>> this is a cycle where we are unwinding massive covid distortions. >> rooms are still trying to hire and find people -- >> for the fed is more a question of how quickly do they go back to normal around 3% and my answer is not very >>. >>-- is not very. jonathan: from new york city for

, our audience worldwide, good morning, good morning. this is "bloomberg surveillance, live on tv and radio. getting your week started with equity futures on the s&p 500 totally unchanged. here is the quote from jamie dimon, government invited us and others to step up and we did. jp morgan to require first republic. i make this the fourth bank to fail since early march. lisa: and a second when ever in history to fail under fda seized watch. is this a bailout and what is the cost to the fbic and could have been avoided? jonathan: and is it the last and what does it mean for the federal reserve later this week when they meet on wednesday? an interest rate on the table following another tank failure

in america. lisa: it was said this is going to be inevitable and part of a healthy ecosystem in a capitalist society that there will be baked failures and the only way to plan for that effectively is to focus on strong capital requirements and does that mean more regulations and the framework is the best hope of ending our bailout culture. jonathan: where is warren and berkshire hathaway? we maybe have a little answer from the berkshire hathaway vice chair and here was the paragraph, charlie munger has warned a brewing storm in the commercial property market and the banks had bad loans as prices fall. lisa: were they not interested because of the quality of the loans and losses they might have to incur because they didn't have the banking infrastructure ap morgan had to potentially

offset that and share the losses effectively with the fdic. jonathan: credit suisse, idiosyncratic, first republic, idiosyncratic. how many banks have to fail before we say every single one is idiosyncratic. lisa: it might not be a financial system collapse but this trip, trip leads to more -- drip, drip leads to broader concerns that lead to fisher's in -- features -- fissures. jonathan: let's start with equity markets. the equity market on the s&p 500 totally unchanged. the europe banks closed for the holiday.

a 10 year at 3.4560. in the fx, holding onto 1.10. the ecp on thursday -- ecb on thursday. the biggest listed company on the s&p 500 reporting later this week. lisa: apple coming on thursday. an ongoing slew of earnings before then. they have been better than expected. before the opening bell we get self i and norwegian cruise line -- sofi and a region cruise line. i am curious about -- and norwegian cruise line. today, the milliken global conference is kicking off and a number of speakers, mark rowen, jane fraser and interested to see what she has to say as well as former fdic chair sarah blair

is saying she is where they waited too long. jonathan: looking forward to the data later. and friday for payrolls, the headline, jamie dimon wiring first republic after and inquired -- we have been on this journey with you and have appreciated it. we have some kind of resolution. jp morgan is positive in the premarket. when they say our government invited us to step up and we did. are they doing us a favor or do they have something good? >> they were able to do it at a lower cost to the government. you look at the did they made and again, it is a lesser gain then we saw at the other transactions.

this is a less of a gain for jpm and represents the upside to the wealth management business. that is what jp morgan sees and where there is opportunity for them in the long-term with the assets and asset management. lisa: is is a bailout by the fdic? chris: they could have med -- made better terms. at the end of the day, they are seizing the assets, similar's other smaller transactions we saw that in 2008, 2009 and 2010. at the end of the day, it is a better transaction for the system. lisa: did the fdic wait too long to allow this to allow the drip

of assets and people to leave? chris: i would have preferred to see this resolved in april but at the end of the day, we got where we needed to go. they were looking to see if there was a private solution with preferred equity but that was not in the cards for first republic so this was the best alternative. jonathan: when you mentioned jp morgan and the fdic agreed to share the losses, what does that mean in practice? chris: as jpm has the assets and deposits, they will work through those and particularly loans and there will be in agreement for losses that come out and that will be shared with the fdic. it is very similar to what we had in 2008, 2009 and 2010. these are assets simply mark for interest rate risk and not credit risk.

ultimately jp morgan will sit with the assets and sell them moving forward. it is possible that most of what they are holding here comes back to them in the next 12 to 18 months as interest rates change and the fed changes policy a quarter or two it will change how the assets are valued. timing is everything and that is why the bid ended up being less of a discount for jp morgan. jonathan: they show the upside? chris: they capture most of the upside. jonathan: that is fascinating. lisa: especially because in the stories that said they shared the upside as well as downside, it is confusing that jp morgan ends up with the entirety of the upside at a time where the fdic wants to mitigate socializing the losses and privatizing gains. jonathan: can you give us more clarity on that? chris: i think the agreement will be typical of what we saw back in the transactions in

2008, 2 thousand 9, 2010. it was an arrangement where the fdic and then the bank collected the assets in the bank becomes the conduit for the fdic to collect the money and loans. it is much more with loans that were made. with first republic, they were not risky loans. in many cases the are -- they are low risk loans and it is an interest rate issue. jonathan: as you know and we know, jp morgan already held more than 10% of u.s. deposits. that is being seen as problematic for the regulator. has that exception been granted already by the very nature of this being authorized at the moment? chris: wrecked. -- correct.

jonathan: this is become a problem if they hold more than 10%? why are we willing to go beyond it? chris: the end of the day if you had to take a lower bid and a bigger loss for the fbic banks would be paying more. if you could limit the hit to the deposit insurance fund, that really is the best outcome for both the banks and the system. this is about building confidence and i think you build confidence by having first republic resolved and by seeing that a very good operator that has strong capital, remember the balance sheet jp morgan has advocated allows them to do the transaction. i think it is rare and won't see others like this. it was bangkok by the friendly fire of svb six weeks ago.

jonathan: is too big to fail a good thing now? chris: necessarily. i think the regional banks are in a position to step up and service the households in the country. too big to fail is not necessarily the outcome i am looking for. many banks are well-capitalized that can step up. having this episode resolved is a good thing. i think you'll see part of the credit solution in the country is seeing the midsized banks perform and perform well. you're correct the credit is tightening but i don't think it is being shut up -- shut off. jonathan: chris marinac there. lisa: it is a question of how it will play out with financials. there are reports that jp morgan would take a $2.6 billion net

gain on its balance sheet and $2 million of losses and the fdic would be settled with $13 billion in losses. we will be getting the details trickling in. jonathan: jp morgan up by 2.65%. the equity market unchanged. lori cal the sena -- lori calvasina and then wednesday at the federal reserve set to raise rates as another bank going under. it is bizarre when you talk about it out loud. lisa: idiosyncratic, that is all. jonathan: from new york, this is bloomberg. lisa: keeping you up-to-date from news around the world, i'm

lisa mateo. jp morgan has won the bidding to take over troubled first republic bank. the fdic ran the sale of the private efforts failed. the deal will make the country's largest bank even larger. jp morgan expects to have a 12 point $6 billion gain linked to the purchase -- $12.6 billion gain linked to the purchase. the gop pressure on the president. we run the risk for defaulting on payment as soon june. russia targeted ukrainian cities with cruise missiles. cranes military said 15 out of 18 were shot down. -- ukraine's military said 15 out of 18 were shot down. emmanuel macron discussed aid to

respond to ukraine's needs. the u.k., nurses morning there will be no quick end to strikes. ambers of the royal college of nursing estate another walkout sunday night. staff -- members of the royal college of nursing staged another walkout sunday night. japanese drugmaker has agreed to acquire a company for $5.9 billion or they develop drugs to treat age-related blindness. it will be funded by cash and debt and the price represents a 75% premium. mobile news, powered by more than 2700 -- global news, powered by more than 2700 journalists and analysts. this is bloomberg. ♪

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>> i would be shocked if the fed didn't hike interest rates by 25 basis points. the data we got suggests it is wages at 5.1 percent will worry the fed. jonathan: hamed l arian on friday, looking for another -- mohamed el-erian on friday looking for another rate hike. jp morgan taking over assets and liabilities from first republic.

lisa: was the statement that they will help mitigate the losses that could have been for the fdic. jonathan: here is the market. the bond market shaping up, yields higher by three basis points, the 10 year .4522. -- 3.4522. lori calvasina joins us from rbc capital markets. does that deal over the weekend put this issue to bed? lori: let's hope. we have been watching the bank index performance closely. it has become as important as eight sediment barometer as important at anything you can look at these days. we go back to the financial crisis and tech bubble, what we know is the problem children in

any crisis have to settle down before the market can settle down its self. when you look at the index, it has been trying to stabilize. it is remarkable the resilience. earnings provisions and small-cap have been smoked. that is something we really need to see happening before the market can be content with the idea the pain is out-of-the-way. time will tell. jonathan: svb failed in march and the equity market rallied. first republic was going under in april and the equity market rallied. can you make sense of the fact that we seem to have left behind the bank index and the s&p has gone higher? lori: there is another child the market is paying attention to, not just a problem child of the banks but the tech sector and earnings are in a recovery process. if you look at the rates, it got

smoked last year and it is in recovery mode this year. we are seeing things get less bad and the tech sector briefly enter upward trajectory. that is the child that matters more to the market right now. it is bigger in terms of the market cap representation. the structure of the s&p 500 is very different than what we have seen in the past but if tech is behaving well, it pretrade in the pause and is looking ahead to rate cuts and we can debate whether that will actually happen. the recovery and improving trends and positive interest rate dynamics for the tech sector have done enough. lisa: it is not just the tech sector. even the consumer discretionary areas, consumers absorb higher prices and going around the world and traveling as much as they can. at what point does the fact that

the bank failures and not tighten credit enough do the work for the fed and that comes in as a potential surprise for markets this week? lori: i do think the fed is likely to hike later this week. that is priced into market and for the fed to not do it at this point in time when the spook the markets more than helping it. you have to go back to the reasons why the fed is doing what it is doing and if the fed is saying you can hike one more time and we think this is a relatively contained inflows and the economy is strong enough to do that, that is a vote of the confidence for the here and now. i think we are seeing a tighter lending period coming up. i heard an analyst saying it seems like this is something that will come in in terms of drips. we have to ask what is the state of the consumer balance sheets coming into all of this and i think the resiliency you are seeing in consumer spending

speaks to the fact that so much of a mess was cleaned up during covid of the stimulus programs and the time people were forced to spend at home. that strength is coming home and is an asset. lisa: not necessarily the russell 2000 but exposed that could be laden with bad loans or underpriced loans based on where interest rates currently are. lori: i think we go back to the crises in the past, the big growth stocks back in the tech bubble that took a long time to become a leadership area again and the same thing with the banks coming on the financial crisis. we have moved to a neutral on financials and we say that in small-cap as well. i do think outside of the financials in small-cap you can find interesting things to play on a recovery. small-cap consumer looks cheap

right now and should benefit from a recovery going into 2024. the same tailwinds we would see in the big cap names but the consumer discretionary stocks are expensive now. i do think as long as markets are jittery and as long as markets are focused on getting ready for fed cuts down the road, i think tech will have some tailwinds. we are watching the positioning. nasdaq futures getting elevated. when that peaks it will take down the tech stocks and impact the broader s&p 500. for now, earnings trends are good and the fed trajectory is good. you can be selected in small-cap but the tech space and mid-cap should do well. jonathan: you are not bearish. you have been constructed in the many ways over the last -- constructive in many ways over the last months.

how do you convince somebody to take money and put it into the equity market? lori: it depends on what part of the market you are talking about and the time horizon and the purposes it is supposed to achieve. we have been talking about the energy sector which has really nice dividend yields. it has come back over the last year or so and that is an easy conversation to have with investors right now even though there are shorter-term concerns about oil prices. one of the things we see retail investors do is come into the s&p 500 for yield opportunities and even though the growth part of the market is zigging and a zagging, there are yield opportunities in other sectors. jonathan: thanks for being with us. lori calvasina of rbc capital markets.

this from bank of america going into the fed meeting, enough juice for one more hike. he says the hand off to two q looks soft and we expect the fed to hike by 25 basis points next week, signal a pause in june. organist said something similar. they talked about this conditional pause and they expect the federal reserve to communicate wednesday. my question be -- would be conditional on what? lisa: town would be saying, conditional pause and what is next? we just don't know, are they just basically a joke or looking at the university of michigan expectations of inflation, senior loan officers survey? what are the data points that will be key? we don't know. jonathan: into practice the tk impression over the weekend? lisa: 24 hours a day.

jonathan: it is impressive. the senior loan officer opinion survey, we should get a potential survey of that from chairman powell in the news conference. it was tightening before this mess and we expected to continue to tighten. you had the potential for the regional banks lending standards to be tightening lending standards even more from that, which you imagine is going to lead to weaker growth. lisa: how much do you choose to trust your projections when they have failed so many times before? it is not linear. jonathan: very lumpy. the whole thing is and will continue to be. it is a process. equity futures unchanged on the s&p 500. this is bloomberg. ♪ ♪ welcome to a new era of flight.

jonathan: welcome to the program. this is "bloomberg surveillance." jp morgan putting out investor presentation after securing the deal with first republic. all regulatory approvals received, the transaction has closed. a payment of 10 point fdic $6 billion to the fdic -- $10.6 billion to the fdic. there is just a page that reads

the rationale for the deal accelerates key growth opportunities and increases penetration with high net with clients, accelerates wealth strategy, complementary to j.p. morgan chase's number one business bank, financially attractive, high-quality portfolio with additional protection, strong credit profile. supported by due diligence process makes the fortress balance sheet. it contributes to rapid and orderly resolution. first republic posits will be back by the strength of jp morgan. our capabilities and capital strength enabled a competitive bid. lisa: detail with the loss sharing agreement saying the fdic will provide 80% of loss coverage for second year and

with commercial loans including commercial real estate 80% loss coverage for five years. the question is, how do the financials work? how much will the fdic be taking on losses while letting jp morgan profit off the losses every year? jonathan: immediate call at 8:00 p.m. eastern time. a couple things for the diary. immediate call at 8:00 p.m. eastern -- 8:00 a.m. eastern and then meeting with jamie dimon and the cfo. the market tested the early vote with jp morgan stock up by a couple percentage points. first republic, a triple digit name not so long ago, trading in single digits. more on that later. on the s&p 500, equity futures totally unchanged.

on the nasdaq, totally unchanged and russell, negative by 0.1%. you would have an idea anything was happening. the two-year advancing by at seven basis points, 4.0787. the ecb on thursday leaving euro-dollar on a single currency, 1.1001. the chief economist with roth is here with us. you have worked through some of the details. you said there was an idea that some of this mess would be self-limiting because ultimately it would drive yield lower and bailout some other losing positions of some of these banks. i didn't hear that resonating with you. what is the pushback? michael: i think the pushback is

what is the mechanism to drive long-term just rates lower and the mechanism is weaker economic conditions, slower growth and a recession. if rates are falling as a consequence of the economy weakening, we have to worry about weakness moving from securities to loan books. you have been talking about the potential risks of the commercial real estate sector and the regional banks have been quite involved there. i am not convinced this is quite over yet and we should also consider the monetary policy backdrop. the fed is continuing to do quantitive tightening. there was a temporary jump with the discount lending but that has reversed. wednesday, the fed is widely expected to raise short-term interest rates 5%. so you have an inverted yield curve will intensify.

very difficult for me to see this issue resolved with an inverted yield curve and with the reserve base that all deposits and money rest on continuing to shrink. maybe i am too pessimistic but that is our view. jonathan: when you say it is not over, is that mean you think more banks will fall under or fail? mike: there are certainly more troubled banks out there. i will do calls an individual banks, but from a broad perspective and watching commercial bank deposits down almost $1 trillion in nominal terms from year ago levels. if we adjust for the previous rise in inflation, the entire bulge in deposits with the stimulus is gone. we are thinking about the strong economy, high inflation, the raw trim that fueled that has reversed. what we are left with is the

federal reserve with a tight monetary policy in place. i would argue short-term interest rates are well above neutral and the balance sheet continues to put ongoing pressure on deposits and broad money growth. from a business cycle perspective, we have had a buoyant equity market but i think the recession risks are still petite material and that means ongoing stresses in the banking sector are something we need to worry about. lisa: people will be wringing their hands and jp morgan acquiring the $90 billion of deposits from first republic. all things being equal, is consolidation in the largest banks the groundwork for a more stable economy or less stable economy? mike: it is a great question. you might get more stability out of it as we know there will be more bank regulation following the bigger banks were tightly regulated.

the impact on small business lending, commercial real estate lending i think is going to be negative as this transition is made. we have a lot of questions hanging out there and business cycle risks that a been masked by this equity market backdrop that has been driven mainly by a handful of large cap growth stocks with eerie high valuations. i think that sort of clouds is actually going on in terms of the macroeconomy. lisa: you been surprised by some positive data coming in, whether earnings or consumer discretionary or the data we got over the past week? mike: yeah, the economy has held up so far. largely because of a huge jump in january. february and march were softer. we will see how we go as the year progresses. one thing we are looking at is

there is some fraying at the margin and the leading indicators for the labor market. when thing we have been writing about is jobless claims of 22% year-over-year. that is completely unprecedented outside of a recession or just a few months before business cycle peak. it is important for listeners to understand the economy always looks strong when you are close to a cycle peak just before a recession. the unemployed rate is low but potentially upward. jobless claims are low but the year-over-year trajectory is moving north. there are other signs as well. the small business survey data is showing hiring pulling back sharply, usually a six-month lead time over a rising unemployed rate. i don't think we are out of the woods yet. earnings have not crashed but they are coming in at a better expected pace against a fairly

significant reduction in expectations. there is an earnings recession, falling year-over-year on earnings, but we haven't collapsed in a way that some had feared earlier coming to the quarter. lisa: if the fed hikes 25 basis points and stays there for perhaps the rest of the year, do you think that would be enough to bring inflation back to 2% within the next two years? mike: yeah, i think so. if you look at the tips in a given market, those are falling below mandate consistent levels. the tips are based on the cpi and the cpi data is going to run a bit above the pce deflator, which is the fed's formal target, usually 30 to 50 basis points. we have breakeven spreads now just about 2%, so that will be consistent with pce inflation right around or just below two.

. this is the marketplace, investors putting real money on the line and it is a forward-looking mechanism. it is not just the money supply and inverted curve and weakness in leading indicators and bond market inflation expectations are telling us that will get back to 2% inflation maybe even below that but potentially also at the cost of a recession. the hope is that if there is a downturn it will be short and shallow, but no guarantees in that regard. jonathan: appreciate your perspective, a little different from what we hear every day. mike darda there. jp morgan held 10% of deposits. they have righted out that

regulatory approvals have been received and the transaction is closed. jp morgan said it will make a payment of $10.6 billion to the fdic on the first republic bank deal. another line i think is interesting, a lot of banks banded together a number of weeks ago to deposit $30 billion into first republic. jp morgan giving clarity and they will pay $25 billion in deposits from u.s. banks and eliminate $5 billion from j.p. morgan chase on consolidation. the stock up more in the premarket in the last 10 minutes, within 3%. lisa: i'm trying to understand the financials. $500 million estate expected revenue jp morgan is expected to get per year based on the assets they brought in. i am trying to figure out how they came up with the loss

sharing agreement and what this means in terms of a framework for other potential failures. that essentially was what the fdic member of the board was saying, we need a good framework to do this again so we can share the losses and potential recoveries. i don't know what that means with respect to profits and then mitigate the situation for the depositors. jonathan: the potential for consolidation. why would you try and purchase a regional bank right now when you can wait for them to fail and then come up with some loss sharing agreement? lisa: why not wait for 1-800-fdic-fail me out? -- bail me out? jonathan: muted price action in the bond market. we will catch up with kathy

jones in the next hour. from new york, this is bloomberg. lisa: with the first word, i'm lisa mateo. the nation's largest bank has become even larger, j.p. morgan chase has won the bidding to a higher first republic bank after it was taken over by regulators following bad investment. jp morgan will take over first republic's assets including 173 billion dollars of loans and $30 billion of securities as well as $92 billion in deposits. jp morgan will pay $10.6 billion to the fdic. in sudan, the army and paramilitary force have agreed to extend the truce 72 hours. international pressure to let civilians leave the combat area. water and food are becoming hard to find in sudan cities. ferdinand marcos, jr. said he is

determined to forge a stronger relationship with the u.s. he meets with president biden today at the white house and has granted greater access to its military bases, paving the way for an increased american presence in the region. new economic data shows china's recovery remains patchy, latest indicators point to a contraction in manufacturing. the housing market continues to rebound. global news, powered by more than 2700 journalists and analysts in over 120 countries. i'm lisa mateo. this is bloomberg. ♪

>> the playbook is not that different across different central banks. in many places it looks like

disinflation is progressing slowly in the central banks went to pause or step down the pace of tightening they have been delivering. jonathan: that was the head of global fx and interest rates and research at golden sex joining us last week -- goldman sachs joining us last week. equity futures totally unchanged on the s&p. yields higher by three basis points on a 10 year, we .47 -- let's call it 3.46. we have a deal from j.p. morgan and first public, making a payment of $10.6 billion to the fdic or first republic. there will be a call -- for first republic. there will be a call later. lisa: i imagine with the weekend

was like for the people at jp morgan and the fdic we had to go through the paperwork. 800 employees revolved in first republic diligence and they all lost their weekends and were basically up all night as they try to figure out what they could be missing. with this potential transaction. -- missing with this potential transaction. jonathan: it is wonderful to catch up with you. what jumps out for you? >> jp morgan is acquiring all the assets, both the underwater securities and the underwater loans from first republic. if you look at the other transactions over the past month with svb and signature, security is left in this essentially is a better deal for the government because they are taking over all of the assets. jonathan: there is a loss

sharing agreement and we are trying to get clarity. can you walk us through your understanding. hermann: it is if there are any credit losses in the portfolio over the life of the loans and any potential losses over a certain amount would be absorbed by the fdic. that is typically a part of any fdic transaction. these loss share agreements were in place during the failed banks during the financial crisis so it is par for the course. lisa: what does it mean for where regulations will be put on regional angst to prevent perhaps loans for healthy -- wealthy individuals with a don't have to pay principal for 10 days, things that may in retrospect be not so responsible? herman: expect more on the regulatory front in liquidity and also capital.

those are two things we are focused on and how the regional banks with $100 billion in assets will now have to have work liquidity requirements in place, potentially having to assess the liquidity with relation to uninsured deposits and tweaking the capital ratios including the losses on the securities and incorporating those unrealized losses into the capitol calculations. lisa: perhaps this will be debated whether it is a bailout or not, but people will be looking at this and saying, what does this set in terms of a precedent for under banks that might go under and potential suitors who might want to come in and what a sweet deal with a are guaranteed to not absorb a lot of the losses? is there moral hazard embedded in this deal that sets up a daunting framework for the fdic? herman: our base case with the whole first republic situation is that any potential acquirement would not do a transaction unless there was an fbi see backing --fdic backing

for the losses and other sweeteners. there were borrowings that help with jp morgan as well. those two things were a necessary acquirement for jp morgan in our view. any sort of failed bank or teetering bank would require the sort of actions before an acquirer would come. jonathan: herman chan, thank you for the sharing of the potential upside. we chris marinac caught up -- we caught up with chris marinac and he said this, technically there is a sharing of upside of gains but he went on to say, i feel the true upside for jp morgan is getting all the first republic adding in a gain.

chris's point is that is the upside will not be shared with the fdic. lisa: it is good when you look at the brutal numbers of $2.6 billion of realized gains on the books. they may be some losses but the interest gain they get year after year in addition to amassing a greater base and dominance, this is definitely a benefit and it mitigated the losses to just $13 billion for the fdic. jonathan: jp morgan higher by 3%. the federal reserve on wednesday, does this change anything for them? >> it was interesting being here friday and seeing the blame game. they are expected to go by 25 basis points and this may give some reason for caution for the fed.

when the baking started we were told his work idiosyncratic factors and here we are on another monday morning with another bank being taken over by a mega bank. it should give pause for the policy makers. maybe they have broken something now and i would expect this will be a talking point for why the fed might go on pause this week. jonathan: many banks have broken and we had the svb and everyone started talking about the opinion survey coming out in early may. will the chairman have that and can he offer a preview of that on wednesday? enda: you will have to acknowledge there is a lot of discussion about not quite a credit crunch but credit slowdown in the economy and that goes to the very core of what is happening. we know consumers are weakening and we know the gdp figures were

slow last week. if you are the fed chairman and waiting for loan data will also be expecting some impact from what is happening in the regional banks. that is why the fed will probably after this week's hike will be some more cautious in the second half of the year. lisa: john was asking earlier what is the conditionality of some potential pause at the june meeting. what you think right now has the greatest import in terms of data as the senior loan officer survey maybe interesting and informative but maybe lagged and not reflect their pace -- the real pace of tightening? enda: friday we had the employment wages that came out and showed u.s. remains fair and the fed has been paying close attention in wages data. that is not going in the right direction. we know growth is slowing down and the gdp figures from last

week as well. from what i have seen, we do have sticky inflation, especially in the core services sector and wage growth remaining relatively robust and growth is slowing down. now overshadowing all of that is what is going on with the banking system. we know there will be a hit to the credit crunch and it will be a big call for the fed not necessarily this week but for what to do in the months after this. jonathan: wonderful to get your view, bloomberg's enda curran. are we at the point where things start to diverge? lisa: is there public dissent? i'm sure behind the scenes there is dissent but how do they create a feeling of confidence and dependability at a time where they have already had the reputation somewhat damaged by a number of missteps people keep saying perhaps in retrospect

exacerbating the problem we have? jonathan: jp morgan hosting a meeting call at 8:00 a.m. eastern time. and an investor call take lace at 8:30 a.m. eastern time -- will take place at 8:30 a.m. eastern time including jamie dimon. any questions you have got at the moment you would like to hear asked, answered? lisa: just basically the loss sharing agreement. what they demanded, why they waited and what with a waiting for and what the fdic did that was the clincher to get the deal over the line. we know the fdic has been trying to get this auction across and haven't had bidders. jonathan: jp morgan up 2.9%. the broader market virtually unchanged on the s&p 500 this morning so far.

jonathan ferro with lisa abramowitz. t kate will be back with us t kate will be back with us to202 pounds on golo.on and i'vt

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but when you're extremely heavy they're not so simple. golo is real and when you take release downshifting. and follow the plan, it works.

>> it's a question of how they go back to neutral, which would be around 3%. >> it's going to be a rate hike

in may. no one is talking about beyond that. >> this is numbered surveillance. -- bloomberg surveillance. jonathan: from new york city, good morning. for our audience worldwide, this is bloomberg surveillance. the market is unchanged. anything but unchanged about the financial industry in the last six weeks or so. jp morgan acquiring first republic in an emergency intervention over the weekend. this step right here, this coming from our team bloomberg, svb was the second largest bank failure in u.s. history. that title now blocks to first republic. lisa: people are still saying this is something that is going to be contained, this is the real issue. what does this mean in terms of what the fbi see deemed the

bailout culture. that is part of a healthy ecosystem. jonathan: does this feel healthy? lisa: nothing about this has seemed healthy, were banks that were not hedging against interest-rate risk, they were extending loans that did not require interest for down payments for 10 years. jonathan: jp morgan up in the pre-markets. we will return it to that in just a moment. the s&p 500, unchanged through most of this morning off the back of some of this. yields are higher by three basis points on the 10 year. the euro is slightly negative. lisa: we've got the fat it, the ecb, earnings, we have the jobs report. it's quieter on that front. we do get some earnings from avis, norwegian cruise, a sense

of where the consumer discretionary is. the global conference is kicking often let it's interesting to see -- in l.a.. whether this was a good deal that the fbi see struck, the latest with respect to data at of the information. we've got construction spending for march. do we see some sort of agreement recovery. jonathan: the big story for us this morning, j feet -- jp morgan taken over first republic. $92 billion in deposits. the ceo of asset management joins us around the table. what do you make of this one a? michael: it was the most likely outcome. jp morgan would be stepping up and buying this.

it's a mix of opportunity the way that silicon valley bank was parceled up and signature bank had been parceled up. they look at this as a way to expand their both management relationships. they probably have a big enough balance sheet to absorb the risk which exists in first public. jonathan: how many banks need to fail before we keep calling this idiosyncratic? michael: there is something systemic here. the question is whether or not it is only within banks but if the interest rate has been mismanaged. there is private sector credit. there has been a lot of the use of leverage for general business purposes. most of this is floating rates. my concern is not the banking system. it's more whether or not their

dramatic change in interest rates over the last 12 months starts to really make itself felt in general business conditions. lisa: this is not credit risk, there is a bullet that consumers and businesses will play -- pay back their loans. michael: i think in the end it will be a credit cycle. it started off being an interest rate cycle. banks can fail while there loan books are performing as well as these were performing. i do think by late 2023, interest-rate mismanagement, how long do you have to wait to see the data confirmed? they have looked around and seeing some of these problems they expect to come.

they've gotten better than expected data. how do your main bearish when the data isn't bad. michael: it's very specific portions of the market. they have problems that are not particularly negative on the s&p. jonathan: s&p hasn't done anything for months. we have had this type trading range of 3800-4200. i can recall a conversation i had with you. you were out front on this. perhaps we face the prospect of a long time without returns. think of more thought to that after the next -- last couple of? michael: i think you have 15 years of the terms we had. i assume interest rates stay higher for longer. it's going to be difficult to

get to that 5000 level we've seen within touching distance. jonathan: 5000 over what time horizon? michael: years. anything longer than five is forever in this business. jonathan: it's unlikely we break 5k on the s&p 500? michael: unlikely. jonathan: that is quite a change. what do you think will change about the way people invest that will lead to those outcomes? michael: it may be more sector based. i still believe it has a bigger place in portfolios. lisa: at this point when you look out to how much, there isn't the upside. is there this tech dominance were microsoft and google account for 14% of the market cap? michael: i don't think so. other things are going to do

better than technology. i think it has narrowed. there are less companies that look like this. technology is not the problem this time around. they haven't been excessive users of this. it is more an ability to grow the rates people have become used to. they may transform themselves from very fast-growing organizations to less interesting organizations. jonathan: so many people talk about a lack of leverage across a range of issues. they say short and shallow procession because we haven't built up the leverage in the cycle. michael: there is tremendous private credit. private equity is an example. the extension into lending it,

whether it's first loans or mezzanine loans, it's been markable. lisa: what is going to challenge that? every private credit person who comes on says we have the assets . the companies are doing just fine. we haven't seen the losses percolate up. michael: if i look at the way people put business plans together, there is a complete mismatch between what people expect and what has happened. i believe nonperformance or loans are going to be an increasing factor. jonathan: what do you like right now? michael: i like precious metals. they said this felt like a turning point for gold. i think the battle between gold is really key.

i think of gold can establish itself above 2000, that will be the first victory since post-covid tour three years ago. jonathan: why is that going to compete well with the money market fund? michael: i think it already has. if you look at gold versus fixed income, whether it is long-duration or short duration, cold has outperformed. gold has been in a stealthy bull market. people mistakenly hold it up and say it looks like the s&p 500. it is not. gold has quietly had an extremely good five years. gold versus fixed income. jonathan: they think about it through the lens of what the

opportunity cost is of holding gold. michael: many people were able to hold no interest rate bonds, looking for the return. it was a successful strategy. i don't think the lack of coupon competing against 5% is that much of a problem. jonathan: it hasn't been. michael, this was great to catch up. it's a tough time for the financial industry this morning. lisa: especially when we don't know what the interest rate risk, how much that will translate into credit risk. right now, people are paying back loans. if you do get some sort of ongoing recessionary environment, it might become a credit risk as well. jonathan: jp morgan to acquire first republic, that came out several hours ago. i will keep repeating them in

case people miss it. jp morgan hosting a media call in about 15 minutes from now. and analyst will take place at 8:30 a.m. after that meeting call that will feature jamie dimon. looking forward to what they have to say about this deal this morning. looking forward to this conversation. we are looking had to a big week ahead with the federal on wednesday, payroll on friday, apple earnings on thursday. good morning. tk is back with us tomorrow morning. this is bloomberg. ♪ >> jp morgan has won the bidding to take over first republic bank.

the fbi see ran the sale after private rescue efforts failed to make up for bad investments. the deal will make the largest bank even larger. jp morgan will pay 10.6 billion dollars. regulators will provide $50 billion in financing. house republicans are challenging the senate to pass its debt limit bill. there are trying to increase pressure hold talks on spending cuts they have linked to an increase in the borrowing limit. the president has insisted they shouldn't be connected. the u.s. runs a risk on defaulting in june. tim scott is teasing an announcement this month on his expected run for the white house. the senator says he will have an announcement on the final step. he has already set up an exploratory committee. russia has targeted ukrainian cities with missiles today. 15 out of 18 of them were shot

down a. president zelenskyy spoke with the french president. they discussed europe's coordination of military aid to respond to ukraine. i japanese drugmaker agreed to buy $5.9 billion. it is based in new jersey and develops drug to treat blindness. the deal will be financed by cash and that. it's a 75% premium. global news 24 hours a day, on air and on bloomberg quicktake, powered by 2700 journalists and analysts in more than 120 countries. this is bloomberg. ♪

>> this is about building confidence. you have first republic resolved. a very good operator with strong capital, that allows them to do the transaction. it's going to be rare. it really was caught by friendly fire. jonathan: that's the latest on the mess between the banking sector, jp morgan, first republic. jp morgan acquiring first

republic bank in government intervention. jp morgan will host a call on this. call will take place after that at 830 a.m. eastern time. that will feature jamie dimon and the cfo. this line here, just over one month, svb was the second largest bank failure in u.s. history. now that title goes to first republic. we have the number two and number three biggest bank failures over the last couple of months. the s&p rallied in march and april. lisa: the fbi see encouraged big banks to deposit $30 billion with first republic and nothing came from that. the stopgap measure didn't work. it is still forcing them to come to the table and share the losses in this acquisition.

jonathan: the stock is up by 3.7% in the premarket. let's get to david, the director. it lets start with a simple and. how did you respond to this? david: not surprising at all from the standpoint that jp morgan is a natural fit for the acquisition of first republic. jp morgan has been a long time advisor for them. it knows the customer base very well. it just makes sense for first republic to be a part of a large money center bank like jp morgan given its deposits and first republic was once a part of another bank, bank of america. that was spun off in 2010. it makes sense to make this acquisition. jonathan: you heard this just

moments ago, chris basically said this was the bank that was caught by the friendly fire six weeks ago. from your perspective, how many banks are still going to get caught by the friendly fire from six weeks ago? david: it's a fair question, a question a lot of investors have been asking. in the immediate aftermath, investors essentially did two types of analysis. one, they looked at who had the most uninsured deposits, they looked at who had the most unrealized losses in terms of securities and loans. first republic was very vulnerable from that standpoint. other banks were screaming poorly in that regard. they have shored up the base by increasing the deposits.

those are companies that were screaming poorly. they have gotten there deposit base in much better shape. lisa: does this make certain regional banks and investable or less investable given the fact that the fbi see will increase regulation with what we have seen? david: there are going to be headwinds for the banking industry. this should be idiosyncratic from my viewpoint. the group could see a little bit of a relief rally. over the next 12-18 months, the banking group does have a lot of headwinds. the cost of deposits is going up. the cost of funding is going up.

we have seen a lot of headlines about commercial real estate. i am expecting the economy to slow. i don't think we are out of the woods yet. i wouldn't go so far as saying the group is on investable. lisa: you said western alliance had shored up balance sheets. they would be ok. how do you determine that? what are they doing that to get out ahead of this? first republic was getting out ahead of it with a $30 billion infusion? david: it's becoming more popular over the last month or so, using insured cash service in which companies can essentially on a reciprocal basis swap out uninsured deposits for insured deposits at the same cost between banks.

they pay a small fee of 15 basis points to do so. we see western alliance make use of that. the problem with the issue of first republic with that $30 billion is that was exactly the deposits rather than equity. given that they were so negative on tangible equity, that's what did in first republic. western alliance, they are not negative on a tangible equity basis. there was an incremental increase in terms of what their book value is, we saw an incremental improvement from that standpoint. lisa: we heard from the fbi see, a member of the board said there are many steps that need to take place to fight bailout culture

that is become so endemic in the united states. does this deal put the fbi see further away from fighting bailout culture? david: i don't think bailout culture is a new thing. what banks are going to do going forward after viewing what has happened, it's likely to run their banks that much more conservatively. they will carry more liquidity. they are going to manage interest rate risk that much more. they are likely to swap that out with derivatives, to keep them on the right side of that interest rate risk. i don't think we are going to see banks really go down that road and think they are going to get bailed out. banks are in a business with the standpoint of the worst-case scenarios to bailed out.

shareholders get wiped out in that regard. jonathan: bite of these banks keep failing? david: it goes back to the interest risk in this environment. that's what makes this so unique. rarely if ever have you seen a bank go out of business because of interest-rate risk. it is usually bad loans the take banks down. in this case, the increasing interest rates from the fed over the past year and a half is what ultimately took down all three of these banks. jonathan: david, thank you very much on the latest. we've got svb, signature bank, silver gate, first republic. throw in at credit suisse. that makes five in just a couple of months.

we have talked about this over the last couple of hours. you can make the case that it was a video syncretic. it is happened five times in a couple of months. lisa: some of these banks did not hedge against interest rate risk. they lowered their hedges last year. this raises the question, how do you measure risk? it was clear it was tied to something. jonathan: every monday morning, we've asked this, is it over? we hope so. we may do this on another monday morning sometime soon. lisa: this seems like people are girding for it. are they really? ♪ the biggest ideas inspire new ones.

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city, welcome to the program. this is bloomberg surveillance. jamie dimon winning the bidding to acquire first republic bank in a government led intervention. jp morgan will take over the assets, including $173 billion of loans as well as any $2 billion in deposits. the bank and the fbi see agreed to share the burden of losses and recoveries. here is the quote from jamie

dimon. there will be a call in about 30 minutes at 8:00 eastern. a call will take place 30 minutes after that. a media call first, investor call second. that will feature jamie dimon and the cfo. lisa: talking about what the transaction entails at a time when there are so me questions about loss sharing and what kind of oversight this means of jp morgan. they accounted for 60% of total deposits in the united states, now acquiring more. normal rules would ban them from further acquisitions. jonathan: a lot of the south side will be on this deal. overall, we view this as a

positive transaction. it should help drive long-term turns higher for shareholders. good news for jp morgan, a good deal. lisa: what does this mean for the fbi see? what does it mean in terms of bailout culture? what does it mean in terms of banks it will fail and a lot of lawmakers want to see those banks fostered, want to see them go forward. it is a tense moment going forward. jonathan: kathy, it is wonderful to catch up with you. i can't believe it's the first time we have spoken in person for three years. this is another bank that has gone under in the united states, another last-minute deal. here we are. the federal reserve gets to hike interest rates on wednesday. i'm sure you've heard the same commentary we have.

this is an about with the federal reserve has done. we heard from john williams a couple of weeks ago, he doesn't think it's because they went from zero to five so quickly. >> it has a lot to do with how much the fed has tightened. the fed tightens until something breaks. clearly, they moved such a rapid pace there is an impact on financial stability. we are seeing it in some of the banking areas. it doesn't mean that credit risk is a big issue. it's hard to divorce them from what's happening in the banking sector. jonathan: do you think it gets worse? kathy: we are hoping this is the last rate hike. it tells you a lot about this fed. they hiked in march when we had banking sector problems.

one would think this is probably the end of the rate hike cycle at this stage. lisa: i wonder what risk there is for the federal reserve. on friday, they talk about what went wrong with svb. there are ongoing questions about how accurately they are regulating some of these banks. does this going to upend the leadership at the fed? kathy: at least we will get some dissenting votes this week, at least one or two. i would think -- i don't know, i don't have any particular predictions. there are some rewritten rules and a re-examination of what's going on. lisa: michael was talking about

how now it is interest-rate risk. it could become credit risk, especially as they have trouble paying back rates. what is your sense of how significant that risk is and if it is accurately reflected in the market. kathy: the credit spreads haven't blown out in the way you would anticipate given what's going on in the market. there is the risk of widening. we don't know what's happening there. i would think there are some bad loans having to be restructured. the high-yield spreads have been much tighter than i would have anticipated. lisa: after svb happened and first republic, they were going to buy bank bonds. there was still value there.

gerard cassidy put this out. they are not assuming the corporate debt, does this raise another layer of risk that makes that proposition less valuable? kathy: you've seen bondholders and equity holders and preferred holders get washed out in these deals. you've got to be selective when you're looking at the banking sector in terms of the bonds. they are good bonds. there are opportunities there. jonathan: i want to get to our colleague who has been running through the headlines. it's great to get you with us on the phone. go through your top take away. >> the main thing is clear. we had a marathon weekend.

the first question raised was how do you allow a big bank to get bigger, especially when there is a gap for banks? this had to be what bid is up there that would take the smallest hit to the fbi c. that is jp morgan. you still see the gsp taken a hit, agreeing to jp morgan. there is upside to that. they will partake in some of the recovery. this as -- the stock is up today. people see this as good news.

perhaps not immediately, not is there any risk in something like this where jp morgan has to come in, the other smaller banks are out there. it is clear the strongest and safest have the biggest banks in the country. jonathan: thanks for being with us. that's the latest with jp morgan and first republic. there is no in between. we have produced a template for the banking stress, if a bank gets into difficulty, wait. wait. wait a little bit longer. wait for it to fail. then come to terms for a deal. lisa: this is really the risk. this is not what the fbi see wants to do. they don't want to see it

process. this was their best option. what does this mean about the banking system where the biggest get bigger and are rewarded for it the government? jonathan: they did all try to keep this bank together. they tried it restore confidence. based on what has transpired over the weekend, we spent two weeks saying to someone going to step in? there was an incentive over the weekend. lisa: this raises the issue of the biggest banks regulate more heavily than smaller banks. people did not want the burden of that regulation. how much do we have to rethink that at the expense of their lending power? jonathan: i am going to ask it again. it's a little bit unfair of me. the risk the chairman powell runs, for the last 12 months

we've been talking about the risk of him becoming bert. think that through. where you come down on that? kathy: i thought this fed was moving too fast. ignoring some of the lags between tightening monetary policy and the impact it has on the financial system. we've seen a lot of stress in the financial schism for this. i think the risk is greater that they moved too far too fast. i don't think this is a repeat of the 60's and 70's. it's a difficult environment. jonathan: you don't think the inflation story is as sticky? kathy: i think we've seen prices, back down.

lower -- oil prices are lower. when we look at balance sheets and consumer sides, people have jobs. it doesn't look to me like that is a big push down on inflation. we have an aging population. we have demographic drag. we have a lot of savings locally. i am not sure we to move as fast as they have moved. jonathan: i can't believe it's been three years plus. kathy, thank you very much. here we are, staring at 5% interest rates. the fourth bank in the last six weeks going under. lisa: the economy has been unpredictable. that is the unsettling backdrop, people don't have a sense of what model to follow when people are disagreeing on whether we have a high interest rate environment going forward. how quickly this process is going to take hold. that is the great uncertainty

behind this cascade of failure and problems we have seen in the financial sector. jonathan: i think we have to be specific. we might be talking about labor market resilience and the unemployment rate. can you say that about the equity market? i think they might have something else to tell you. lisa: now we are getting the rebound. i think consumer spending has been the resilient issue. how long if the jobless rate goes up? jonathan: the conversation continues around the banking sector. ♪ >> keeping you up-to-date, the largest bank has become larger. j.p. morgan chase has acquired

first republic bank after it was taken over by regulators after bad investments. j.p. morgan said it expects to have a one time gain linked to the purchase. they will pay $10.6 billion to the fbi c. in sudan, the army and paramilitary force it is fighting will send representatives to negotiations. that is according to the associated press, which spoke to the top u.n. officials. they have a fragile cease-fire. there were still reports of fighting. ferdinand marcos said he is determined to forge a stronger relationship with the u.s. he meets with president biden at the white house. the philippines is granted the u.s. greater access to its military bases, paving the way for an increased presence in the area. china's recovery remains patchy. the latest indicators points to

manufacturing. they began a five day holiday and the housing market rebounds. pilots at american airlines have voted to approve a strike authorization. the union would only be able to call a strike if allowed under labor law. the allied pilots association is in contract negotiations. global news 24 hours a day, on air and on bloomberg quicktake, powered by 2700 journalists and analysts in more than 120 countries. this is bloomberg. ♪

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>> you don't see a statement from the white house of the president is going to give remarks before the opening bell. that's what happened march 13 when we had the failure of svb. the white house wanted to make sure the public wasn't taxpayer money.

they wanted to make sure they were doing everything to avoid the word a lot. they are trying to put this as jp morgan is dealing with this. it is a hard moment for the democrats. they don't bank to fail. this just makes jp morgan bigger. they had to be able to rescue this bank. they had to get a special approval. this means more bank consolidation. jonathan: let's talk about how we got here. jamie dimon and secretary ellen were having a meeting. that was followed up by 30 billion. did they ever think we would end up here, a few weeks down the line? >> i don't think you have jp morgan coming to washington, sitting down with the treasury secretary and come up with this

plan to inject $30 billion to get to this point. they thought that would be the end of it. what history tells us is that was a band-aid for the saga first republic. they have 80 retail banks and it will be banking with jp morgan. they did not think this was going to happen. this is going to be a big topic of conversation. we have a house out of session. the senate is in session. there will be a hearing on executives when it comes to bank failures. the debates are going to grow from republicans and democrats on whether there needs to be more regulation. you can see the writing on the wall. lisa: is there enough will to regulate smaller banks more, even if they go out of business?

>> we know what the response is going to be. when the report came out about the failure, senator brown talked about the need for more regulation. there should be an unwinding of the easing of those terms from dodd-frank, that was voted on a bipartisan basis. tim scott said we are overregulated. this is coming from the buy demonstration because of higher inflation. the fed had to hike rates. that is why so many banks are on the back foot. these are going to be the tweets and rhetoric we will hear from this monday morning. what also is notable, not only sure everyone knows that jp morgan has now bought the bank. lisa: we got the postmortem from

the federal reserve. was that satisfactory? did they get a full accounting of what went wrong? >> i feel like they got a full accounting of it. they talk about the gaps. where was oversight? both agree there was a failure on the supervision. republicans think the regulations are there in place. democrats say we do need tougher regulation. we should be easing the terms on the rollback of dodd-frank. that is where the division is. they think there is a failure on the supervision part. republican say enough is in place. democrats say we need more. jonathan: thank you as always.

they don't realize the deal has been done. jp morgan acquiring first public. lisa mentioned the peace on bloomberg opinion. they will haunt u.s. banks. this raises more questions and concerns about the financial system. that concluded with this paragraph. the economy suffers from to me to years of easy money. and the mishandling of the rate hiking cycle and lapses in supervision. with what comes the present risk of collateral damage, unintended consequences given the best policy responses are no longer available. lisa: this is the problem on being on the back foot. this is what happens when you are on the back foot when the federal reserve described it as

insufficient to get information to people who could act on it. everyone knew there were problems at silicon valley bank. people are losing faith in regulators to flag things this ashley. jonathan: this is a good deal for jp morgan. i have no idea where we will be in 12 months. lisa: it's not jp morgan's fault. they stepped in and did mitigate losses for the fbi see. this is an issue of power in the biggest hands. we see that with banks and corporations. how much does that push against what lawmakers want to see? an ecosystem that is healthier

with smaller components. jonathan: i do love this line from jamie dimon. overall, we view this as a positive transaction for jp morgan. it can be both. the art requires you to lead with one headline and not the other. lisa: could it have been both for anybody else. this will raise a lot of concerns and set a hazard that has the potential for collateral damage. jonathan: jp morgan at rally and it just a little bit. a little bit of a pop going into the opening bell. we will catch up with him in just a moment. ♪

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>> this is about building

confidence and sing a good operator who has strong capital. >> you look at the bank index cometh been trying to stabilize and his remarkable resilience we have seen. >> risks are very material and that's means ongoing stresses in the banking sector. >> are guesses the market will probably grind lower over the next six months. >> i don't think the marketization is going back to zero rates in the same sort of environment. >> this is bloomberg surveillance with tom keene, jonathan ferro and lisa abramowicz. jonathan: jp morgan winning the bidding to acquire first republic bank. from new york city this morning, good morning for our audience worldwide, this is bloomberg surveillance on tv and radio. your equity market on the s&p 500 is -.0 .1%. going into the fed wednesday commend the bank in america essentially, effectively failing lisa: the second biggest failure

in america's history and this comes a month after silicon valley bank's failure. how much more is there and what kind of pattern does this set in terms of what kind of agreement of this nature looks like? jonathan: the second and third biggest bank failures in u.s. history have come in the last six weeks. the last time we got one, the federal reserve followed up a week or so later with a rate hike. now seemingly, the federal reserve will follow this one with a rate hike and a lot of people say there are different issues. they've got an inflation problem so do we need to talk about something different? lisa: people are saying it would be idiosyncratic and two separate issues of the regulatory side of the federal reserve were perhaps a little more on top of things and reflecting more risk. there is now this question about whether we are getting accurate representation of whether they are overseeing the risk. that is one of the concerns going forward that will

underscore the uncertainty from a number of our guests. jonathan: events like this are always unique in nature. when you have more than enough of them, they become a big problem. you can say svb is in -- is idiosyncratic and the same about signature and silver gate and the same about credit suisse. maybe you can say the same thing about first republic but once you add it up, you have a broader, bigger problem. lisa: it doesn't look like 2008 enough for people to say it will be a financial system meltdown. that's the reason why some people are pushing back and saying it's knocking to be 2008 because the big banks seem completely fortified. there is going to be this tightening in credit if not more bank failures and who takes it on? is this the template that a big bank who has an incentive to come in and get the losses taken onto the balance sheet and go forth and make more money and consolidate their power? jonathan: imagine the start of

2022 with people long the nasdaq and i said things could get that here and people say it's not 2000. ok, is not a crisis, great. then tech stocks get hammered. that's my take when you get these events in the market. it's not 2008 and it might not be but the likelihood that something that large and systemic, and understand that but it doesn't mean it's good. it could mean something is in between because is not a supreme case but still something bad. lisa: perhaps the biggest banks took the lesson from 2008 and got completely or to fight and heavily regulated and building up there asset books into conservative people said utilities are not profitable enough now they are in a position to be in a challenge

for the entire system. jonathan: hermann chan isn't charge of dish is in charge of covering these banks -- in charge of covering these banks. a great deal for jp morgan? >> yes, and a great deal for the government and it could've been worse over all, you can say those are the winners. jonathan: idiosyncratic? >> i agree in terms there has been a few banks now that a failed. you cannot say it's largely idiosyncratic. the reasons why these three banks failed as they were growing way too fast and they under appreciated interest rate risk, they were adding on the assets on their balance sheet and the underappreciated the nature of the deposits they were bringing in to grow the assets during the pandemic. the other regional banks we cover don't really have that

systemic risk on the deposit side. they should be more insulated. lisa: can these smaller banks withstand a regulatory regime akin to the bigger banks? >> based on what we know from comments from michael barr and other regulators in terms of what's coming next for banks with 100 billion dollars in assets or above, it seems reasonable they can absorb these and it will require more capital and more liquidity, potentially more debt on the balance sheet. but this will all be more of a hit to earnings on the margin but nothing that would be too tough. lisa: how much consolidation do you expect in the wake of this regulatory action? >> it seems the regional banks need to get stronger. what's a hindrance is that the regulators have been much more reticent to approve deals and we've seen that recently with the td bank trying to acquire first horizon in that deal has

been delayed. u.s. bank acquired mfud union in california which was delayed. if the regulators want stronger regional banks, they need to signal that they are willing to let strong banks acquire and get tougher on that front. lisa: the media call started on the last few minutes and we are hearing from jamie dimon a jp morgan. the cfo said we did not seek out this deal but it has benefits and deposits and now it's an orderly resolution, referring i assume to the 30 billion dollars place in this institution where jp morgan and other banks banded together and deposited that cash. first republic will be part of jp morgan wealth management so we are getting a decent idea that the structure of the arrangement has been absorbed by jp morgan. lisa: you can tell underneath these comments how they are trying to be delicate.

we didn't seek this out so don't blame us for having benefit, we are protecting our shareholders and it has benefits but this was not our fault and you can feel that in all of the comments. jonathan: you can hear it in the words of jamie dimon. the government asked us to step up and we did. i don't think they need to go out of their way to say big things about how good this deal will be for them. a lot of this will do that for them. this is from jamie dimon right now -- i'm not sure that's a response to a question but they are asking for a recession odds from jamie dimon on this call. ask him about the deal, not the recession. lisa: the focus is less on jp morgan more on the regulators and what they plan to do to prevent this from happening again and whether this is the

template for other banks in the same situation. jonathan: the deal will helps dave allies the system, that's the latest from jp diamond of jp morgan. we will get the investor call as well to maybe the nature of the q and a might be different. let's gyp -- bring in the fixed income strategist from jp morgan. i want to ask you directly about this combination. i want to understand whether you get the sense a stunning information from the federal reserve as to whether the system is stable. >> if we step back and think about where we were before the weekend, things have moved in the right direction. i would look at the borrowing from the facilities, from the

lending window in the bank funding program. . the borrowings from those sillies went up for the last week. i would look to this weekend much of that will come down as a consequence of this particular deal but the fact remains there is still a fair amount of stress in the banking system as evidenced by the need to borrow what would be significantly negative r.o.e. from the system. that's how i would look at it. are we better off today? this resolution is clearly a positive but the fact remains that there has been stress in the system and we would look to the dependency on the borrowing facilities to measure how much stress is -- is in the system. lisa: i'm struck by how much is being done to avoid liquidations which of lowest value.

at what point do you think we will see some of these liquidations as we see banks and other institutions run into issues? >> i think there is a good case study that thefdic is doing with mortgages, mortgage backed securities. this is going to weigh on the mortgage market. even though this is orderly and not a fire sale over multiple months, but this will wait on the mortgage market. our expectation of net issuance is here. it was 150 billion dollars before this happened in this particular liquidation adds incrementally another $100 billion. that kind of supply would mean

that a significant repricing is needed and that's white mortgages are underweight. jonathan: where do you want to be if unemployment goes from 3.5-4.5 the way the fed anticipates? do you want to be lauren -- long credit? >> it is not a time to go down in trade quality. we would stay in the single a type of credit. we think there is still value there. jonathan: wonderful to get your perspective. the latest from the jp morgan call from the cfo, this is a different situation from 2008 from jamie dimon, we will see some reduction in bank lending it's an interesting line, we will examine that in. this is bloomberg. ♪

lisa: keeping you up-to-date with news from around the world jp morgan has won the bidding to take over troubled first republic bank. the fbi see rim the sale after private rescue efforts failed to make up for bad investments and a run on deposits. that deal will make the country's largest bank even larger. jp morgan will pay $10.6 billion to the fbi see fdic. house republicans are challenging the senate to pass its own debt limit bill. they are trying to increase pressure on president biden to hold talks on spending cuts they blame to an increase in the u.s. borrowing limit. the president has insisted the two topics should not be connected in the u.s. runs a risk of defaulting on payments as soon as june. tim scott is teasing an announcement later this month on his expected run for the white house. the republican senator from south carolina says he will have an announcement on a final step

may 22 and he has already set up an exploratory committee. in canada, about 120,000 government workers have ended the strike that began april 19. prime minister justin trudeau's government agreed to wage hikes of about 12% over four years. about 35,000 workers from the canadian tax agency are still on strike. the japanese drugmaker has agreed to acquire iveric. it's based in new jersey and developed drugs to treat age-related blindness in the deal will be funded by cash and debt in the price represents a 75% premium to the 30 day average for the end of march. global news powered by more than 2700 journalists and analysts in over 120 countries, this is bloomberg. ♪

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>> the resolution of first republic should be idiosyncratic from my viewpoint and i would

think the group could see little bit of a relief rally because of this and looking out over the next 3, 6, 9, 12-18 months, the banking group has a lot of headwinds facing it. jonathan: weighing in on the banking situation following the jp morgan acquisition of first republic. jamie dimon in the cfo on a call right now with the media. jamie dimon said this is nothing like 2000 eight and saying the system is very sound. on banking failures, he said this is getting near the end of it. that's the latest from the jp morgan ceo. in the premarket, that stock is at session. highs lisa: in terms of getting all the bits. you wonder what the other terms were of the other banks in the room. this is a real question -- how did they have visibility to say

this is getting near the end of it? how do they have the information to say that at a time when they are not the oversight agents of the government? to they have a sense that perhaps we don't? jonathan: this is the media call in about 10 minutes or so. you will get an analyst investor call as well so you will get a ton of headlines from jp morgan and jamie dimon over the next 30 or 40 minutes. joining us now is the managing principal a atmalfi associates. it's been a pleasure for all of us to work through this over the last few weeks. on banking failures, jamie dimon says it gets near the end of it. do you get a sense this is near the end of it. >> yeah, i'm not sure i agree. what is not idiosyncratic here is we are discovering that a lot of these banks are not good at interest rate and liquidity

measurements which is what should be astonishing. as long as the european central bank emma bank of england and the federal reserve continue to raise rates, i'm afraid this turmoil may not be over yet. lisa: do you think the regulator models effectively account for interest rate risk given they were not able to get ahead of some of these cases? >> they actually do. one of the things that has really come out since friday with the federal reserve report and thefdic report is that a lot of problems with silicon valley bank and signature were actually identified by the regulators. the problem was the enforcement. there have long been many requirements for banks to measure interest rate risk. the problem is with every new crop of risk managers and lenders, they always think this

time is different. they don't pay attention to the history that interest rates go down and they also go up. you need to constantly test your asset liability, measurements and your different kinds of models for interest rates going up and down. this idea that people have been caught by surprise and didn't realize that interest rates would go up is truly astounding. lisa: one thing jamie dimon said is there would probably be some direction -- some reduction in lending on the heels of their acquisition of this bank first republic. what is your sense of how many smaller banks will get acquired and how much lending will get taken out of the system if there are more potential incidents like this? >> i am worried about some of the smaller banks, the community banks in the smaller regional banks. it's hard to compete with the

incredible advantages a jp morgan or bank of america, citibank have. these are globally and systemically important banks. it's not just their size but the diversity of the different businesses they have. here we are in 2023 and it almost feels from the history books that we are kind of back to 1895 with jp morgan rescuing the american government in 1913 when they rescued banks. that kind of bank has become incredibly powerful and now it has incredible exposure to operational risk. what kind of skeletons will come out with this acquisition of first republic? we need to keep and i of those kind of things. jonathan: anne-marie joked that washington, d.c. was still asleep. they hadn't seen this deal and sheep message me and it says it looks like people are waking up. senator warren on twitter in the last 20 minutes said the failure of first republic shows how

deregulation has made the too big to fail problem worse. a poorly supervised bank has been snapped up by a bigger bank and congress needs to make major reforms to fix a broken banking system. what is broken about it and what kind of follow-up are you expecting after this stress of the last couple of months? >> one thing that is broken is after all the time legislators and various lobbyists spent on dodd-frank, there is a good portion of title i that was gutted where banks that's up -- that the size of silicon valley were no longer considered systemically important. that's incredibly incorrect avenue -- as we seen. it has significant repercussions to the entire financial industry as well as to main street. think of the people now getting hurt and will lose their jobs every time one of these banks fails. you need to declare these banks systemically important. that means they would get

enhanced provisions and would do a better job of measuring the quiddity risk especially doing simulation -- of measuring liquidity risk especially doing simulations. there is an element of truth that there is deregulation but you also need to provide the examiner's in all different kinds of supervisors with resources. they don't have enough in terms of manpower, in terms of human resources and they need more resources in terms of technology to be able to better detect when some of these risks are percolating with the banks. they need to fire executives and high-level risk managers when they don't do their jobs and there definitely needs to be clawbacks. the executives are walking we with millions but what about everybody else at the bank and the surrounding community? they will lose their job. jonathan: what about firing regulators? >> that's right, if indeed there is a good postmortem and we discover that there are any kind

of professionals in the state and the national entities that are not doing their job, they need to be fired. part of the problem is the tone at the top. the way that things were, former president trump made terrible appointments and then the top filters down and it became off-site and on-site examiner's to have hands off until almost the friendly with the banks. that is not what we want. we want examiner's on-site in the outside supervisors to be empowered, to not only talk about what the problems are at the banks but then you need enforcement. the whole treasure trove of documents released friday shows those examiners were on top of things but it was the enforcement that was lacking. jonathan: was chairman powell a terrible appointment? >> that's a very interesting question.

i think that he has done a very good job in very difficult circumstances with monetary policy. that is where his background is in his expertise is. his background is not in bank regulation, bank supervision, bank examination. these are interrelated but they are different things. i think somebody like lael brainard should have been appointed to head the banks during the trump administration, i mean the bank supervisory part. i think mr. barr has been a good appointment. there are a lot of different parts to the federal reserve. chair powell's background is not in supervision examination. former chair carrillo was fantastic but he never got the official designation. there are some talented people there but they were not good to had bank supervision when they should have under the previous administration.

those things take time and they are all surfacing now so there deafly has to be a serious postmortem about what needs to be done at the state and the national levels. jonathan: thank you so much. lisa: she was going through every single person but not the vice chair of supervision. jonathan: some people would not give chairman powell a ringing endorsement on monetary policy. lisa: i think of mohamed el-erian in particular. jonathan: i have my voice in his head -- i have his voice in my head saying no. our next guests are coming up in the next hour. ♪

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>> lisa: a very interesting monday as we find out jp morgan has agreed to acquire all of first republic with a guarantee in some sort of loan loss sharing with the fdic amid great uncertainty with the fed meeting and apple results in tomorrow we get jewels data and freddie we get payrolls -- we get jewels data and friday we get payrolls. -- we get jewels -- jolts data

and freddie we get payrolls. it will be about half $1 billion of -- a year that they get interest payments. in the broader market, stocks are little changed with more action in the bond market with yields higher and prices lower especially as there are a number of bond deals that got kicked off including meta-which is selling a five-part deal including a 40 year piece. there are a bunch of issuances. we are seeing a bit of weakness in crude oil. the big question here is how much some of the weakness will be driven by what we see with tightening lending standards in smaller banks. we hear the call with jp morgan has just wrapped up and we are waiting for the media call where they will take questions. sonali bassett joins us. what stands out to you on the call? sanali: jp morgan one this

auction in the first place. this is a pretty remarkable process to begin with. this has been done before where they have reached out to smaller banks before resolution. never a bank of this size. jp morgan has more than a trillion dollars worth of loans and deposits so it doesn't make them much bigger compared to their asset base. however, this is still one of the largest bank failures in american history. it is a large acquisition still for jp morgan and it's something they had to get approval from the regulators in order to do given they already hit their deposit limit that was preventing them from otherwise buying a bank of this size. the reason this has happened is by doing so and allowing jp morgan to buy this bank, the idea is this bid would reduce

the cost of the deposit insurance fund. the politics from here will be interesting to watch. something that was not clear from the beginning was whether systemic risk would be used in the failure of first republic which is why there was such a hurry behind the scenes to get something done orderly. from the last couple of weeks, we had a lot of learning from other failed banks and how the process played out in order to make this one faster but i know watching from the market, it seems like it took weeks to get done. lisa: the analyst call will be starting shortly. what questions do people have for jp morgan about this deal or perhaps the insight they had to say this is near the end of it when it comes to the stress in the smaller banks? sonali: the market likes it in one thing jp morgan had done to stem the fallout was this is a

deal that is closed, done and delivered. the other thing about this deal is they are paying back the deposit to the other firms. does it heal the safety and soundness of the financial system? jp morgan is unlikely to do a deal like this twice a what happens after this? the fact that the systemic risk was unclear, that leaves an open question about what would happen if more banks were to run into trouble. there is a roadmap now on how to resolve these issues but if this were to happen again, what is the saving grace when we know it took weeks to settle this. lisa: thank you so much for the insight. a roadmap for the path ahead when there is another situation like this which includes the potential for less lending which includes the potential risk to community banks that run into trouble. this raises questions for the federal reserve which meets tomorrow and wednesday to come up with the decision on how much

more to tighten monetary policy and raise rates in the face of ongoing weakness. joining us now to give us a sense of what the risk reward is for the federal reserve and the balance of risks at a time of inflation that is high is the chief u.s. economist. wonderful your joining us i'm wondering from a high level perspective, what is the impact on the economy from failures of banks that have left the biggest banks in america and the smaller ones are not going to fill in the lending? >> this problem resides with the federal reserve. management issues exist in banks but this fed raise rates much more than the forward guidance suggested. they put those rates way above where the market suggested last summer based on the inversion of the yield curve and the banking system and lending system doesn't work when you have a

higher short rate versus the long rate. the yield curve is not only a predictor of recession but causes recessions in the fed will now regulate the smaller and medium-sized banks when it was fed policy that caused the crisis. given the tightening and lending standards we saw in january before this svb situation arose, banks were already tightening lending standards and small, medium and large banks at the fastest pace since previous recessions. i can imagine that when we get the data week from today, that's going to show further tightening and lending standards and that's unambiguously bad for the economy. lisa: you just set a number of things to dig into. if you are saying that they raised rates so quickly that the banking model did not work, what kind of follow-on effect do we expect and other regional banks

even though many people say they have been fortified and raise capital and have addressed some of the issues? >> that may be true but one issue is systemic so how many banks are behind the banks of the -- that have trouble we don't know that. will these banks make loans and extend credit? that is unlikely to happen. they will call in deposits and loans and try to raise deposits, revolving lines of credits won't be extended and that spat progrowth. whether there is another systemic issue because of bank mismanagement, that's irrelevant in the sense that what the fed has done from a monetary policy transmission mechanism is they basically killed credit and lending creation. lisa: you don't think is the issue of enforcing some of the regulatory oversight as specific banks ran into trouble? >> that's just political cover.

if you look at the bond market, through april last year was the middle part to longer part of the curve. at that point, they were the worst returns you had an measured history. people did not expect the fed to keep going in .75 increments. the fed stupidly ignored this. lisa: what would you say to people who pointed to the economic data coming in that's been stronger than expected with consumers continuing to's bend. we have 10 different issuers ready to sell corporate date even though rates have risen so much the economy is proven to be resilient and withstand this and hasn't driven inflation down enough. >> inflation is coming down. if you look at the symmetry of the cpi, the upswing and downswing's been identical in the cycle. there are pockets of the economy that are strong. we had the same thing back in 2008. we had people debating if we

were going into recession. it turned out to be the deepest recession since the 1930's. the fact that the data is in alignment is normal. housing is in recession, manufacturing is in recession, inflation is coming down and core cpi will be sticky and rents are a big piece. what is so wrong in waiting and seeing what happens for the spillover in the rest of the economy. they could have done that numerous times over the past year. lisa: they got it wrong. >> they got it totally wrong. lisa: they cap the transitory issue wrong and they said that's a reason for how rapidly they raised rates that perhaps they raised him to italy but that was the least worst option after not raising them as long as they did. was the real missed step not raising them in the summer? >> absolutely, jay powell channeled paul volcker when he wanted to be reappointed.

however, you don't correct one mistake by making another mistake and i can imagine the people who been arguing the fed to raise rates to get inflation down, we go into recession as i believe we will -- will happen. what kind of political pressure will that take. one side will be happy they are cutting or not cutting or whatever it might be. the fed has put a huge bull's-eye on its back and he could have been prevented. part of the problem is the fed meetings have this unanimity but there should be debate. economist don't agree on anything except those at the bed. lisa: -- at the fed. lisa: given how quickly they raise rates, what is the bigger rates -- risk? are they concern people reignite the credit inflation? >> the fed should have paused a

while ago and they will be cutting and should be cutting. breakeven inflation, the yield curve, the dollar, commodity prices, none of these things have bid suggesting any sort of inflation problem. not that inflation doesn't need to come down but the fed should stop is crazy policy of tightening and they should continue with the balance sheet but cut rates. lisa: people are projecting the market is pricing in a rate hike. based on the fundamental economy, what do you think will be the outcome for the u.s. economy? >> recession by third quarter of this year. you look at the leading indicators in 21 months before the economy peaked, that would put a peak in september and we are down almost 8% over the past 12 months. all the indicators are declining in the yield curve is still in bird and you mentioned the bank lending which is still working its way through the economy. why are you raising the rates,

you are making the problem worse. it is causing record deposit flight. i don't understand why these people don't see it. it's like zoo lander, it those rates are at 5% plus and you put them there, what are you doing? lisa: i never thought i would hear zoo launder -- zoo lander quoted on economic policy. thank you for the discussion. the market expects rate cuts to start with a policy rate that goes up to 5.1% becomes down to 4.3% by january of next year. coming up, someone advises on the oversight of some of the banks, principal advisor the federal housing finance agency. from new york, this is bloomberg. lisa: keeping you up-to-date with news from around the world with the first word -- the nation's largest bank has become even larger. j.p. morgan chase has won the

bidding to acquire first republic bank after it was taken over by regulators citing bad investments in a run on deposits. j.p. morgan says it expect to have a one-time 2.6 lien dollar gain links to the purchase and the lender will pay 10.6 billion to the fdic regulators will provide 50,000,000,005 year fixed rate term financing. donald trump is seeking a mistrial in the civil sexual assault case in new york. his lawyers say judge lewis kaplan's ruling had been unfair and prejudicial. the lawyer wants greater latitude to cross-examine the accuser when she returns to the witness stand today. the philippine president says he is determined to forge an even stronger relationship with the u.s.. he meets with president biden today at the white house in the philippines is granted the u.s. greater access to its military bases, paving the way for an increased american presence in the region. in sudan, the army and

paramilitary forces fighting reported we will send representatives to negotiations according to the associated press we spoke with the un's top official in sudan. the two sides of extended a fragile cease-fire but there were still reports of fighting. pilots at american airlines have voted overwhelmingly to approve a strike authorization measure. their union would only be able to call a strike if allowed under federal label law. -- federal labor law. they remain in contract negotiations. global news powered by more than 2700 journalists and analysts in over 120 countries, this is bloomberg. ♪

>> they have to settle down

before the market can settle down itself. if you look at the index, the bank index has been trying to stabilize and it's remarkable the resilience we have seen. we note earnings supervision trends in financials a good proxy for regional banks and it has been smoked and that's something else we really need to see happen here before the market can be content. lisa: that's the head of u.s. equity strategy at usb c. j.p. morgan stepped in and purchased first republic after trying to overcome a hurdle. they needed special regulatory approval in order to complete this. we are looking in markets that are little changed as people assess this and waiting for the federal reserve which will come out after a meeting that starts tomorrow with an expected 25 basis point rate hike followed by the ecb. we also have apple earnings and

a friday payrolls report amid a swirling uncertainty of how much further we will expect to see the fallout of regional banks running into distress of what credit risk looks like at a time of rising rates for some of the most rate sensitive areas. that brings us to our next guest who has an incredible background understanding just that, risk in trying to game out that versus the rate hiking cycle, someone who is at an agency that oversees fannie mae and freddie mac. the principal advisor at the federal housing finance agency also helps that some of the rates that go into mortgages. before we get into the mortgage rates setting, i want to get your sense of whether banks have the wherewithal to withstand all the lending they have on going to some of these banks at a time when we don't understand the intersection between interest rate risk and credit risk? >> thank you for having me. fha overseas the gfa's, fannie

mae and freddie mac. we can say that fh fa is monitoring the developments over the last couple of months with the banking turmoil. predating this entire cycle around the regional banks, it -- fa at chase fhfa conducted a whole examination of the system. it's approaching its centennial under the leadership of director sandra thompson wants to make sure the system is fit for purpose for the 21st century. we just completed the comprehensive public outreach portion of that review and i think the next steps are in the coming months to formulate findings and formulas and recommendations.

i think this fh fail leadership has been accepting the status quo but that attitude probably is not a preferred result. lisa: we are talking about the potential workouts for some of these banks. we just had morgan stanley on talking about the potential for forced market sales. how do you account for this market action and what appropriate rates are for mortgages? >> the gf sees provide a lot of liquidity to the national markets and we all benefit from them. what they don't do is control the interest rate cycle. you look over 2022, mortgage rates went up by 400 basis points than they went down by a hundred basis points and went up by 50. the gf sees don't control any of that. we want to make sure that all these regulated entities whether it's fannie mae and freddie mac

or the financial system has the tools at their to split -- at their disposal to manage the system and provide their mission. that's what we are squarely focused on. lisa: you have recently come under heat in the wall street journal wrote a number of editorials where they said there are some changes your agency has made that take effect today that raise costs for good credit borrowers and make mortgages cheaper for low income borrowers, basically that the rate setting policies being driven by a desire to make it easier for lower income individuals to buy houses at the expense of higher income individuals. what is your sense and what is your response? >> fannie and freddie remaining conservatorship. fhfa wants to make sure that the gf sees of the right tools to continue meeting their mission responsibility, their market role and continue to build their capital resources.

we've been public about conducting a comprehensive review of the mortgage pricing framework which is the fees they charge for guaranteed mortgages. the old framework was stale and had not gone through a comprehensive review for quite some time in over the last 18 months or so, we made a series of steps to update the framework. some fees have gone up and some have gone down with the latest iteration of pricing announced in january. this is a big step forward in our minds in enhancing the risk based pricing framework and gave us the opportunity to eliminate a lot of obsolete oddities that exist in the framework that had prevailed. we announce this back in january, these fees have been rolled out in the interim by the industry. i think it's strange and somewhat telling that some

misinformation is only emerging that thegsc's are penalizing good credit scores to subsidize that credit scores. good credit stores will still lead to better pricing and the object is not to subsidize those credit scores. lisa: the politicization of this highlights the moment given that some people see increases in thousands in their rates as a result of any change and we see a lot mortgage rates going up. i'm wondering how you assess at to accurately fortify some of these agencies at a time when if rates go up too high, you are basically making it difficult for people to pay back. that is tougher the agency and for this price situation. i think a lot of the criticism around this and some of the misinformation that's been weaponized around this is hurtful to the old pricing framework and set of looking at the absolute levels of the new

pricing. all these things have to be looked at holistic lee. we've taken a series of steps and even the january announcement that there are six new grids and a lot of things going on and people are focusing on one particular cell combination in terms of pricing to sort of fit a broader narrative which is not true. what i can tell you is that we have been very deliberate about providing pricing support for borrowers who are limited by income or wealth, not bad credit. who are some of these people? it's not only reductions but we have delivered fee in limitations. it's first-time homebuyers, underserved income thresholds, it's the gsc's flat mortgage products. who are these borrowers in these programs with the average credit score for those borrowers at 740. these programs target low income

borrowers but certainly creditworthy. lisa: thank you so much for being with us. you've got a lot on your plate so thank you so much. s i want to get tooanli basak who is monitoring the jp morgan call. sonali: they are talking but az loss sharing agreement with thefdic and what do you happen if these mark these bonds to market because they took fair value when they took this on. you're a bun person as well so what does this mean in terms of the ripple effect and pricing. that's an open question and jp morgan have said gnosis sent -- systemic risk exemption was required but doesn't answer the question of what would happen in an instant like this. we've open a question about what it means for any future deposits. we will speak later in the day to the citigroup ceo we will

pose the question to her as well about what it means to not have this blanket security over the banking system and what it means for the smaller regional banks in particular. lisa: do we know whether citibank was one of the ones in the room this weekend bidding on first republic? sonali: we believe no but they have some handicraft -- handicaps to execute but jp morgan is one of the big six that were in the final bid. lisa: thank you so much for that. coming up, she's in los angeles and we will provide you live coverage at the annual milken global conference. in markets, we are seeing range bound although inflected to the downside to basically unchanged with yields higher. there is a slew of bond sales.

we see some dollar strength that has reversed and we see weakness in the oil space. ♪♪ this is bloomberg.

jonathon: getting to the weekend. i wish it was friday. good morning. let's get your week started. equity futures on the s&p 500 totally unchanged. we have a banking deal we need to talk about. countdown to the open starts right now. announcer: everything you need to get set for the start of u.s. trading. this is," bloomberg "the open," with jonathan ferro. ♪ jonathon: