENSE OF A REAL FEELING OF IMMINENT CRISIS DUE TO THE
LIQUIDITY THAT HAS BEEN ADDED, AND WHERE WE NOT -- AND WHERE
WE ARE NOW IS HOW THEY RESTRUCTURE THIS BANK, WHAT IT
LOOKS LIKE GOING FORWARD, AND GETTING INVESTORS IN THE STOCK
MARKET AND THE DEBT MARKETS TO UNDERSTAND THE STORY AND BE
ABLE TO PRICE IT AND MOVE IT PROPERLY SO THEY CAN MAKE A
PROPER DECISION ABOUT WHERE AND WHETHER TO BUY THE SHARES AND
THE BONDS, AND THAT IS REALLY CRUCIAL FOR STABILIZING THE
BUSINESS AND PUTTING A FLOOR UNDER THE STOCK AND BOND PRICES.
FRANCINE: MARIAN, ANY INSIGHT INTO WHAT
HAPPENS OVER THE WEEKEND? I AM SURE THERE WILL BE OPEN
CHANNEL COMMUNICATIONS BETWEEN REGULATORS TO POLICYMAKERS, BUT
THE TIMELINE, IS IT A VERY SHORT ONE IN TIMES OF TRYING TO
SHORE UP BANKING MORE, OR COULD TAKE MONTHS? FRANCINE:
THAT IS UNCLEAR. WHAT WE WILL SEE THE NEXT 48
HOURS INTO NEXT WEEK IS THE EXECUTIVES CERTAINLY WORKING FULL SPEED ON WORKING OUT WHAT
NOT SPECIFICALLY THE LIFELINE GIVES THEM, BUT MORE
PROMINENTLY HOW THE PANIC OF THIS WEEK HAS AFFECTED THEIR
BUSINESS. YOU WILL REMEMBER BACK IN THE
FALL WHEN THERE WAS A LOT OF PANIC AND QUESTIONS AROUND THE
FACILITY OF THE BANK AND THE RESTRUCTURE.
THERE WAS A RESULTING 110 BILLION OUTFLOWS FROM WEALTHY
CLIENTS, SO WE WILL HAVE TO SEE WHETHER SOME REACTION LIKE THAT
HAS HAPPENED THIS TIME AROUND AND WHAT THAT MEANS FOR THE
BUSINESS GOING FORWARD. TALKING TO PEOPLE ON THE GROUND
AND AT THE BANK, IT IS FRUSTRATING.
THEY HAVE HAD TO DEAL WITH BAD NEWS AND THAT MAKES TALKING TO
CLIENTS DIFFICULT. OTHER OR NOT THAT MEANS THE
BUSINESS HAS LINED UP AND NOW VANISHED CAN COME BACK OR NOT.
FRANCINE: AND IT IS DIFFICULT. THEY CAN ONLY STICK TO THE
STRATEGY TO TRY TO KEEP STAFF AND CLIENTS.
PAUL, IF YOU ARE A DEPOSITOR AND YOU HAVE SO MANY OPTIONS,
EVEN IF YOU ARE NOT WORRIED ABOUT LIQUIDITY AND THERE IS
NOT A FUNDAMENTAL PROBLEM, WHY WOULD THEY STICK WITH THE BANK?
PAUL: THAT IS A GOOD QUESTION. SOME OF THE ASSETS AND DEPOSITS
PEOPLE HAVE WITH THE BANK, YOU CANNOT TAKE OUT STRAIGHTAWAY.
YOU WILL HAVE COLLATERAL FOR OTHER TRADES YOU ARE DOING AS A
WEALTH CLIENT AND SO ON, SO THERE IS THIS NATURAL BREAK ON
THIS, AND ONE OF THE THINGS THEY SAID IN TERMS OF THEIR
HELMET AND HOW ASSETS WERE MOVING NOW IS THE FLOWS HAVE
STABILIZED A LOT AND THEY ARE PROBABLY STILL SEEING SOME
DEPOSITS THAT ARE MATURING, AND THE MONEY NOT COMING BACK, BUT
IT IS A TRICKY DECISION TO TAKE AT THE MOMENT IF YOU ARE A
CLIENT. FRANCINE: AND IF YOU ARE A REGULATOR,
EVEN IF YOU ARE LOOKING AT NOT A LOT OF OPTIONS ARE NOT TRYING
TO PUSH THE TWO BIG BANKS TO COME TO PLAY, THIS HAS HUGE
SYSTEMIC ISSUES. AS THE REGULATOR EVEN WANT THE
SUPER SWISS BANK? JAN-HENRIK:
IF WE LOOK BACK AT THE REGULATION SINCE THE FINANCIAL
CRISIS, IT WAS ALL ABOUT WE DO NOT WANT BANKS WITH TOO BIG OF
A BALANCE SHEET. THE SECOND POINT IS SWITZERLAND
WANTS TO GROW THEIR BANKS AND ALSO THINK ABOUT THE CULTURAL
ISSUES HERE. CREDIT SUISSE AND UBS HAVE BEEN
ARCHRIVALS AND THEY DO NOT WANT TO MERGE.
THAT IS SOMETHING YOU HAVE TO CONSIDER IN THIS CONTEXT AS
WELL. FRANCINE: YOU TOUCH THE REPUTATION OF THE
SWISS BANKING SYSTEM. FOR MANY YEARS, IT WAS HELD IN
HIGH REGARD. MARION:
IT DOESN'T PROCESSES ACROSS THE BANKING INDUSTRY ARE HAVING AN
EFFECT. THEY ARE ALSO HAVING TO EXPLAIN
THE SITUATION IN SWITZERLAND TO THEIR CLIENTS AND IT IS HAVING
SOME QUESTIONS AROUND SWIFT -- SWISS BANKING AND IT DOES NOT
LOOK GREAT. THIS WAS REGULATOR IS TRYING TO
SHOW OF FORCE AND SAYING WE KNOW HOW TO HANDLE OUR BANKS,
THEY WERE TALKING WITH CREDIT SUISSE, UBS, BUT IT DOES CAUSE
A BIT OF A QUESTION OF HOW STABLE IS SWISS BANKING IN THE
FUTURE GOING FORWARD? THEY ARE AN IMPORTANT BANKING
COUNTRY AND THEY LIKE TO HAVE THEIR TWO SWISS NATIONAL
CHAMPIONS. FRANCINE: AND AT THE SAME TIME IT RAISES
QUESTIONS ABOUT CREDIT SUISSE FIRST BOSTON.
PAUL, WHAT DID YOU LEARN THIS WEEK IN TERMS OF THE BANKING
SYSTEM? THIS WAS FEAR OUT THERE. WE KNOW CREDIT SUISSE HAS HAD
HUGE PROBLEMS, BUT ARE YOU WORRIED IT COULD HAPPEN
ELSEWHERE? >> DO YOU MEANS AND OTHER
EUROPEAN COUNTRIES? FRANCINE: IN ANOTHER BANK. PAUL:
I GUESS WE ARE LIVING IN THESE TENSE TIMES.
IT IS PROBABLY MORE IN THE U.S. THAN EUROPE, BUT WE HAVE HAD AN
AWFUL LOT OF QUANTITATIVE TIGHTENING UNDERWAY AND MONEY
IS LEAVING THE SYSTEM, AND WHAT WE ARE SEEING IN THE U.S.
IS A PROBLEM NOT NECESSARILY OF NOT ENOUGH MONEY, BUT NOT
ENOUGH MONEY BEING IN THE RIGHT PLACES.
IT IS A DISTRIBUTION ISSUE AND PERHAPS YOU COULD START SEEING
SOME OF THAT IN EUROPE ELSEWHERE, BUT I NOT THINK --
IT DOES NOT SEEM TO BE ON THE CARDS.
IT IS A LOT OF LIQUIDITY AROUND AND WE ARE NOT SEEING YET
ANYTHING LIKE THE SAME SORT OF ISSUES OF DEPOSITS DRIFTING
FROM SMALLER BANKS TO THE LARGER BANKS. FRANCINE: I WONDER IF IT DOES MEAN THAT
LARGE INVESTORS AND SHAREHOLDERS WILL SPEAK A
LITTLE LESS GIVEN WHAT HAPPENED WITH SAUDI ROYAL BANK THIS WEEK.
THANK YOU TO OUR WONDERFUL BLOOMBERG TEAM PANEL.
THEY ARE THE PEOPLE THAT HAVE BEEN BREAKING THE MOST NEWS ON
THE STORY. NUMBERED'S MARION HALFTERMEYER,
JAN-HENRIK FOERSTER, AND PIERRE CHARTRES -- PAUL DAVIES.
UP NEXT, WE WILL SPEAK TO THE >> THEY SAY THAT ALL PRESS IS
POSITIVE. THAT IS NOT THE CASE FOR CREDIT
SUISSE, WHICH HAS HAD MORE THAN ITS SHARE OF BAD HEADLINES.
IN MARCH 2019, IT EMERGED THAT CREDIT SUISSE HAD HIRED PRIVATE
INVESTIGATORS DESPITE ON AN EMPLOYEE AT SUSPECTED TAKING
ITS CLIENTS. -- INVESTIGATORS TO SPY ON A
FORMER EMPLOYEE AT SUSPECTED TAKING ITS CLIENTS.
SWISS REGULATOR FINMA SAID CREDIT SUISSE HAD MADE PARTLY
FALSE AND OVERLY POSITIVE STATEMENTS WHEN IT MARKETED $10
BILLION OF FUNDS TO CLIENTS FOR SAFE INVESTMENTS. >> I HAVE ACTUALLY BEEN
CONFIDENT THAT WE WILL COME OUT STRONGER. >> SOON AFTER CAME ARCHEGOS
CAPITAL MANAGEMENT. ITS COLLAPSE BROUGHT CREDIT
SUISSE $5 BILLION OF LOSSES AND SAW EXECUTIVES FIRED.
IT ALSO FOUND ITSELF THE FIRST SWISS BANK TO RECEIVE A
CRIMINAL CONVICTION TIED TO A COCAINE SMUGGLER.
EFFORTS TO ENSURE INVESTORS RAN TO PROBLEMS. >> WHAT WE SAW HIS
TWO OR THREE WEEKS IN OCTOBER FLATTENING OUT, THEY HAVE
STOPPED AND ARE GRADUALLY COMING BACK. >> THEN SAW FINLAND OPEN
ANOTHER INVESTIGATION WHEN THE BANK REPORTED THOSE OUTFLOWS
HAD CONTINUED. AFTER THE COLLAPSE OF SILICON
VALLEY BANK, INVESTORS ARE EYEING OTHERS FOR SIGNS OF
WEAKNESS. WITH CREDIT SUISSE, THEY ARE
NOT. LIKING WHAT THEY SEE. . FRANCINE:
A LOOK AT THE PROBLEMS CREDIT SUISSE HAS RUN INTO IN RECENT
YEARS. THE CRISIS AT CREDIT SUISSE HAS
RAISED QUESTIONS ABOUT THE STATE OF THE EUROPEAN BANKING
SECTOR. JOINING US NOW IS NATWEST
CHAIRMAN, SIR HOWARD DAVIES. THIS IS NOW AFFECTING SWISS
BANKING. ARE YOU CONFIDENT THERE IS NO
SYSTEMIC RISK, THAT NO MATTER WHAT HAPPENS THE FINANCIAL
SYSTEM IS STRONG ENOUGH TO WITHHOLD IT? HOWARD:
I AM PRETTY CONFIDENT. THE REASON FOR THAT IS IF YOU
LOOK AT THE DIFFERENCES BETWEEN WHAT HAS HAPPENED IN SOME U.S.
BANKS AND WHAT IS TYPICALLY THE CASE IN EUROPE, YOU SEE SOME
THINGS ARE THE SAME, BUT SOME ARE FIT FOR -- BUT SOME ARE
DIFFERENT. WE HAVE ALL DEALT WITH A LONG
PERIOD OF LOW INTEREST RATES FOLLOWED BY QUANTITATIVE EASING
AND A LOT OF CASH SWISHING AROUND THE SYSTEM, AND THEN
FOLLOWED BY A GRADUAL TIGHTENING, A GRADUAL
TIGHTENING, RAPID TIGHTENING OF INTEREST RATES, AND THAT HAS
CAUSED SOME GRINDING OF GEARS IN THE FINANCIAL SYSTEM.
THAT HAS BEEN THE SAME IN EUROPE AND THE U.S.
THE DIFFERENCE IS IN THE U.S. AND IN MANY CASES, BANKS HAVE
INVESTED IN BONDS. THE LOAN GROWTH WAS RELATIVELY
ROBUST IN THE U.S., AND THEN WHAT STARTED TO HAPPEN IS
DEPOSITS BEGAN TO FLOW OUT OF THE BANKING SYSTEM INTO MONEY
MARKET FUNDS AND ELSEWHERE. IN EUROPE, WE HAVE HAD LOW
GROWTH. PEOPLE HAVE PUT THEIR MONEY IN
CASH, NOT BONDS, AND WE HAVE NOT HAD THE SKILL OF DEPOSIT
OUTFLOWS LIKE WE HAD IN THE U.S. EUROPEAN BANKS ARE SITTING ON A
LOT OF CASH AND NOT SITTING ON POTENTIAL LOSSES OF HOLDINGS OF
LONG-TERM BONDS, WHICH IS APPARENTLY WHAT HAS CAUSED THE
PROBLEM FOR SVB. SO THE SITUATION IS GENERALLY
DIFFERENT IN EUROPE FROM THE UNITED STATES. FRANCINE: HOW DO YOU EXPLAIN THE CREDIT
SUISSE CRISIS AND THE FACT IT HAS IMPACTED ALL EUROPEAN
BANKING STOCKS? HOWARD: I DO NOT WANT TO COMMENT ON THE
SPECIFICS OF CREDIT SUISSE. THERE IS HONOR AMONG BANKERS AS
WELL AS THIEVES. CREDIT SUISSE HAS HAD
IDIOSYNCRATIC PURSUITS AND I DO NOT THINK PEOPLE HAVE A
SENTIMENT RITA CROPS FROM THAT PARTICULAR BANK TO THE REST OF
THE BANKING SECTOR. OVERALL, THE EUROPEAN BANKING
SECTOR REMAINS STRONGLY CAPITALIZED AND IT REMAINS VERY
LIQUID, AND WE HAVE NOT SEEN THE KIND OF DEPOSIT FLIGHTS
WHICH IS CAUSING PROBLEMS IN THE U.S.. WE SEE SOME SHIFT FROM
NON-INTEREST-BEARING DEPOSITS TO INTEREST-BEARING DEPOSITS,
BUT TYPICALLY WITHIN THE BANKING SYSTEM SO THAT THE NET
INTEREST MARGIN IS MOVED A BIT, BUT IT DOES NOT CAUSE A
LIQUIDITY ISSUE. FRANCINE: DOES IT MEAN THAT REGULATION
CAN CHANGE EVEN IN THE U.K. AND THAT IF EUROPE IS ACTUALLY
IN A BETTER PROTECTED AREA IN TERMS OF CAPITAL, WHICH YOU
HAVE EXPLAINED SENSIBLY, HOW DO THESE CRISES CHANGE THE
EUROPEAN BANKING LANDSCAPE AND THE U.K.
ONE IN THE COMING YEARS? HOWARD: IT WOULD BE A FALSE ANALOGY TO
SAY BECAUSE OF DIFFICULTIES IN THE U.S., WE SHOULD TANK THEM
OVER HERE. THE BIG THING IN THE U.S.
IS THAT THEY EXEMPTED SMALLER BANKS FROM SOME OF THE
REGULATORY REQUIREMENTS. NOTABLY FROM STRESS TESTING. THAT IS WHY I BELIEVE -- THAT
IS WHAT I BELIEVE WAS THE ERROR. OVER HERE, WE HAVE RIGOROUS
TESTING REGIMES WHERE WE REQUIRE TO MODEL THE IMPACT ON
OUR BANK BALANCE SHEET OF A SIGNIFICANT RISE IN INTEREST
RATES, WHICH WILL EXPOSE ISSUE THAT IT SEEMS TO HAVE DONE FOR
SVB. I DO NOT SEE WHY WE NEED TO CHANGE THAT.
WE NEED TO CARRY ON DOING WHAT WE HAVE BEEN DOING.
THERE ARE IN EUROPE AS WELL AND THE U.K.
SOME INCREASES IN CAPITAL IN THE PIPELINE AS A RESULT, SO
PERHAPS THAT WILL GO AHEAD, BUT I HONESTLY DO NOT SEE THAT THIS
CAUSES US TO THINK WE NEED A MAJOR REVIEW OF THE EUROPEAN
BANKING REGULATORY SEEN WHERE BANKS ARE STILL STRONGLY
CAPITALIZED AND WE HAVE 14% IN Q1 AND WE HAVE PASSED THE
STRESS TESTS WELL. I DO NOT SEE WHAT IT IS ABOUT
THIS CRISIS THAT WOULD TURN US INTO A DIFFERENT REGULATORY
REGIME. FRANCINE: GIVEN THE SPEED IN WHICH
CENTRAL BANKS STEPPED IN WITH OFFERING CREDIT LINES OR
GUARANTEEING DEPOSITS, IS THERE AN ASSUMPTION THAT CENTRAL
BANKS WILL ALWAYS BE A BACKSTOP? HOWARD:
SOME OF US ARE A BIT NERVOUS ABOUT THE BLANKET DEPOSIT
GUARANTEE. THIS HAS CAUSED NOW A SIGNIFICANT UNLEVEL PLAYING
FIELD BECAUSE IN THE U.S. THEY HAD 250,000 GUARANTEED.
CANADA, IT IS $73,000 GUARANTEED, AND IN THE U.K., IT
IS TYPICALLY 200,000 POUNDS. OTHER IS A MAJOR SYMMETRY WHERE
THE U.S. GUARANTEES ACROSS THE WHOLE
BANKING SYSTEM, WHICH MOST PEOPLE WOULD SAY WAS GENERALLY
A BAD MESSAGE BECAUSE IT MOVES -- IT REMOVES MARKET DISCIPLINE
FOR LARGE DEPOSITORS. SO I AM NOT HAPPY ABOUT THAT AS
A GENERAL PRINCIPLE, AND I HOPE WE DO NOT HAVE TO GO THAT WAY
IN EUROPE. FRANCINE: DO YOU THINK WE WILL HAVE TO GO
THAT WAY IN THE U.K.? AS FOR THE MORAL HAZARD, WHAT
IS THE LONGER-TERM EFFECT OF A POSSIBLE MORAL HAZARD? HOWARD:
I DO NOT SEE THAT IN THE U.K.. IT IS A PANICKY REACTION FOR
WHICH I DO NOT SEE A JUSTIFICATION AT THIS POINT.
AS I HAVE SAID, WE HAVE NOT SEEN LARGE-SCALE DEPOSIT
OUTFLOWS FROM THE BANKING SYSTEM BECAUSE PEOPLE HAVE HAD
CONFIDENCE IN THE LIQUIDITY REGIME AND WE EXPOSE OUR
LIQUIDITY RATES REGULARLY, AND IN THE CAPITAL REGIME, AND IN
THE STRESS TESTING REGIME, AND ALSO ULTIMATELY IN THE RECOVERY
AND RESOLUTION REGIME IF THINGS GET REALLY BAD.
SO I DO NOT QUITE SEE WHY WE WOULD NEED TO HELP SET AT THE
MOMENT. -- ALTER THAT AT THE MOMENT.
THE SITUATION MIGHT OVERWHELM YOU AND SOME OF THE PRINCIPLES
YOU HAVE MY NEED TO BE TEMPORARY DELAYED, BUT AT THE
MOMENT I DO NOT THINK SO. FRANCINE:
SIR HOWARD, I KNOW YOU WORRIED ABOUT SHADOW BANKING WHEN
INTEREST RATES GO FROM 1% TO 5%. IS THAT STILL YOUR MAIN CONCERN
AND IS THERE ANYTHING CENTRAL BANKS CAN DO, SLOWING INTEREST
RATE HIKES? HOWARD: I AM A BIT NERVOUS ABOUT THE
CHANGE IN INTEREST RATE POLICY BECAUSE AFTER ALL, CENTRAL
BANKS ARE SUPPOSED TO PRIMARILY DELIVER INTEREST RATES , WHICH
IS WHAT THEY DO FOR THEIR INFLATION TARGET.
ONCE YOU GET TO THE POSITION WHERE THE CENTRAL BANK SAYS
THAT WE WORRIED ABOUT A SMALL BANK IN CALIFORNIA, THAT DOES
NOT SEND A GOOD MESSAGE. THAT IS LIKELY TO BRING MORE
UNCERTAINTY OVER ALL. I AM NOT KEEN ON THE
IMPLICATIONS. IT SEEMED TO OVERTURN MONETARY
POLICY PRINCIPLES. I DO NOT THINK THAT IS A GOOD
WAY TO GO. FRANCINE: THANK YOU SO MUCH FOR YOUR TIME
TODAY. SIR HOWARD DAVIES, THE CHAIRMAN
OF NATWEST BANKING GROUP. EVENTS OF THE PAST WEEK HAVE
GIVEN RISE TO LONGER-LASTING QUESTIONS ABOUT THE FUTURE OF
THE BANKING SECTOR ON BOTH SIDES OF THE ATLANTIC. FOR MORE, LET'S ALSO BRING IN
BLOOMBERG'S FINANCE MANAGING EDITOR.
YOUR TEAM HAS BEEN WORKING RELENTLESSLY ON SCOOPS, TRYING
TO GET FIRST OPINIONS OUT. WHAT HAPPENS LONGER-TERM IN THE
NEXT WEEK AND SOME BIG QUESTIONS THAT INVESTORS SHOULD
BE ASKING THEMSELVES NOW? >> YOU CAN APPROACH THIS FROM
THE INVESTOR PERSPECTIVE AND THE REGULATOR ONE.
HOWARD DAVIES TALKED THERE ABOUT YOU MIGHT SEE THE
REGULATORY SYSTEM THAT IS ALREADY IN PLACE BEING EXPANDED
TO MORE BANKS AND SMALLER BANKS. THE ASSUMPTION FOR A LONG TIME
WAS THESE SMALL BANKS, IF THEY WENT DOWN, IT WOULD NOT HAVE
MUCH OF AN IMPACT, BUT WE HAVE SEEN IN THE U.S.
WITH SILICON VALLEY BANK AND HERE IN EUROPE WITH THE
CASCADE, THESE BANKS, WHILE THEY ARE NOT GLOBALLY SYSTEMIC,
THEY MIGHT HAVE PARTICULAR IMPORTANCE IN ONE REGION OR
INDUSTRY, SO YOU MIGHT SEE MORE REGULATION OF THOSE SMALLER
FIRMS. FRANCINE: AND CREDIT SUISSE'S CONCERN WAS
THAT IT WAS SO EMBEDDED. THIS STARTED ON THURSDAY
MORNING AFTER WE SPOKE TO THE SAUDI NATIONAL BANK CHAIRMAN,
AND THIS IS WHAT PETE TOLD YOUSEF GAMAL EL-DIN ABOUT
RAISING CAPITAL. >> ABSOLUTELY NOT.
FOR MANY REASONS OUTSIDE THE SIMPLEST REGION -- REASON WHICH
IS REGULATORY AND STATUTORY. WE ARE 9.8% OF THE BANK.
IF WE GO ABOVE 10%, ALL NEW RULES KICK IN WHETHER IT BE THE
EUROPEAN REGULATOR OR THE SWISS REGULATOR, AND WE ARE NOT
INCLINED TO GET INTO A NEW REGULATORY REGIME. FRANCINE:
THIS WAS ACTUALLY WEDNESDAY, AND HE SPOKE AT ANOTHER MEETING
ON THURSDAY, SAYING THAT THE PANIC WAS UNWARRANTED.
HOW DID YOU LOOK THROUGH THIS? WAS THIS PANIC AND FEAR THAT
LED TO THIS? OR WAS IT THE SHAREHOLDER
MISSPEAKING? MICHAEL: IT WAS JITTERY MARKETS.
THERE IS A LOT OF UNCERTAINTY. I DO NOT KNOW THAT THAT MANY
PEOPLE EXPECTED THE SAUDI NATIONAL BANK TO TAKE A 25%
STAKE. IT REMOVED ONE POSSIBILITY OF A
QUICK CAPITAL RAISE, BUT IT SHOWED HOW MUCH CONCERN WAS OUT
THERE BECAUSE THIS IS SOMETHING THEY HAD SAID WHEN THEY TOOK
THE STAKE, WAS THAT WE WANT TO KEEP THIS BELOW 10%. I THINK IT WAS CREDIT SUISSE
FACED THIS IN OCTOBER AS WELL. THERE WAS CONCERN AND IT
ESCALATED QUICKLY. FRANCINE: THANK YOU. MICHAEL MOORE.
THAT IS IT FOR OUR SPECIAL COVERAGE.
WE CONTINUE TO BRING YOU ALL THE DEVELOPMENTS OVER THE WEEKS
AHEAD AND WHAT IT MEANS FOR THE HEALTH OF THE GLOBAL FINANCIAL
SYSTEM. THIS IS BLOOMBERG.
