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First Move with Julia Chatterley
Credit Suisse Shares Crash as Saudi Bank Rules out more Funds; FinTech Company BREX on the Aftermath of SVB's Collapse; BREX CO-CEO: We're Constantly Monitoring Risk; Wall Street Opens Lower Amid Fresh Banking Concerns; Goodyear CEO: We're well-positioned for Industry Turnaround; Global Stocks Fall Amid new Banking Fears. Aired 9-10a ET
Aired March 15, 2023 - 09:00 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
[09:00:00]
(COMMERCIAL BREAK)
JULIA CHATTERLEY, CNNI HOST: And a warm welcome to "First Move", as always, this Wednesday. And an Ides of March feel this morning with investors
baring the message, beware the banks. Particularly in Europe, where the financials are facing the heaviest of selling pressure, though U.S. banks
are also being dragged down with them.
Let me give you a look at the broad picture we're seeing and the message there is read. U.S. futures falling across the board as you can see the S&P
500 futures right now down almost 2 percent. Europe, though seeing the sharpest pullback with just over 3 percent losses as you can see for the
majors there a key trigger.
For today's fears the fate of banking giant Credit Suisse shares currently down some 24 percent plus yet another all-time low. This is top investors
Saudi Arabia ruled out sinking any more money into the firm due to regulatory ownership constraints. Now with the Swiss government now need to
step in to provide emergency support for now they're saying no.
We'll discuss all the details on this in just a moment's time. Here's a look at the broader price action for other European banks, though, and this
is the key BNP Paribas, SOC GEN over in France, Deutsche Bank, Commerzbank in Germany. All sharply down, as you can see some stocks in the Euro
region, in fact halted in terms of trading, just because of all the volatility and the pressure that we're seeing.
I think this is again, investors questioning whether some of these banks could need to raise fresh capital amid the most aggressive global Central
Bank rate hike cycle we've seen in decades. It all comes down to their government bond holdings once again.
Interest rates go up, prices come down, that would then mean less lending and that also has knock on effects negative growth and negative growth
impact too. Now, as fate would have it, the European Central Bank has a rate decision tomorrow and before last week, they were expected to hike
around half a percent.
Now, in terms of market pricing, we're currently looking at around half of that what policymakers say though, and what they do tomorrow is going to
give his key insight into their policy path going forward amid severe market volatility at this moment.
OK, let's take it to the U.S. now. Shares of U.S. banking majors are falling too. The regional banks are under a bit of pressure you can see
that there for the U.S. majors. We saw strong gains for some of these regional bank stocks though yesterday and this is an important point.
Moody's the rating agency, though downgraded the entire U.S. banking sector in lost the evening playing into today's weakness the rating agencies
citing uncertainty over the damage of more rate hikes and what they could do in terms of potential economic slowdown. It's an important point.
BlackRock CEO, also extremely bearish on the sector as well he said he feared more bank seizures, and shutdowns after the Fed's easy money
unwinding it's been a decade of course of easy money investors also digesting how the Fed will view the latest batch of important economic
data.
Just released numbers show prices at the factory great falling unexpectedly last month, retail sales also dropping unexpectedly too. Normally, we'd be
sad about this, but I think we can hear a collective sigh of relief at the Federal Reserve as a result and cooling in the data.
Now a wide range of projections on what the Fed will do at its meeting next week after all of this whether to raise, whether to hold or perhaps even
cut rates and all that too fueling the uncertainty. Now much to discuss Anna Stewart joins us now.
And Anna, you've been looking not only at Credit Suisse and the pressure that we're seeing specifically on that stock, which you and I think agreed
yesterday has been a slow motion car wreck now for some time. But the broader pressure that we're now seeing play into the European banking
sector, just walk us through that and tie it together.
ANNA STEWART, CNN REPORTER: Yes, what happened at Silicon Valley Bank had ramifications far beyond eight and really even the banking sector in the
U.S. It really has hit the shores of Europe and it hits it really hard, even on Monday when we saw big price moves.
And that's because the universal problem here is interest rates and where that leaves balance sheets for these big banks. People are now questioning
what are on those balance sheets in terms of those long dated government bonds. What are they worth? And what happens if banks are forced to sell
and realize losses, as we saw with Silicon Valley Bank?
So that's the kind of overall concern and then you get to Credit Suisse today, which is a bank with its own issues. You can see the share prices
there from the other European banks as well, but Credit Suisse at one stage down some over 20 percent.
[09:05:00]
Well over 20 percent nearly at 30 percent today, and that was sparked for various things not just Silicon Valley Bank but the comments we had
yesterday on the report of weaknesses in financial reporting, and then today, as you mentioned earlier, the Chairman of Saudi National Bank, this
is the biggest shell shareholder in Credit Suisse, kind of came to the rescue in some senses in the fundraising late last year.
And the Chairman was asked will you increase your stake if needed and Credit Suisse? This was on Bloomberg? And he said the answer is absolutely
not for many reasons. And he said he was like the simplest one, which is regulatory. We own 9.8 percent of the bank.
They can't go above 10 percent for all kinds of reasons that sparked this steep sell off. He then spoke to Reuters later on, just to say they are
happy with the bank's transformation plan. He says he doesn't think they need any additional capital. But that hasn't really done much to calm
nerves on this bank, particularly.
And this is just the latest, of course, in a whole series of mishaps for the bank. And I think people are concerned about outflows at Credit Suisse,
but also really across the sector, looking at the share prices we're seeing today.
CHATTERLEY: Yes, I mean, my read on this is perhaps less about the fear of whether your money safe in these banks, but it's investors saying, hang on
a second, if these banks have to start issuing shares to shore up their stability in their capital position. Then we're going to be diluted and
they're taking the valuations down as a result to reflect that.
The question Anna and I'm glad it's you answering this not me. It how does the ECB, how do regulators respond in this moment? Because they don't want
to feel some of the uncertainty and some of the panic, but they also want to say, look, we're studying hand if the situation is needed, and we're
aware of some of the concerns.
STEWART: It's interesting, is it SVB Silicon Valley Bank directly impacted the U.S. and the U.K. So we saw regulators coming out and giving
reassurance showing they were quick to act. But of course, it only indirectly impacted Europe. So we haven't really heard anything from
regulators and you start to wonder at what point we could hear something.
Now, no news today from the Swiss National Bank that we have reached out to Reuters White House cross those citing Italy's Economy Minister. He says
the Italian financial system is stable, very different, lots more rules to the U.S., he said. And he added, though, that vigilance is needed.
Do Central Banks need to change course? You know, this is something we've been talking about all week, giving, you know, the universal reason and
part of the problem is interest rates. The ECB will be the first test case they meet tomorrow that they're likely to raise rates; the expectation is
by half a percent. But the pressure is now on the Central Banks to consider financial stability as well as inflation, Julia.
CHATTERLEY: Yes, but not send the message to that they're also spooked, and therefore doing less because they still have to tackle inflation otherwise,
then we're looking at even bigger problems. I think ahead is a tough one. Anna Stewart, thank you so much for that.
Now, as Anna was saying the European Central Bank meets tomorrow. The Federal Reserve Announces their rate decision next week. Two major downside
surprises in U.S. state today could affect Jerome Powell's interest rate path that policy path already called into question, of course, by the
collapse of Silicon Valley Bank and the resulting volatility.
Clare Sebastian joins me now. Clare, I said at the beginning of the show, I'm not quite sure what I would have said if some of the data that we got
today, it was retail sales and producer price inflation had surprised to the upside. In fact, it was softer, which in this case, and in the
situation that we're facing today is a sort of collective sigh of relief, perhaps. How the banks looking today in the U.S.?
CLARE SEBASTIAN, CNN CORRESPONDENT: Not so good, Julia, it seems that Europe has sneezed in the U.S. is now catching another cold. This has
reignited fears around the banking sector, even though as you say, these pieces of data producer price index, which is a measure of wholesale
inflation. So further up the chain from what we got yesterday.
With consumer prices back that came down, which of course slightly reduces the balancing act that the Fed has to deal with next week. Excuse me; we've
seen as well Fed funds futures this morning, the momentum shifting away from the Fed raising rates by a quarter percent. We were at about 80, 20
versus doing nothing before this.
Now we're at about 55 for a quarter point rate rise. So it looks like people are perhaps looking at a less likelihood of that the Fed might do
nothing and you know heed those calls to pause and see how their policies have been working so far. So that's what's happening.
But we're seeing more pain in the U.S. markets when it comes to those banks, including those regional banks, which have been so hard hit buffeted
by the strain and the collapse of Silicon Valley Bank and those other banks in the past week. We are also Julia, hearing signs that there may be
regulatory implications for this.
Particularly for those mid-sized banks the same size as Silicon Valley Bank, and of course, the likes of First Republic, which has been one of the
ones where we've seen big moves in the share price. There are reports that the Fed might be looking at tightening that bit of Dodd Frank that the
Trump administration loosened in 2018.
[09:10:00]
Essentially what they did was raised the threshold at which banks are going to be subject to tighter regulations, things like stress tests and things
like that. They raised it to 250 billion that essentially took the likes of Silicon Valley Bank and first republic out of the equation. It looks like
there's some momentum to change that. Now take a listen to what Lloyd Blankfein, of course, Former CEO of Goldman Sachs, now Senior Chairman had
to say about this.
(BEGIN VIDEO CLIP)
LLOYD BLANKFEIN, SENIOR CHAIRMAN OF GOLDMAN SACHS: Think at this point, we recognize that a $250 billion bank is no small bank. And you know, perhaps
a $50 billion bank is no small bank, and even smaller ones.
So I think there's going to be regulation that normally applies to the biggest banks will probably be had to be extended. And that regulation
includes bigger stress tests having to have more capital and other features that are generally make the system safer.
(END VIDEO CLIP)
SEBASTIAN: So the Fed may look at this Congress says it will look at the reasons behind the collapse of Silicon Valley Bank in the coming weeks, a
lot of scrutiny on these banks. And of course, not just in the U.S. but around the world, Julia.
CHATTERLEY: Yes, absolutely, Clare Sebastian, thank you for that. Now, in the last few minutes, the U.S. Secretary of Defense that the downing of a
U.S. spy drone in international airspace yesterday was part of a pattern of "aggressive", risky and unsafe actions by Russia.
Lloyd Austin's comments come one day after the Pentagon accused a Russian fighter jet of hitting an American spy drone's propeller, forcing it to
crash into international waters. But Russia's Ambassador to Washington is insisting the incident didn't happen, and is warning the U.S. not to enter
the airspace as the war rages in Ukraine.
(BEGIN VIDEO CLIP)
ANATOLY ANTONOV, RUSSIAN AMBASSADOR TO THE UNITED STATES: This drone can carry if you boom; you'll see that what will be the issue of United States
if you see such Russian drone, very close, for example, to San Francisco or New York? What will variation of the United States? For me it's clear.
(END VIDEO CLIP)
CHATTERLEY: And Salma Abdelaziz joins us now on this. Salma, perhaps no surprise that there's a difference of opinion over what happened here given
the border backdrop what do we know firstly, about what happened? What more happened? What about the data on the drone in the perhaps the
communications behind the scenes here to avoid further escalation?
SALMA ABDELAZIZ, CNN CORRESPONDENT: Absolutely, so you have two very different narratives coming from Moscow in D.C. The United States says that
Russia intentionally hid this drone struck this drone. It says that Russian jets were in the vicinity of it essentially harassing it between readings
between the lines for 30 to 40 minutes.
Dumping fuel on that drone before that Russian fighter jet went behind that drone and clipped its propeller. The drone then that Reaper drone being
forced to crash to land into not land rather crash into the Black Sea a total loss U.S. Officials say but Moscow says this is simply not true.
They deny that there was any physical contact between one of their fighter jets and this U.S. made drone. Russia says, in fact that it detected an
intruder over the blocks sea waters, it scrambled its fighter jets that drone the U.S. made drone did not have its transponders on which Russia
says it's a violation of international standards and norms.
In fact, Russia says it had warned that it was operating in the area that it was carrying out its special military operations in that Black Sea area
and had warned about that action and in fact, blames the United States pointed fingers at the U.S. says it's America that was behaving recklessly,
dangerously in the Black Sea.
One Kremlin spokesman saying that relationships between Russia and the United States are deplorable now that they're at an all-time low now one
positive sign is that both sides seem to agree that this should not escalate any further. Russia's Ambassador to D.C. to the United States was
summoned.
There was about a 30-minute meeting there in the State Department. He called it constructive. So for now, it seems that neither party wants to
see this escalate but all lies on the Black Sea as to whether or not the Americans can somehow and it's impossible to imagine that this could take
place could somehow get the remnants of that drone from the Black Sea. But important to know of course, Russia very much operates in that Flashpoint
area of the Black Sea.
CHATTERLEY: Salma Abdelaziz, thank you for joining us. OK, straight ahead, as the dust settles from the collapse of Silicon Valley Bank, one FinTech
firm right at the heart of this says it's time for startups to rethink, how they manage money? The Founder of BREX joining us, after this.
(COMMERCIAL BREAK)
[09:15:00]
CHATTERLEY: Welcome back to "First Move", my next guest aims to be a one stop financial shop for startups and small businesses. FinTech firm BREX
offers a deposit account a corporate credit card lines of credit as well as things like expense management tools. Since its launch back in 2017, it's
taken on over 20,000 clients from startups to well-known brands such as Airbnb and DoorDash.
Now, after the sudden collapse of Silicon Valley Bank, BREX was inundated with calls from businesses for immediate credit lines to help them pay
things like wages. Fortunately, of course, they weren't required after the U.S. government stepped in. But the BREX Founder says the fall of Silicon
Valley Bank is a pivotal moment for the industry.
Joining us now is Henrique Dubugras. He's the Founder and Co-CEO of BREX. Henrique, great to have you back on the show. I can only imagine what kind
of weakened and weak quite frankly, you've had? The good news is, in the end, the support that you were frantically trying to find wasn't required.
But what was your key takeaway from this experience?
HENRIQUE DUBUGRAS, FOUNDER & CO-CEO OF BREX: Well, first, thank you so much for having me. I think that key takeaway from this experience is that all
of us need to pay a lot more attention to our banking setup as businesses as individuals, and having redundancy and diversification is important, not
only for the financial risk, because in the end, the government stepped in, but also for the operational piece of it right?
Maybe the government took a few extra days to step in, and that would have been, you know, a mess for payroll. So I think that learning more about how
the banking system works, what is safe, what is less safe? I think it's something that's super important.
CHATTERLEY: I couldn't agree more with you on that mismatch of timing, because even if you had less than $250,000 in the account for a period
there, you couldn't access that money. And that could be a huge challenge for families and for individuals. You manage deposits, how do you manage
yours? And what proportion of those is above the $250,000? And how do you manage that risk, that insurance risk?
DUBUGRAS: Absolutely, so BREX, we are not a bank. So therefore we don't offer bank accounts. We offer cash management brokerage accounts, which
mean that we get your deposits and we sweep them into smaller banks and 250k increments. So you can get up to 2.25 million in FDIC insurance and
the rest of it, we sweep to money market funds.
And I think that's very important that distinction between a bank and a brokerage account, because a bank, you're giving the bank the right to
invest their money, however they in their regulators believe is right. They're making loans, they investing in treasuries. That's what Silicon
Valley Bank ended up doing with a brokerage or a cash account; you are deciding how to take that risk.
You are deciding to buy, in our case money market funds of short duration, so and you own the underlying securities. And even in the SVB case, you
would have seen that all the money that was FDIC insurance was going to be paid for on Monday.
[09:20:00]
And everything that was money market on the asset management side like I was saying that was off balance sheet that we called also was going to get
paid out in full and pretty quickly. So I think that this is an evolution where consumers and businesses need to understand whenever they're giving
money to a bank.
What does that entail, right entail that they're giving them the right to lend their money out, and maybe OK, right? Like, you may want that, but
it's also important to know that there are other options, such as brokerage accounts, right? BREX is one of them but fidelity, Schwab, or a few of
these other brand names have the same setup.
CHATTERLEY: So this is just my audience understands this is very important, because what you were doing with this money, you're breaking it down so
that it was in different accounts that were insurance protected. But you were also keeping some of that money in very short term, interest rate
products, not the longer term that Silicon Valley Bank had and had all that interest rate sensitivity.
It's very, very important. The problem with what you just said is it sort of suggests to people and I think this is perhaps the danger, that we see
more deposits consolidated in some of the biggest banks in the country. And actually, this works less well, for customers of all kinds, the more how do
we avoid that Henrique, because I do think that's the danger? We push to very small banks, so we push the very big banks and the ones in the middle
of sort of court.
DUBUGRAS: That's a great point and excellent point. And I think that the outcome that consumers and businesses don't trust, midsize and small banks
and all concentrates in a large bank is terrible for America. Midsize and small banks are incredibly important because they deeply understand the
needs of the customers in their segment or their communities, right?
Silicon Valley Bank, deeply understood and still understands the needs of startups, technology, companies, wineries, that is their focus, and
therefore they provide a lot better service to those customers and create products that are tailored to the needs of those customers.
While some of the big banks, they're focused on the wide array of people, right? What is the average person or the average business and sometimes
businesses need more care tailored towards? And that's why I think it was so important that the government stepped in, because if we stopped
believing that our money is safe in mid-size, and small banks, that is terrible for the American banking system, and it's terrible for consumers.
CHATTERLEY: Yes, and I'll just overlay that with the idea of more regulation for them too. So they're sort of mummified in red tape, which in
some areas is good, because people will feel protected, but it's just more work and it takes them away from the core business of lending to people
too.
And one of the things that I remember from our first conversation was that you initially were sort of focused on very small businesses or startups,
and you would assume around a 60, 65 percent failure rate of those businesses, and it meant you had to be incredibly careful with credit and
interest rate risk for these individuals.
It was dynamic assessment of the health of these individuals. To get back again, to our point about, I think, how regulation has to change as a
result of what we've seen? Would your advice be? And I don't know how they go about it, but more dynamic modeling of the risks in these banks, because
people like you were doing it, the private sector is doing it, regulators have to be aware of it and doing it too.
DUBUGRAS: Yes, so you know, just to be super clear, BREX, we serve technology startups, right, that is kind of like our focus on the small
side, and we serve them with our card and banking products. But we serve all sorts of mid-market and enterprise companies that are much larger in
size with thousands of employees with our Spend Management corporate card products as well.
And I would say that's, you know, a lot of our core business today as technology startups, which we're specialists in on the small side, and you
know, all kinds of companies of all sectors and industries across the mid- size and larger companies. And I think what you're saying around the dynamic risk modeling is incredibly important.
One thing that we do at BREX is, instead of evaluating risk, on a static basis, where you give us your documents once and we evaluate the risks, and
that's it. We're constantly monitoring, and we're using technology, to basically get more data from you all the time and constantly reevaluate the
credit based on that.
And that's why, you know, when I hear people say, we need more regulation, I say it's not more regulation is better regulation is pushing banks and
pushing financial institutions to get out of how they did things 20, 30 years ago and adapt to 2023 and have more modern systems, more modern
capability so they can assess risk in a more dynamic way.
I don't think we need more bureaucracy and banks we have plenty of that already. What we need is them to modernize and use the technologies that we
have today to make better risk and financial decisions.
CHATTERLEY: Yes, and we could teaser for our next conversation. Will this be good for you?
DUBUGRAS: I would say it's still in flight. You know the outcome that you described at everyone only trust that big banks. It's terrible for us,
right?
[09:25:00]
Obviously we're not one of the systemically important banks. But on the other hand, you know, I think it did give us an opportunity to show to our
customers how fast we can move in terms of providing them the credit lines that we did. And I think that was, you know, very positive for our
community and our brands. But I think is Silicon Valley Bank in general going bankrupt is bad for our entire industry. It's bad for us, it's bad
for technology, it's bad for the U.S. So I'm glad the government stepped in.
CHATTERLEY: Yes, and these kinds of things need to be prevented, however, that happens in the future. Henrique, great to chat to you! We'll talk more
about your business the next time you're on and thank you for your wisdom on what we've seen --.
DUBUGRAS: Thank you so much.
CHATTERLEY: Thank you more "First Move", after this.
(COMMERCIAL BREAK)
CHATTERLEY: Welcome back to "First Move" and we're counting down to the stock market home open here in the United States. Futures continuing to
point to a weaker open though as you can see in front of you and we're also of course keeping an eye on the global banking sector really European
markets continue to face pressure all down by around 3, if not 3.5 percent over you can see there for Paris.
Credit Suisse too back in the firing line again shares tumbling more than 20 percent after its biggest backer appeared to - providing any further
capital. We know that of course, Saudi Arabia saying that it can't break that 10 percent ownership limit due to regulatory rules.
Clare Sebastian joins us now. Clare, you and I were talking earlier on in the show. What we're seeing here is investor's concerns about the holdings
really, of safe assets like government bonds? There at least on paper loss in value as interest rates around the world have risen and to what degree
perhaps some of these banks are going to have to shore up their position by raising cash, issuing shares?
[09:30:00]
CLARE SEBASTIAN, CNN CORRESPONDENT: Yes, I think there's a lot of uncertainty around this at the moment. Look, we've got two separate issues
right on each side of the Atlantic Silicon Valley Bank had its own specific issues in the U.S. Credit Suisse also has been you know, in the spotlight,
not for the right reasons for a long time.
But both of them involved elements of mismanagement internally that will invite scrutiny of other banks. And as you say, the big macro issue that
all these banks are facing is this climate of rising interest rates.
Yes, we got some data today that may slightly reduce the impact of that. In the short term, we may see lower, or no interest rate rises from the ECB
and the Fed in the coming days after this data that we've got this morning, particularly in the U.S.
But this is still something that they are going to grapple with, regardless of what happens at these upcoming meetings. And Silicon Valley Bank in
particular, has raised the specter that some in particular, smaller banks balance sheets may not be ready for this.
May not have enough interest rate hedges built in to weather this, frankly, sea change in the macroeconomic environment. So I think that is what was
the play out today, these bank stocks in the U.S. pre market in particular getting hit we'll see how they open.
CHATTERLEY: Yes, and that's the balance the delicate balancing act that they've got to find here. We're still concerned about the inflationary
outlook inflation is still above target. So these Central Banks, but it's how much more of a squeeze really can they put on the financial sector by
increasing interest rates to try and get inflation under control in the face of some of the uncertainty, Clare?
Again, the conversation we're going to hear from the European Central Bank tomorrow. It's going to be interesting to see what Christine Lagarde says
about stability about the capital positions of the banking sector broadly in Europe, and whether they try and assuage fears and say, look, we still
got a job to do here.
And we think that the system can cope with us hiking by a further quarter of a percentage point. I think they also have to be very careful with their
messaging not to also appear to be taking fright, but be on top of some of the concerns and issues and understanding them.
SEBASTIAN: Yes, you know, communication balancing act as well. I think in Europe, certainly the banks are seem to be in a slightly stronger position
Credit Suisse notwithstanding to the United States. They don't have as much sort of long term government debt long term securities on their balance
sheet bought before the current rise in interest rates so potentially facing on paper losses on those that is something that Moody's has pointed
out in the last few days.
Moody's, of course, having downgraded the outlook of the entire U.S. banking sector because of their concerns about how rising interest rates
could affect their balance sheet so Europe, like it may have its banks in a stronger position. But that doesn't mean that inflation is not as much of a
concern there and is so far off target both in the U.S. and in the UK, that the central banks have their own reputations at stake frankly, if they
don't tackle this.
Having said that, one of the issues around this banking crisis particularly in the U.S. is that it could end up doing some of the tightening for the
Central Bank, it could cause banks to recoil a little bit from lending and in doing that, to cause some kind of a slowdown themselves. So this is
something that the Central Banks will also have to factor in as they plot this next part, the rate rises.
CHATTERLEY: That's such a great point. And as I look across the movements that we're seeing in financial markets, today, you've got oil under
pressure, you've got all the signs of slower growth concern coming in. And I guess, the only sort of counterpoint that you would make to what you were
saying about the difference between the United States and Europe.
Two weeks ago, in the United States, we were talking about how, unfortunately resilient the data is in the United States and the economy is
being and that's what's causing part of the problem for the Federal Reserve.
In Europe, there were great concerns about slowdown. And this, of course, the fear that banks will lend less. Tighter financial conditions could
exacerbate that slowdown, still with inflation, and the ECB having to raise rates. And I think that's also playing into the reaction that we're seeing.
Yes, we're just showing you oil there. I mean, that's classic growth, outlook concern.
SEBASTIAN: Yes, absolutely Julia. Looks, Europe through all of this much more exposed to the inflationary forces from the war in Ukraine, as well.
Don't forget that it's something that is still playing out. So there's all part of the balancing act that the ECB is facing.
I think look this is clearly a point at which we've seen the tide come out when it comes to this climate of rising interest rates and the markets are
now scrutinizing very closely, who might have been left exposed essentially, who hasn't been preparing?
And who you know, they might need to get their money out fairly quickly. This is the problem when you have this kind of self-perpetuating fear in
the markets that has been reignited today by Credit Suisse despite the fact that you know, as one hedge fund manager in the U.S. just messaged me you
shouldn't you had to be living under a rock not to realize that there were problems with Credit Suisse.
So it shouldn't come as a shock. But there's such a jittery mood on the market. They think we've seen that these incidents can reignite these
fears. And that's what we're seeing playing out today.
[09:35:00]
CHATTERLEY: I think the phrase there the tide going out was the most important one. Larry Fink, Blackrock CEO, in his note talking about this
being the price you pay for a decade of zero interest rates and quantitative easing and support for the system.
And when that gets pulled back to your point, the tide goes out. And as one trader once told me, you see who's forgotten the swimming trunks. And this
is what we're seeing, potentially. Clare Sebastian, thank you so much for that!
Alright, let's turn now; Africa's Aviation Sector was consolidated to ensure its long term viability. That's according to the CEO of Kenya
Airways, Allan Kilavuka, who recently spoke with "Connecting Africa" Eleni Giokos about potential growth opportunities.
(BEGIN VIDEOTAPE)
ELENI GIOKOS, 'CONNECTING AFRICA' CNN CORRESPONDENT (on camera): Allan, great to see you, the continental free trade area creating so much
excitement, but it's all about implementation. How are you guys pricing the potential of growth?
ALLAN KILAVUKA, THE CEO OF KENYA AIRWAYS: The estimate is that trade is going to increase by about 52 percent. OK, particularly goods moving of
goods from one place to another, and so is the economies of the people going to move.
Now, part of the problem is even access in terms of allowing people to move into countries. So you're expected to have visas to begin with. So one of
the things we need to do is to free up the movement of people and then together with the Africa Continental Free Trade Area which allows access,
so it eliminates tariffs, and other non-tariff barriers.
And then it allows for more trade to happen. From there on, we need to partner with the traders and tourists so that we provide the mistakes for
moving both people and goods into and out of South Africa.
GIOKOS (on camera): You're looking to work even closer with South African Airways, for example, you're looking for new code share opportunities as
well. Could you take me through that strategy, in terms of with working with other airlines and what that could mean for you?
KILAVUKA: We have a bigger vision though. So the Africa market, African aviation market is very fragmented. We have so many I mean, 55 countries,
we have so many airlines in the continent, and most of them are not viable. But truth be told, the solution to that is to consolidate, right?
Just like that has happened in Europe, it happened in the U.S. happened in Asia. We need to consolidate so that you create bigger entities, which are
more economical from a skill perspective. And they can respond to high costs.
They can, you know, together, talk to suppliers and get more big gains when it comes to purchases. So bring down the unit cost of operation. In
addition, because of skill, they can then open up the African Continent a lot more.
GIOKOS (on camera): So you're talking consolidation, basically in the industry?
KILAVUKA: Yes. So that is a discussion we've been having with South African Airways. How do we consolidate? I know the South African Airways is African
countries as well, so my agenda as a person and we as an airline is really how do us make aviation more viable in Africa? One way of doing it and I'm
completely convinced that you have to consolidate industry; the fragmented state that we are in is not going to make it.
(END VIDEOTAPE)
(COMMERCIAL BREAK)
[09:40:00]
CHATTERLEY: Welcome back to "First Move"! Whether it's up in the air or down on the racetrack Goodyear is one of those brands we all grew up with
and recognized. And as it marks its 125 anniversary this year the Tyre Giant also faces some headwinds ordering $5 million worth of cost savings
with a 5 percent cut and its workforce and like the rest of the industry is responding to pressure to become more sustainable too.
It's estimated every year 1 billion tyres reached the stage of where out and there are around 4 billion tyres in landfills and stockpiles worldwide.
The company is aiming to make the world's first tyre made from hundred percent sustainable materials by 2030.
And this 90 percent demonstration tyre is made up of soybean oil, rice husks and pine resin. Yes, you heard me correctly. And Richard Kramer is
Chairman CEO and President of Goodyear and he joins me now. Richard, fantastic to have you on the show!
We definitely have to talk about sustainability. But you like many other CEOs are juggling so many things in terms of the economy, input prices,
more cautious consumer and you're all over the world. But I know Europe, in particular, has been slower than you expected. Just talk me through what
you're seeing and thinking at this moment.
RICHARD KRAMER, CHAIRMAN CEO AND PRESIDENT OF GOODYEAR TIRE AND RUBBER COMPANY: Well thanks, Julia, and glad to be here today and look forward to
talking about our sustainable tyre. But you're absolutely right, characterizing the world as you did and, you know, I will tell you coming
out of 2022, we made significant progress in a really challenging environment.
And as you said, that challenging environment is continuing particularly in the first half. And that's really driven by lower demand in the industry,
as well as continued inflation that you've been talking about earlier today as well. And I think those trends are really still around right now.
They're manifesting themselves in lower industries and our mature markets in the U.S. and Europe during the first quarter here. Actually, we are
seeing some upbeat a numbers in China, as you'd expect as the post COVID recovery comes forward.
But again, I will tell you inflation is still sticking around, particularly in our input costs, wage rates continue to go up and on a year-over-year
basis. The industry is down in the first quarter again in U.S. and Europe.
But that's just as we anticipated. We're certainly managing our business with that in mind. We're well positioned for when the industry does turn
around, and we do think it will sequentially get better as we get back to the second half of the year.
CHATTERLEY: And you still think that to you. It's interesting, because what now leaps out at me in that conversation is exactly what you were saying
that the challenges of managing the inflationary pressure, the wage pressure. And, again, if this conversation would have been had two weeks
ago, we would have really focused on that.
Obviously, things feel like they've changed somewhat in the last few days. Richard, I'm sure you've been watching all the headlines with some of the
pressure that we've seen on the banking sector that the steps that the regulators have taken in order to shore that up.
Does that change your calculus? And I know it's everybody's digesting what this means, ultimately, but digesting your calculus over perhaps what the
Federal Reserve can do to tame inflation because all of these things play into your decision making for the short term and the long term.
KRAMER: Well, you're absolutely right. And as you said, a week ago, the world looked a little bit different. But we continue to monitor trends of
the consumer. We still see vehicle miles traveled going up. We still see pent up demand for at least some traveling in the United States.
So you know there are signs that people still want to get out and still will be using our products. That's also true, particularly in the trucking
industry where we're very well positioned at the higher end with some of the leading fleets out there. So there are some positives out there as
well.
But you're absolutely right. I think we have to look at this and look at the consumer and what inflation or what the economy is doing to the
consumer? We do that regularly. We've done that for long some period of time we know how to manage through these situations.
[09:45:00]
Julia, I will tell you we look at this and say number one we focus on the customer number two we focused on collectively cost and cash. And number
three, you know, we continue to invest in some of our future programs, like the sustainable tyre.
And we do that, certainly with some investment dollars, but also with resources that we've sort of directed in the company to go after those
trends that we know are coming. And we do feel we have a leading position, and we're not going to let the economy get in the way of that. We'll manage
through it. As you said, we're 125 years old; we know how to do it?
CHATTERLEY: I was about to say your company certainly seen some highs and lows through that period in particular. One more quick question on this and
then I want to move on. Just in terms of what we're seeing is it made you as a CEO, sort of want to give advice on where the businesses money is
kept?
Where perhaps supplier's money is kept? Or is it just about a reassuring hand and saying, look, to your point, we've been around a long time, we've
seen a lot of things, panic is not the answer here?
KRAMER: Well, I do think panic is not the answer. And having worked through, you know, the great financial crisis, and also with a great focus
on our balance sheet, we always are looking after our liquidity position, looking after, where our debt maturities are and managing that very
proactively.
So certainly, that is in our mind all the time. And that helps us manage through situations like this. And in terms of, you know, other constituents
that we deal with, we always, as well keep track of where we are, and any risks that we might see.
So I do think that, you know, this is a unique situation, I'm certainly not the expert to speak on banking or you know, the areas of what the Feds
going to do. But we also know that the financial system has taken a lot of steps in the past to reassure itself and hopefully those are going to show
themselves during this time.
CHATTERLEY: Yes, but it's good to get a guiding hand like yours voice on it, too. So I appreciate your response on that. All right, let's talk about
sustainable innovation as well, because what you announced it at CES back in January did caught my - did catch my attention.
And it was a 90 percent sustainable material tyre. And I mentioned the inputs to this, let's call them that earlier on in the show soybean oil and
rice husks, I think the first question to be asked here is, do they improve?
Or at least maintain the performance of a tyre? I saw read something that actually soybean oil makes the tyre more pliable in cold conditions and
fascinating how you can tinker with the ingredients. Let's call them that and actually improve the performance perhaps?
KRAMER: Well, you're absolutely right. And now you know I'll give a shout out to all the hard working people at Goodyear and the suppliers we work
with to help us develop those materials to do exactly what you just said, to actually improve performance.
With the tyre that we have that's made out of 90 percent sustainable materials, I will tell you that from a performance perspective, that tyre
meets all regulatory safety requirements, all our internal safety requirements. It performs better on rolling resistance, if you will fuel
mileage than the reference tyre we made it against.
And we've given up nothing on safety and performance, obviously, safety being number one. And as you said, some of the materials like soybean oil
actually give us better traction in colder snow environments. So a long way to say that safety and performance have not been sacrificed in the interest
of improves sustainability.
CHATTERLEY: How does it perform in terms of cost Richard? How much more does it cost to produce these? And who - because I know you have a 70
percent one now, who buys these first, particularly, as we've said in a sort of more conscious consumer cost environment?
KRAMER: Well, you know, Julia, you're absolutely right. The cost of the tyre right now we wouldn't go through all the particular cost of what it
does to make that tyre. But right now, I would have you think of the cost in the context of making the supply chain available in the material lineups
available in enough quantities to be able to bring the cost down.
That doesn't really exist today, which by definition might mean that the cost of the tyre is a higher cost right now. But that's OK. We're on the
front end of something. We're trying to lead that as we go through these changes in motilities. We refer to them as faces, fleets, autonomous,
connected, electric and sustainable vehicles.
We are part of that it plays very well to our strengths and to our goal of enabling mobility today and tomorrow. And so the cost is certainly one
thing but we know that will come down as the materials become available.
And in the meantime, we are selling a 70 percent Sustainable tyre online in the United States. And we're doing that as a means to get feedback from
consumers as well. But think of that as the front and of where we're going with this.
[09:50:00]
CHATTERLEY: Absolutely. Look at electric car batteries, the price came down and down and down. It just doesn't mean you don't do the innovation in the
first place. Richard--
KRAMER: Exactly.
CHATTERLEY: --great to chat to you. We'll continue our conversation, no doubt soon. Thank you, sir once again for answering all the questions.
Great, thank you for joining.
(COMMERCIAL BREAK)
CHATTERLEY: Welcome back to "First Move"! With another check of what we're seeing across global markets. Now U.S. stocks still weaker across the board
a little off the session lows Europe also weaker as you can see, though, early on in the session, if you remember, we were down by around 3 percent.
So we are off the lows there too. As we've been discussing all our market sentiment taking a pretty big hit from a fresh drop in European bank shares
triggered by concerns over the health of Credit Suisse, Saudi Arabia, saying it's unable to increase its stake in the troubled firm due to
regulatory restrictions.
Here's a look at where Credit Suisse shares are trading in the United States as well as the price action across U.S. listed Deutsche Bank and UBS
just to give you a sense their banks in the United States also under pressure, once again as well Regional Bank First Republic down sharply
after a rally on Tuesday.
Christine Romans joins us now. Christine this is what volatility looks like. And this is what it looks like I think when investors are looking at
the banks and going what are they holding? And are they going to have to raise capital to shore up their positions?
CHRISTINE ROMANS, CNN CHIEF BUSINESSCORRESPONDENT: Absolutely. And look and this is also shows you sort of how the fear can spread from Europe to the
U.S. I mean, this I really think yesterday, you had some stability in the regional banks and in the overall banks here in the U.S.
And then this Credit Suisse problem in Europe and just malaise in general about what could be under the hood of the banking sector is sort of feeding
the trade or driving the trade here today. You also have this letter to shareholders from Larry Fink from BlackRock I'm sure you've mentioned.
Basically talking about, you know the consequences of zero rates, and so many years of zero rates. And now with new regulations and with sort of
looking at balance sheets and how things fare under sharply higher interest rates, sharply higher interest rates scenario, you just have to wonder
what's out there.
So, a concern generally that the banking sector will remain under pressure in the near term as Moody's Investor Services has already warned the entire
banking system could be remain under pressure, there could be you know, more bankruptcies and consequences in different corners of banking overall.
But that in the U.S. at least this is not 2008 this is not the great financial crisis. This is a solid economy and underlying, you know,
stability in the banking system overall. You're just seeing the fallout from a year of now higher interest rates.
[09:55:00]
CHATTERLEY: Yes, and higher interest rates done over incredibly, a short period of time, after a decade of zero interest rates and easy monetary
policy, I did see like what Larry Fink said, and I thought it was very interesting, the price we're paying for decades of easy money.
And you and I've been saying for a year, there were going to be digestion issues. And as you see some of this money pull away now, and people be a
little bit more cautious about what they're doing. Certain things are being exposed.
Be it a concern that FTX and now concerns about what's under the hood to use your terminology at the banks. We have about 30 seconds left.
Christine, do you think the U.S. banks will be down today if Europe went down?
ROMANS: I don't know. I think they might have stabilized if you're down.
CHATTERLEY: Yes, I agree.
ROMANS: I think there's fear and there's fundamentals. And I think yesterday, we were looking at fundamentals again, and today we're looking
at fear that would be my takeaway. Would you agree?
CHATTERLEY: I would, as always, Christine Romans; I should ask you with a negative rather than a positive. Great to have you on, thank you. Christine
Romans there. That's it for the show. "Connect the World" with Becky Anderson is next, we'll see you tomorrow.
(COMMERCIAL BREAK)
[10:00:00]
END
