alix: we are more than halfway through the trading day in new york and tech is leading the way. this is bloomberg markets. ♪ alix: let's take a look at where markets are. we are right around the highs with the s&p 500 up 1%. at some point, something has to break out. the nasdaq 100 is leading the way higher with a nice rally at 1.3% and a big part of that are the chip names with matt -- with micron reporting and outlook

that was better and sing a nice rally. maybe we've seen the recovery for these companies. lululemon had some good numbers as they manage their inventories better and had potential catalysts for china. you are seeing the best rally for that start since march of 2020. strong numbers coming out of europe as well. bank stocks are a big part of the rally. a big focus of that is in washington. the fed vice chair is speaking in front of the house financial services can he where he discussed the missteps that led to the recent bank failures. >> any time you have a bank failure like this, bank management clearly failed, supervisors failed in our regulatory system failed. as part of our review, we will look at the supervisory issues in the regulatory structure the federal reserve put in place in

2019 and see whether the size threshold we used, the standards we decided to put in place, all of that is on the table. alix: joining us now on the hearing is megan scully. what to be learned today that was different from yesterday? >> yesterday's focus was predominantly on the bank management and today we saw the shift in house lawmakers were really zooming in on regulators. the fed vice chair for supervision gave his most forceful, raises most forceful concerns about the regulation or lack there of leading to this crisis. alix: what happens now? we have all the finger-pointing and the partisan stuff that has happened and a clear message from the fbi see and the chair and treasury. what does congress have to go and do now? >> congress is in an unusual

situation where they are debating whether they need to proceed with tighter regulations like senator elizabeth warren had demanded or whether they just go in and sort of ensure that existing regulations are enforced and carried out by the administration and by regulators. they are in a middle ground and considering the fact that congress is divided now with republicans in control of the house and democrats in control of the senate, it's hard to find a solution on anything let alone something as politically charged as this. alix: that chair was talking about the fact that for svb, was it a collateral mismatch or did the fed discount window not stay open? was there operationally some stuff that can be fixed to make any issue easier to manage in a crisis scenario?

is that stuff easier to fix? >> that has been the republican line the last few days or the last few weeks since the collapse of svb. they are saying that these regulations exist and these tools is a big word and that the tools are there for regulators to use and it's to the regulators to actually enforce them and go into these banks, these midsize banks in particular and stay ahead of the curve. alix: regulators would say we did the stuff we were supposed to do but the ceos didn't do their job area >> yes, that was the side we heard yesterday. today, you heard vice-chairman barr say that regulators were indeed at fault. alix: really appreciate it. thank you for joining us. bill isaac is the former fbi see chair and he joins me now. it's a great pleasure to speak with you.

let's start with the finger-pointing because it will lead to a regulations that will affect the economy and will affect investors. is the fingerprint -- should be the regulators or the ceos? where does it lie? >> everywhere. alix: that's actually a good answer. we will fix lots of things if everyone is at fault. if you were still at the fbi see, what would you do differently now? >> i would have handled the takeover, the rescue package for svb somewhat differently and i have written about that in an article today in the wall street journal. i would highly recommend that the legislators and regulators and so forth consider those reforms. that would improve the ability of the fbi c2 deal with this kind of situation and hopefully make it less likely to happen.

having said that, i believe first and foremost this bank is very poorly managed. i do place the primary blame and -- of defeat on bank management and its board of directors. that's almost always the case in a bank failure. that's the first line of defense and that's where this broke down. regulators could have done better. i believe they were slow to act both the state of california which was the primary regulator and the federal reserve which was the primary federal regulator and even the fbi see which in the end had the authority to go in and deal with it if nobody else was. i think all the regulators were slow to act and what i was really shocked by his they allowed this bank to triple in size in two years prior to

expiring which is unheard of. it's a huge red flag in the regulators should have been trying to -- should have been in there trying to find it what's going on. alix: apparently, there was no head of vice chair supervision for a year or so while we saw this expansion of the svb balance sheet which is interesting. what do you think of the consequence of this? will the banks police themselves that her and slow loan growth and be more conservative and how they manage their own assets or does it have to come from washington? >> first and foremost, the banks have to do their job better. the silicon valley bank did not do a good job of managing itself. they should have known better than other banks have failed doing the same things they've done in the past, first pennsylvania in 1979, the largest bank in pennsylvania being the most notable. a textbook case of what not to

do. that lesson should've been learned and should have been known by the management of this bank and they should never have done the things they did. then, the state regulator which was the primary regulator here was asleep at the switch is near as i can tell. as was the federal reserve. they need to be more on top of things and if they are not doing their job, the fdic needs to be on top of it. alix: will we have more regulation or will the banks be able to manage risk against these consequences? >> i don't believe we need any more regulation. we have way too much regulation. every time a problem happens, congress decides they have to put more regulation in place which makes things more complicated for everybody, banks, regulators, the public. i think we should slow down on

rushing to the fire here and throwing more regulation on top of it. it's counterproductive and it's not working. we need to learn the lesson and start doing the job properly at all levels in the regulators need to be more aggressive about getting on top of banks that are not doing the things we know they should be doing and stop doing the things we know they shouldn't be doing. alix: so it's not regulation, it's do your job better? to that point, do you think, with your vast experience, do you think we will see banks cut back on blending and be more conservative? >> i hope that banks will continue to lend, they need to and i hope they are smarter about it. i hope they are more conservative about it. they know what to do. these folks at silicon valley bank had to know that what they were doing was not appropriate.

everybody should have known that. i don't know how you don't know that. alix: you hope they will keep lending but they have to be smarter about it, i get that. what should the banks do about their deposit beta? for investors, there is a question as to how these banks will be profitable in the future. if they have to regulate themselves better, if they have to be more conservative in how they do that and make sure deposits don't flee, how do they do that and still make money? >> it can be done. we've been talking about banks being more conservative. that's one word you could use. i would use the word smarter, more intelligent. don't do dumb things, don't take undue risks and have controls in place.

i may be wrong but this bank didn't have a chief risk officer in the last year of its existence or maybe nine months. how can you run a bank of that size and that importance without a chief risk officer in place? how could the board let that happen? how can the management let that happen or the regulators let that happen? alix: will we see an advance in commercial real estate? will we see issues of commercial real estate in banks that haven't managed their risk as well? >> you always have to fear commercial real estate. it's one of the riskiest activities in which banks engage. every now and again, it gets over built an out of control and people take losses. that's always an area of a bank you should have under tight control. you don't have excessive concentration and it and you have solid practices in it, we

know what it takes to make good real estate loans and if you don't do the things you need to do, you will lose and everybody knows that. follow your head, be intelligent. alix: thanks a lot. i appreciate that. it's time for first word news. john: the german government will increase its financial support for ukraine by $13 billion which will be used for weapons and almost half the money will be available this year doubling the current amount. the european union and the u.s. are nearing an agreement on critical resources that can provide eu companies to the massive green subsidies offered in the inflation reduction act in the u.s. it will be some way to an agreement you assigned with japan this week that included a commitment to not put

restrictions on metals used for electric car batteries. a warning from china for taiwan's president in the u.s., any meetings between her and house speaker mccarthy will be a serious provocation and she is expected to meet with mccarthy in los angeles in los angeles and the taiwan affairs office said this would violate the one china principle. global news, powered by more than 2700 journalists and analysts in more than 120 countries. this is bloomberg. ♪

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[ cellphone vibrates ] you'll get proactive alerts for market events before they happen... and insights on every buy and sell decision. with zero-commission online u.s. stock and etf trades. for smarter trading decisions, get decision tech from fidelity. alix: this is bloomberg markets. bloomberg businessweek wrote about the credit crunch and its effect on the economy writing that the concern is the banks will curb lending in response to increased regulatory scrutiny.

at a time when the fed is pushing ahead with the most aggressive cycle interest rate hikes in 40 years. peer to discuss credit conditions is brett ryan at deutsche bank. good to see you. what's the fallout from the banking crisis with conditions? >> the transmission mechanism through financial conditions and it's an index that st. louis fed president referred to last week and we augment that with a survey that's a leading indicator. we conduct two types of shocks, mild and moderate one. those shocks would have the oakland of dragging on gdp by about 50 basis went in a mild scenario to over 100 basis points in a more severe shock that would be closer to the financial crisis. we have already had bank lending standards that are tightening already. this is just adding to that. it's in the backdrop of a

slowing economy. alix: if the transmission mechanism from that is saying with commercial real estate or the tech sector orcni but the actual economy, what consumers are spending are ok, what are the chances that things are not that bad? >> it's the monitor -- it's a marginal impact on hiring, the contraction in terms of credit growth. instead of making the extra loan to expand your business, you will not at that because it's too expensive and the bank is not willing to give that to you. that filters down to the labor market and you are less likely to hire and that slows income growth and will then filter down into spending. alix: how quickly will that happen? what the market is trying to understand is that question. is it six months and then the fed will have to cut because of it? >> that is the question. with the market pricing, it seems to be that with the cuts

in the back half of this year as early as july i believe, it will be fairly soon. our work would indicate that it takes about one-two quarters for maximum impact which would be about fourth quarter of this year which we already projected a recession in that time. alix: what does unemployment look at that point? what does inflation look like at that point? >> rising unemployment would be close to 4.5% in the fourth quarter. you already had an elevated good spending. alix: what about inflation? >> that's another question. alix: you will have credit contracting and the transmission mechanism is through small businesses and hiring and that gets so bad the fed has to cut

but what if inflation is still at 5%? >> inflation is a lagging indicator. it's the most lagging indicator. it often peaks during a recession. it's more the general direction of travel at that point. we have corp. pce inflation at 5% by year end. core cpi is around the same level. it's certainly still elevated but it's about the direction of travel and the short-term trends and what they will look like and what the labor force situation will be doing which we think we will have negative job growth which gives the fed confidence that we are losing the labor market and inflation will slow further going forward. alix: what if everything you say plays out but inflation holds sticky around three. are we at risk of a re-acceleration of inflation since we will get those fed cuts? >> it's a great question because

the fed has been saying consistently for the past six month prior to this that they don't want to repeat the mistakes of the 70's and take your -- there breaks off the dish take their foot of brakes too soon. how much do you cut and are you keeping real rates restrictive at least on the front and of the curve? we have the fed cutting but not cutting two negative real rates. it's keeping above 3.5% for example on the fed funds rate. maybe not at five where the real rate is but they will still have a positive real rates. it's more about keeping the degree of type -- degree of tightening. alix: thank you so much. still ahead, ubs is bringing

back a familiar face to the company. we have an interview from earlier today. >> so that you swiftly transform the investment bank and achieve the profound culture change within the bank. >> changes are coming with expectations and i'm fully aware we need to work very hard. this unique experience with a deep understanding of the financial service industry in switzerland and globally makes sergio ideally blessed to successfully lead the institution. together with my team, we will work and do everything it takes to make these transactions successful. ♪

alix: this is bloomberg markets.

looking at the s&p and tec are around the highs of the session and you have banks performing relatively well. it's day to of bank hearings on capitol hill. bank of america says banks are a good alternative to stocks. will we see the deposit outflow? because you will make 5% in a money market fund. why wouldn't you do that? however, does that mean a bank will have to start raising its deposit rates so my money stays in the bank and if they do that, that winds up hurting their interest margin and that impacts profitability. if they don't do that, maybe the money continues to flow away into money market funds which is another problem for net interest margins. tickets complicated on the granular detail.

a senior analyst for bloomberg intelligence gives us her reaction on the move. what does he ring to this that will help ease the execution risks? >> he brings the skills of someone who first of all knows the bank and knows the swiss culture. he led the bank through a significant restructuring he met is the bank for nine years. he dramatically reduce the size of the investment bank by about 40% through 2019.

alix: do you like the move? >> i can't hear you. >> i can hear you now. l do you like the move? alix: >> yes>>, i think it's a good move. it mitigates the risk the profitability will be damped near-term and we don't expect improvement for several years but the fact but culture will be the number one thing that ubs has to bring to the big -- the business of credit suisse as they bring that under their umbrella. the fact that ubs, the town was set under ermotti, having an

comeback is a key positive. alix: we really appreciate it. we were talk about -- we will talk more about banks coming up next. this is bloomberg. ♪ everything's changing so quickly.

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joh thisn: president said a victory -- that a russian win could be perilous. it would force ukraine to make on acceptable compromises. he invited the chinese president to visit despite china's ties to russia. allies of emmanuel macron fears that violence in the streets is spiraling out of control. supporters are still backing the controversial plan but several of them are urging macron to take the heat out of demonstrations. a call to pause pending legislation. north korea's indicating it has no intention of abandoning its

nuclear intentions. they made threats of images to deliver nuclear warheads which would increase its ability to deliver a nuclear strike. a major tool in the fight against the opioid crisis about to get easier access. the food and drug administration has approved overdosed reversal drug narcan for over-the-counter sales which means he could be available in convenience stores and online by late summer. demand for the product has risen as officials across the country look for ways. to prevent overdose deaths global news, powered by more than 2700 journalists and analysts in more than 120 countries. this is bloomberg. ♪

jon: welcome to bloomberg markets. alix: let's get a check on what's happening in the markets. the s&p 500 is around the highs of the session but tech is leading the rally. the s&p 500 is around the 50 day moving average. tech is being led higher by the chip sector. i wanted to highlight two diverging stories. bed, bath & beyond but also bath and body works and carnival. you have some of these guys like bath and body works are lower and those kind of stores they say will not do well. but carnival is upgrading shells, talking about -- is upgrading shares, talking about doing well. with all the banking issues, the consumers are still going on cruises and still buying stuff. how bad can it get? jon: it's a fair question to ask. if we go deeper under the hood,

whether we talk about financials or tech or discretionary names, you are seeing other themes along those lines. you've talked today about lululemon which is a standout retail stock. they are still navigating inventory issues but the outlook is seen as encouraging. you talked about the financials and broadly speaking, we are seeing interest in some of the regionals. first republic is up 3.5%. taking into this technology story, we might not see the same appetite within the chip sector without a move like macron today and the message they shared with the market and we will talk about that coming up and we will be keeping tabs on the testy senate hearing in washington, tied to starbucks in the labor story. alix: investors gauging risk in the market, let's look at the bond market where we had an interview earlier focused on economic data rather than credit

they do tied to banks. >> i will be watching banks because it's not reflecting the banking crisis. i think it will be at least a few months before the data starts to reflect this. the fed is supposed to be forward-looking and markets are forward-looking so we will be watching the banks much more. jon: treasuries are the focus of today's bank take and liz mccormick was one of the writers of the story of the world's favorite risk-free asset. great to have you with us. it's interesting listening to those comments how much it feels like the fed messaging and positioning going forward will influence the movement of the fixed income world. you talked about that extensively in your piece. >> she is always so calm when she speaks. the markets have been crazy but the market is going to be watching. i think they are watching so

many things because they will be watching the data like pce tomorrow but they are watching the banking flow data and the weekly fed reports. they are watching any signaling from fed officials and what they have to say. it's a lot of stuff they are trying to gauge how close the fed is to done and the market is no pricing for over 50% if they one -- if they do one more quarter-point hike so there is so much on the radar, it's tough for people to keep it together. alix: we have to make sense of it every day as well so it gets tricky. part of the big take story you did is whether or not treasuries are still a safe haven asset. svb is front and center with that because they had the duration risk but technically, tenure treasuries are considered safe. our treasuries safe now? >> our finance team has done a lot of great stories on this and

the svb risk management folks did not do a good job. that aside, we look at their balance sheet, treasuries, agency mortgage-backed, among the safest security so what's going on? it's a real problem especially when the fed raises five percentage points since march. even these very safe things, the prices down in the market even if you hold to maturity so duration risk we did not have to worry about for a long time because rates were low and we had a bond market for decades. that paradigm seems to have change and that's what you are seeing the value of these securities on banks and other folks not the same if they were held to maturity. jon: i like the quotation you have from paul macauley formally of pinko -- from pimco.

>> paul stressed to me who is teaching at georgetown that par is a whole different story than where you get it now and that's what people have to realize. asset price stability, there is none for any of the securities. people have to realize -- he said the only thing that's 100% for sure is an fdic insured deposit and other than that, you don't know what you will get in the market. i thought his points were very valid and he's interesting and colorful the way he speaks. alix: it's a great article and thank you for joining us. let's continue about the risks facing banks. eric cassidy joins us now from rbc capital markets and he's the creator of the texas ratio which is used by investors to determine whether a bank could be insolvent.

you were probably busy the last few weeks. you cover most of the big banks and most of the nice big regional banks and you have a positive view on them. does that imply an expectation of lending continuing and regulation not coming on? >> thank you for having me. our outlook anticipates that we are going to see more regulation as a result of what is happening here with silicon valley and signature bank. we also anticipate we will see long growth and the reason is we got nominal gdp growth. go back 75 years in this country or longer, loan growth in the u.s. banking industry is tied to nominal gdp growth. if you think we could have real growth this year of plus or -1% with inflation at 4%, our loan growth forecast is 3-5% loan growth which is down from last year. in the second half of last year,

the bank was seeing double digit loan growth. we expected to slow and it will slow as a result of what we been through the last few weeks. alix: does it slow us into a recession or naturally slow and peter out? >> that's a good question. i don't think it slows us into a recession because banks are in the business to lend. they risk adjust their lending and if they see the opportunities that the lending will lead to higher profitability and a risk-adjusted manner, they will continue to lend. if they anticipate there will be a deep recession, that is when they would pull back. jon: i want to talk about money flows which would include things like deposit but also stock market flows. we just talked about worries of long-duration debt. bank of america has an equity report saying maybe look to cash as opposed to equities.

then we have this deeper story about whether or not the money will continue to flow to the money setters at the expense of the regionals. in terms of investor sentiment at in terms of deposit flows, how closely do we have to watch that? >> deposit flows will continue to be watched through the end of the first quarter numbers. the numbers come out starting on april 14 and they will be closely looked at on the deposit side in particular. we have to be careful in what we say about the regionals. the top 25 bank which includes regionals are all seeing the influence on deposit. it's really the smaller regionals and community banks that got hurt by this. the data last week suggested the outflows were 1.9 percent come over $100 billion which was not that significant. we expect the outflows to slow this week. to us, the deposit flows will start to stabilize as we go into

the second quarter of this year. jon: the market seems to be feeling like we are moving away from the worst of this. when you look at the landscape, do you see any players that give you pause or you think are troubled? >> certainly, the first republic situation still has to be resolved -- i believe they cannot last night saying they are not for sale any longer. we will see when they report their numbers with their balance sheet looks like. everybody has their eyes on that bank and we will look at the numbers. amongst the bigger banks, down the road, people will talk about commercial credit and commercial real estate is a concern from investors we spoke to. alix: i want to get your talk on

deposit beta. how much will they raise deposit rates to keep deposits rates and how much will that crush their interest margins? >> when we lowered our numbers last week, we took that into account. we expect the deposit rates to be higher. that being said, we do not see deposit exits that we saw pre-financial crisis when it reached 75% through the cycle. in 2018, we saw them reach about 45% and that's probably what we will see this time, somewhere between 40-45%. we anticipate the banks will be using cd's than they had the blessed 15 years to keep the customers happy with higher rates. jon: great to get your perspective as always and we appreciate your time. that's a lot to chew on. chipmakers are in the green today on signs the sector slump

may be ending, our stock of the hour is next. this is bloomberg. ♪ ever better. it's when disruption hits your supply chain and ryder makes sure you're ever delivering with freight brokerage to transportation management, truckload capacity and dedicated trucks and drivers.

alix: this is bloomberg markets. time for the stock of the hour and we will look at macron with shares rising after the chip market positive third-quarter outlets and they hope the worst is over for the semis. that's a pretty solid rally. margins were not great so what's going on? john: mike ryan has a very focused business. $3.9 billion wase ahead of street expectations. d: this is more about messaging that they quickly went to this

bust cycle. ed: chips historically are cyclical and the pandemic messed that up in the messaging for the ceo is that we are coming out the other side. we know about the slow down in the market which is principally smart phones and what we are seeing from the executives at micron is that we go into the second half of this year and customers that have been working through inventories with a supply of memory chips now -- now may start to make more forward orders. they are not a company like samsung that have more diverse business base. it's memory or nothing so that's interesting. jon: the fact that there is a lot of enthusiasm within the sector broadly speaking today, can we make a strong statement about more optimism for all ahead? ed: there is a lot of drivers

pulling this market. micron was a slight underperformer that still up on most 20% year to date and nvidia is where the action is. it continues to have more price target increases in byte ratings from various analysts and they are bullish about artificial intelligence because of the chips day do. they basically do high-end chips and graphics processing that work really well for ai. there will be a lot of infrastructure spending on the computing power for ai and nvidia is the main beneficiary. this is a stock trading at 56 times forward earnings. that's not even tesla territory. it's nuts so there is worry how much room there is to run. alix: and we are not done with the cycle yet. let's pick up on ai. it was interesting you had industry leaders and experts at

berkeley, talking about how ai needs to slow down on some of the powerful models. what's been the response? ed: there is around will 1100 signatories and some of there is names are in doubt saying let's hit pause in the latest generation of large language models until we have consensus on a framework for rules and safety protocols. these are basically going on through ai and they say we need to stop progressing. the ai responses they are asking for safety and trust and protocols. we had a specialist on the show last hour and she makes the point that ai is just computing. imagine asking those working on software to hit pause on developing computing, is just not realistic. i think we will wait and see if this has some legs.

jon: i can't help but wonder as the debate continues when it is one companies work at the forefront versus others who are also in the industry but maybe not getting the lion's share of the attention and how the conversation will play out. ed: the lions share of people i speak to would accept that ai leads the way. you can read the letter which linked within the bloomberg story. look at those names that are signatories. many are ceos of ai related companies. we reported elon musk is working on his own ai startup area there are lots of questions about rationale but i think broadly we had to get together and get some kind of system in place for making sure the risks associated with ai, inaccuracies, the access of false information to minors, etc. that we are talking

about tackling those of an ongoing basis. jon: that's true and this sounds pretty important. thanks very much. coming up, the former starbucks ceo howard schultz defending the company in front of congress as more employees push for unionization. this is bloomberg. >> are you aware that analog has ruled that starbucks violated federal labor law 100 times far more than any other corporation in america? >> starbucks coffee company unequivocally, let me set this up just the tone for this early on, has not broken the law. ♪

>> were you informed of or involved in the decision to

withhold benefits from starbucks workers in unionized stores including higher pay and fast -- and off accrual? >> my understanding, when we created the benefits one month after a returned as ceo, my understanding was under the law, we did not have the unilateral right to provide those benefits to employees who were interested in joining a union. jon: this is bloomberg markets. that was some of the commentary from former starbucks ceo should -- ceo howard schultz defending the company's labor tactics. hundreds of branches across the nation voted to unionize and josh ellison is at the capital building covering this. how has that message, the idea of not standing in the way of the unionization efforts, been received today? >> this was a sharply divided

hearing with democratic senators questioning and sometimes blasting schulz and republicans rising to his defense and suggesting the committee should be investigating the national labor relations into whether the government is giving the company a fair shake. sometimes we so democratic senators comparing starbucks to someone who gets 100 speeding tickets and blames the cops, raising the story about howard schultz's own humble experience and suggesting he should treat workers better than his father was treated. we sell republicans respond by accusing the hearing of being a sham and rand paul ayn rand saying people are not grateful in society to creators. several republican senators noted they don't politically see themselves as aligned with howard schultz but argued he's being punished for his success

and the labor board is the one that should be under investigation. alix: what happens now? will anything actually change for starbucks? >> part of why this hearing is significant is because starbucks has cultivated a humane, progressive brand and that brand has taken some hits over the last year as the company has faced more than 80 complaints by prosecutors and the labor board. what many democratic senators like to see happen is change in the federal labor law so that, for example, workers who are allegedly hired for union organizing could get the jump back more quickly, more companies that violate the law to face punitive damages rather than the process that exists now. given the filibuster in the makeup of the congress, that of sweeping legislative changes unlikely to happen. alix: exactly, we appreciate it. nonetheless, an interesting and

firing hearing for sure. that's it for us, we are still around the highs of the session with the s&p 500 up about 1%. this is bloomberg. ♪ introducing the new sleep number climate360 smart bed. the only smart bed in the world that actively cools, warms and effortlessly responds to both of you. our smart sleepers get 28 minutes more restful sleep per night. >> this is bloomberg markets the proven quality sleep. only from sleep number.

close. two hours to go in the u.s. trading day. think it is risk on day for the moment, banking turmoil is over. katie: that seems to be the message. the bank index leading the charge, up 1.4%. scarlet: with all 33 members higher as well. try to members.