FROM YOUR PERCH I KNOW A LOT OF RIVALS AND YOU ARE LOOKING AT
THE HOLES THIS MAY CAUSE IN THE ECONOMY AND THE CREDIT MARKETS.
WHAT ARE YOU MOST CONCERNED ABOUT WHEN YOU LOOK AT HOW
REGIONAL BANKS ARE FARING? DANIEL:
OBVIOUSLY A TOUGH DAY FOR THE REGIONAL BANKS.
PEOPLE WERE HOPING YESTERDAY'S NEWS OF FIRST REPUBLIC WOULD'VE
PUT A STOP TO THAT. YOU HAVE TO REMEMBER THERE'S
BEEN NO CREDIT ISSUES IN THE BANKS YET.
THAT CREDIT IS AN OVERHANG. LOOKING AT A RECESSION.
THE SECOND HALF OF THE YEAR, HOW SEVERE WILL IT BE.
WHAT RISK EXISTS ON THE SORT OF BANK BALANCE SHEETS.
YOU HAVE THE FURTHER OVERHANG OF WILL THERE BE AN INCREASE OF
REGULATION. WILL THEY MAKE ACCEPTABLE
RETURNS FOR THEIR INVESTORS. I THINK THE BROAD THING PEOPLE
ARE WORRIED ABOUT, WILL THAT RESOLVE IN CREDIT CONTRACTION.
IT'S BAD FOR THE OVERALL ECONOMY AND PRESENTS AN
OPPORTUNITY FOR FOLKS IN OUR SHOES.
>> FIRST WE'VE BEEN GOING THROUGH THIS FOR WEEKS NOW.
THIS IDEA OF THE PAIN THE REGIONAL BANKING SYSTEM.
YOU SEE THE BONDS AND STOCKS. THE RECESSION FEARS GO INTO
2024 AT THIS POINT. DOESN'T MEAN THE SYSTEM WILL BE
UNDER STRESS. THE REGIONAL BANKING SYSTEM
THROUGH THAT TIME. DANIEL: IT COULD BE.
IN MY MIND WE CAN HAVE THE DEBATE ABOUT HOW MILD OR SORT
OF HOW SEVERE. I DON'T THINK IT WILL BE OVERLY
SEVERE. BUT THE CONSUMER IS STILL
PRETTY STRONG. OTHER RESULTS FROM CONSUMER
FOCUSED BUSINESSES THAT WERE SHOWING STRONG NUMBERS, PEOPLE
SPENDING MONEY. I THINK THAT SORT OF DELAYING
IT A BIT. A LITTLE BIT OF SOFTNESS IN JOB
NUMBERS TODAY. I THINK THOSE NUMBERS ARE WELL
BEYOND ANYTHING WE SEE. ON THE ONE HAND THE ECONOMY IS
PERFORMING BUT THERE'S CONCERN ABOUT WHAT'S THIS GOING TO LOOK
LIKE AND HOW WILL IT PLAY OUT? SONALI:
A LOT OF TALK ABOUT BLACKSTONE, APOLLO, PARTNERING WITH A LOT
OF THESE FIRMS. PACK WEST GOT THAT PRIVATE CREDIT LINE.
IT'S COLLATERALIZED BUT PACK WEST IS ONE OF THOSE BANKS
FALLING HEAVILY TODAY.
WHAT ARE THE LIMITATIONS AND OPPORTUNITIES WHERE YOU CAN
INVEST? DANIEL: OUR BUSINESS ON THE PRIVATE
CREDIT SIDE HAS A NORMAL BUSINESS.
WE HAVE ALMOST $40 MILLION ASSET BASED FINANCE.
WE HAVE 40 PEOPLE DEDICATED TO THAT FOCUSING ON THESE ASSETS.
MORE THAN JUST HARD ASSETS. WE CAN LEND MONEY, PROVIDE
SOLUTIONS AND CAPITAL. I THINK THAT WILL CONTINUE AND
IT'S A GLOBAL POINT NOT JUST A U.S. POINT.
AS BANKS GENERALLY STRENGTHEN AND STEP OUT OF LENDING
BUSINESSES, PRIVATE CREDIT CAN FILL THAT VOID.
THAT'S BEEN A BIG STORY FOR YOU ALL FOR SOME TIME. SONALI:
WHERE WON'T YOU TOUCH? WHAT IS TOO RISKY FOR YOU?
DANIEL: A LOT OF PLACES ARE NOT OVERLY
FOCUSED. I THINK AS THE U.S.
CONSUMERS PERFORMING WELL, OF THE DEEP SUBPRIME THAT'S NOT
FOR US.
I THINK THERE CERTAIN LONG DATED NEW ENERGY RELATED
RELEASING ASSETS FOR US. I THINK WE'VE GOT AREAS OF REAL
EXPERTISE WHETHER IT'S IN AUTO, OTHER LEASING TYPE ASSETS.
I THINK IT'S A MARKET TO BE MINDFUL ABOUT RISK BUT I THINK
THERE ARE OPPORTUNITIES THERE. SONALI:
CONCERNS ABOUT RESIDENTIAL REAL ESTATE? DANIEL: I DON'T REALLY.
THAT WAS THE STORY IN 2-2008. IT WAS EASY FOR ALMOST ANYONE
TO GET A MORTGAGE. IT'S BEEN DIFFICULT FOR ANYONE
TO GET A MORTGAGE IN THIS COUNTRY FOR 15 YEARS.
THERE HAS BEEN VERY LITTLE SPECULATION.
I THINK THERE IS A LACK OF AVAILABLE HOUSING STOCK AND I
DO NOT THINK A LOT OF PEOPLE WANT TO SELL THEIR HOUSE IF
THEY HAVE A CHEAP MORTGAGE TO GO TO A HIGHER-PRICED MORTGAGE.
BALANCE KEEPS THAT IN CHECK. THERE WILL BE CERTAIN MARKETS
THAT GET HIT BAD. I THINK IF YOU LOOK TO WHERE
THEY WERE IN 19 YOU REMOVE THE COVID RUN UP, IT WOULD BE STILL
NET POSITIVE. SONALI: LET'S TALK WHAT THE SAFEST
MARKET POTENTIALLY, YOU LOOK AT WHAT'S HAPPENING IN WASHINGTON
AND THE DISCUSSION AROUND THE DEBT CEILING, WHAT CONCERNS YOU?
WHAT RISK DOES THAT POSE TO THE FINANCE MARKET? DANIEL:
YOU WILL HEAR A LOT OF THE DEBT CEILING IN THE NEXT HANDFUL OF
WEEKS. I THINK FOR A LONG TIME THAT
WAS AN ISSUE THAT WOULD NOT GET SOLVED.
THERE WOULD BE A TIME THAT IT WAS DEBATED.
I THINK BOTH PARTIES ARE POLARIZED ON THE TOPIC.
I THINK THAT WILL WORRY THE MARKET.
THEY TALKED THIS MORNING ABOUT A MEETING TO ADDRESS THAT.
BUT IT WILL CREATE VOLATILITY. I SUSPECT IT GETS SOLVED BUT IT
WILL CREATE VOLATILITY. THE MARKET IS NOT ALIKE THAT
BROADLY. THAT'S PROBABLY GOOD FOR FOLKS
WHO HAVE CAPITAL LIKE US. WE CAN STEP IN, TIMES WHEN THIS
CAN SHINE. I THINK THAT VOLATILITY WILL
CONTINUE. PROBABLY THROUGH THE REST OF
THE YEAR. SONALI: WHAT DOES THIS MEAN FOR THE
RIPPLE EFFECTS ON THE FINANCIAL MARKETS A LARGE?
ARE YOU REALLY WORRIED HERE?
>> ONE IS SHORT-TERM AND ONE IS LONG-TERM.
THE DEBT CEILING WILL BE THE CONVERSATION SHORT-TERM.
MAYBE WITH THE MOVE WAS. I THINK THE REGIONAL BANK ONE
WILL PLAY OUT FOR SEVERAL QUARTERS, SEVERAL YEARS.
THE BALANCE SHEET POINTS YOU HAVE THE REGULATION POINTS,
THERE'S PLENTY OF REGIONAL BANKS THAT ARE STRONG.
I THINK THE MARKET NEEDS TO GET COMFORTABLE ON WHAT RETURNS
THEY CAN GENERATE FORWARD. I THINK ONE SHORT-TERM AND ONE
IS LONG-TERM. SONALI:
WHAT IS LEFT TO BREAK AS RATES RISE MORE? DANIEL:
I THINK THE FED HAS BEEN ON THIS PATH TO RAISE RATES.
I SUSPECT THEY WILL WANT MORE COMING.
MY BIG WORRY A MONTH AGO OR TWO MONTHS AGO WAS THEY WOULD
CONTINUE RAISING. I THINK AT SOME POINT THE
SHORT-TERM WAS AT 6%.
YOU GET REAL STRESS ON THE REAL ESTATE OR THE CAP RATE.
I THINK THE FED STOPS AFTER THE 25 BASE BUT HOLDS STEADY THERE.