Banking Crisis | Bloomberg Technology 03/14/2023

Banking Crisis | Bloomberg Technology 03/14/2023

Show Video

From the heart of where innovation, money and power collide. In Silicon Valley, beyond. This is Bloomberg Technology with Caroline Hyde and Ed Ludlow. I'm Caroline Hyde Every Man's World Headquarters in New York, and I'm Ed Ludlow in San Francisco. This is Bloomberg Technology. And a banking crisis to layoffs keeps the tech sector in focus. Caroline. Yeah, from crisis to fundamentals, we

took jobs, we took inflation coming up. Let's talk exactly that. More job cuts at Metro, in particular, the company planning to slash 10000 rolls and 5000 vacant positions. More on the company's restructuring ahead. And we'll have the latest on the

collapse of Silicon Valley Bank and the big three private equity firms looking to snap up the bank's assets. And sticking with SBB well, to take a deeper dive into the state of venture capital and took executive leadership, Trey Stephens, the Founders Fund and former IBM CEO Ginni Rometty. But again, day two of our new time of the show and we look at the market repercussions. What a difference a day makes. As we drive higher on the Nasdaq, this time we see bond yields actually rising after we saw yesterday the collapse in borrowing costs as we anticipated the Federal Reserve that just had to pull back in the face of a banking crisis.

Today, we look at inflation data and we note that CPI is still running hot. It means the Federal Reserve is likely still to have to hike 35 basis points higher on the two year. We also see the KBW bank index really take a sigh of relief. We're just starting to digest the repercussions of SBB, the crisis, and now we're dialing back our anxiety. We're up almost 5 percent on this particular bank index. Flip it on telly where we're also up for a second straight day.

Bitcoin. The reprieve is relentless. We are up another seven percent. We are not trading the highest on bitcoin, the O.G. of crypto ed. Well, since June 2022, look, the CPI print a real driver in the market. Most of the tech names in the Nasdaq 100 are really policy policy sensitive index, higher end video and Apple. The biggest points move is the upside.

Interesting to track the ride share is Uber and Lyft both higher after the California appeals court reaffirmed that a gig worker is an independent contractor, not an employee. Flip up the boards meetup. Ten thousand more staff to be cut. Mark Zuckerberg, citing the economy, shares up six and a half percent. We knew this was coming, but let's bring

in Sara Fryer from Bloomberg News to talk about this, because, Sara, 10000 a big number. What else have we learned about the specifics of this latest round of layoffs? Well, this is this is the second big round, for matter, in the last six months. So I think what we're really hearing from most of our sources is just that the the morale is hitting a low point at the company and workers have had a lot of anxiety about what might come next. And of course, Matt, it is saying that it is still working to continue to restructure the company, including by flattening the organization. They want to make sure that managers aren't, you know, having just a couple direct reports.

They want to make sure that that engineers to managers ratio is a little healthier. And Zucker, Berg's ISE in giving them more ability to release products faster, to be more efficient. They think that reducing the number of middle managers will really help them get there. But this is really about the Zuckerberg ISE year of efficiency. He's all about efficiency. That is what is driving the stock in. And Wall Street seems to like it. They do still seem to like it, even though many of those working at the company still don't know whether they'll be keeping their jobs.

By April, it fell on the tech groups. It's gonna be if you're more on the business line, not finding out till May. From a moral perspective, therefore, moving more to support the buzzwords were interesting. The fact that he's still saying we're going to be investing in artificial intelligence. It didn't feel like he was really

doubling down on metaverse, even though that is still that big focus. Give it. That's been interesting for us to we've really heard that Zuckerberg focus on a has been prominent in in these last few weeks and months, which which has some employees wondering whether that Metaverse mission is as all encompassing as he previously made it sound.

Of course, Oculus sales are. Yes, they are. He says they're strong, but certainly they had to reduce the price recently. There are some indications that it just really isn't catching on among consumers at the rate that they expected. So I think that going all in on a ISE is his next move here and and really relates also to the the business.

I mean, they have to use A.I. to improve their algorithm. They have to use A.I. to make up for the deficiencies in their advertising work because of the changes that Apple made to tracking shares up more than 6 percent. Biggest jump in around six weeks.

Sarah, as you and I have reported, by contrast, morale is pretty much rock bottom with inside meta. Remind us why this is happening now. We had some reporting about the urgency to get these these job cuts done about Mark Zuckerberg and particularly and what he's about today. Well, he wants to make sure that they could meet some lower expense schools. They really want to make sure that they can be a more efficient organization as revenue growth slows. Now, the context here is that these platforms that they've created, Facebook, Instagram, these giants are really not growing as fast as they used to.

They they're trying to grow the attention, but the user base is already very saturated around the world. So they have to come up with other ways to get their profits in line with what Wall Street expects to keep that growth going. And this is this is how they're doing it. And I think that that metaphor really saw an opportunity is not that they have to or else.

There will be some dire consequences for their business. But they saw an opportunity in this moment where a lot of companies are doing this to say, listen, we can do it and it won't reflect badly on us, in fact, will make us look smart. And in time for some agency, when there's an addition to his own family as well as his Mehta family with the Zuckerberg household at the moment about to go on parental leave. Sara Frei, we thank you so much for digging in on the meta news. Now, of course, Metta job cuts makes us think about fundamentals, inflation in particular the CPI print keeping pressure, it would seem, on the Federal Reserve. That's pretty good.

You got more on it? Yeah. Caroline, it does feel like this. The focus is kind of shifted, maybe just a little bit away from the banking fall out back into the idea of CPI.

This highly awaited report from the Federal Reserve frees me from the Bureau of Economics. And this is really important because you are seeing a deceleration inflation. This is good news for the Federal Reserve. For the first time in about a year, economists were bang on estimates of zero four point four percent rise month over month on a yearly basis, a 6 percent rise.

But if the components that matter here, because services inflation is still rising, goods inflation is coming down, you're seeing the shelter costs in particular decelerating. The housing market has been in focus for a while, but commodity pressures are kind of coming back up. You're seeing that in gas prices, in food prices, and that's what the Federal Reserve is going to see as the danger. And that really factors into the repricing that you're seeing into the markets, because after the SBB fall out, Caroline and Ed, you did see the market repriced from a five point eight percent terminal rate over the summer, all the way down to five, five point one percent again over the summer, essentially saying that, look, this tightening cycle is over in just really the last 24 hours, especially with the CPI report, you are now seeing that terminal rates come back higher and higher. Wall Street now split what you have calls from like the city, for example, a 50 basis point hike to really keep the pressure on inflation all the way to the other side of the spectrum. No more of her happy talking about a

rate cut and even the end of quantitative tightening, something that would bode well for a lot of the technology names. And that's why we're seeing the Nasdaq having its best day since February 20. Twenty three of the CIA, pretty great reporting. Thank you. Let's stick on valuations that stick call and fundamentals with CPI with jobs.

Talk to the family offices CEO Mel Lago Messina, an advisory firm. I was saying this one of 14 billion dollars in assets. And I just Mel, reassert your focus here when we're trying to work out the direction of interest rates. What does that mean from your perspective on tech valuations? Well, I think that obviously tech valuations are likely to increase, particularly over a longer period of time. So you're on the tech wall over the next five to 10 years, I think a lot of the issues we're dealing with like inflation are going to be solved through increased productivity and the answer to productivity. Are all these tech companies and tech

processes that are really going to help us become a lot more productive. So I think when interest rates were zero, people were willing to pay everything for growth. As interest rates have come up, the valuations came down. But now you're actually saying, I think we're getting towards the end of a cycle. So I expect that the valuations will increase, particularly because you have so many tailwinds with a lot of these tech strategies.

So, you know, whether we're talking about a guy or we're talking about electric vehicles or we're talking about how far, mind you start to see the activity that's going on in the space, I continue to be a tech bull, but I'm a tech bubble over time. So I think if you think about the next three, five years, we're going to have much higher valuations for these companies. OK. So you're liking perhaps in video that has exposure both to the auto sector, but also the focus. Where are the companies, where the opportunities that you think if you're going to allocate money now, you should be buying? Well, I think there's a lot more opportunity actually in the private space than in the public space.

And I think when you think about the public space, we have five thousand companies, right? When you think about the private space, you have a million companies. And I think the opportunity in the public space is going to be because the public companies are buying these private companies to actually be able to have access to these technologies. Until when you look at Pfizer buying see Jen or you think about Google's investments or Microsoft's investments in A.I., I think that that that's where you're going to see the growth. But obviously, I think the opportunity is much greater in the private space.

Now we think about inflation, we think about the Fed, but I'm looking at some of the move is in the market and earnings is still such a big driver of of individual share moves, particularly in the technology sector. There's this discussion to be had around how the rest of the year looks to tank and whether they're recalibrating the strength of the economy. You saw Mark Zuckerberg cite the sort of longevity of headwinds that his company faces in the economy. Do you think we need to think again when it comes to earnings expectations? Yes, because and I think that's why you're seeing the layoffs in the tech companies, because a lot of the growth had to do with number of subscribers for new customers, new markets that were opening up. And because I think a lot of these companies actually have huge market share, the name of the game is not going to be how many new subscribers or how many clients it's going to be. How can you actually change your business model to create more profitability? So whether you're looking at Facebook or you're looking at any of the media companies, I think the name of the game has changed.

I think what people are really looking for is profits and higher margins. Now you are the former CEO of JP Morgan's private bank. What have you made of the last five days in the banking sector, particularly in how it's hit tech? Well, I mean, obviously, I think from the perspective of JP Morgan, it's been like a birthday party because everybody has tried to take their money out of the banks, out of the other banks, and put them primarily in JP Morgan. So I think that's good news for JP Morgan in terms of the tech sector. I think when it comes, for example, to

the venture space, I think we're going to I think we're going to see maybe lower valuations, which is actually a great opportunity for venture investors. I think what's interesting, and particularly, Caroline, is how we're threading what's happening with SBB, so what's happening in the global economy. The commonality appears to be that tech companies of all sizes are under duress.

Yeah, largely because interest rates are having to go up. They're having to think about costs. That means people and Mel. It also means people who are managing these businesses. You're someone who not only was a very senior at JP Morgan and now running around money in this respect for family offices, but also someone who is on the board, Coca-Cola and Disney. What do you make of executive oversight here and board oversight? I think. I think board oversight has never has never been more important, and I think that especially issues like cybersecurity, for example, are more important than ever. And I think that the kind of credentials

that you need to be able to have and the kind of work that you need to be able to do to serve on these boards has increased dramatically. We Family Offices CEO Mel Lagan Casino. Thank you, sir. My wish come breaking headlines on the Bloomberg terminal.

Caroline AMC Entertainment shareholders have approved a common share increase, issuing new equity to shares, responding inevitably to those headlines, crossing the plane. That will bring you more as we have it. Meanwhile, coming up, we've got so much more to talk about in the aftermath of Silicon Valley Bank calls that still companies thinking about where they could buy up. Apollo Blackstone, KKR eyeing up Phoebe's loan portfolio in particular. And look, as we head to break, we want to really focus in on the bounce we're seeing today on regional U.S. bank stocks across the board. The Reprieve and First Republic Bank and Pat West and Western Alliance as well after they were so heavily beaten down in the last few days. From New York, in San Francisco, this is

Bring. Of course, we'll continue to watch the fallout of Silicon Valley banks sudden collapse. And now, as we understand that Apollo KKR Blackstone is showing interest in Phoebe's loan book, for example. Here to cover all of it is our ISE IBEX. And we now start to understand where

many feel value actually lies. We are. And when you look at it, we have the loan book that is worth more than 7 billion, 70 billion dollars. It's quite large. The question is, will Apollo, KKR, Blackstone, will they start to bid on parts of it or all of it? More likely, you'll see them bid on parts of it, because the idea here and this is great analysis by Bloomberg Intelligence as well here. This is a loan book that has not lost a lot of money. There's a lot of questions and concerns about the quality of the loans underpinning, given that Silicon Valley Bank was so aggressive in courting Silicon Valley and the tech entrepreneurs and sometimes unprofitable companies.

But the idea here is Apollo CAC hair blocks on their credit. They're experts here, their credit experts. So the idea is that if they take on these loan books, they take on these clients and they feel that they could do a better job at managing these loans. But with that said, there are other assets as well, including the venture arm, the asset manager, if you will, on the investment bank that worked on about 90 billion, nine billion dollars worth of deals last year alone. And what's so interesting is we stalled to try and think about what the value is nationally outlines Jason Kelly. We were just talking to Malik. We family offices and she was talking about board oversight and the need for that at the moment. And there's real due diligence going on

while executives were not doing it this time. Yeah. Look, the FDIC came in and appointed new leadership at Silicon Valley Bank. But inevitably, Sonali, there is a post-mortem going on. And what happened and the action that

executives took. What have we reported in the last hour? There are a few things to keep an eye on here, and that is both the investigation that is happening when it comes to Silicon Valley Bank, its executives actions taken before. There are so many critics in the market that say, listen, some of these issues we have known about when it comes to their balance sheet management. But even beyond that, the stock sales from the managers, particularly the CEO, Greg Becker, leading into a lot of the disclosures of information that we had seen before the collapse of Silicon Valley Bank. In addition to that, I would also note, remember, while you have the DOJ and the S.E.C.

forming investigations around the collapse of Silicon Valley Bank and the management of it, you also have the Federal Reserve doing its own investigation of how itself has handled the situation. So really questions all around the board here that the reason we're tracking both threads of the story is even 24 hours ago, we had a key venture capitalists on this program saying we want Silicon Valley Bank to survive in some form because we've always done business with them and we want to continue to grow. Yeah. And I think also people juxtaposing the

decisions that were made in the US with the regulators versus the U.K., you came very swiftly getting a buyer. I mean, at a very rock bottom price. That has to be said. I mean, one pound for SBB occasionally. But what have you made of the differences? Huge differences. And remember, it is a smaller arm when you're looking at the U.K. arm. There's been a lot of questions on Friday morning when we all woke up.

There was a question about half of Wall Street circling these assets. If you take a look to the point that Ed had made, there has been drips and drabs of plans announced on restructuring, but there has been no bankruptcy filing. That's an important differentiation here, because had there been one, then it would be up to kind of the jurisdiction of a judge in that sort of a situation. But now that you have these assets slowly coming up for sale, it makes it a little easier for different parts of Wall Street to absorb these things, particularly in a way that's compliant with regulations and could help them avoid a lot of the 2008 era liabilities that cost firms like JP Morgan a lot of money coming out of the post 2008 investigations. Wall Street is debating moral hazard, as we've been discussing on air all day. Just very quickly, Sonali, how do the banks look this Tuesday? I mean, they're still concerned about the sector, right? There's certainly still concern about the sector. But there was a lot of acknowledgement

that Silicon Valley Bank was an outlier in terms of the way that its deposit base looked and the way they manage their assets. And we have to look at other sectors now also as we weigh the lagged impact of interest rates, commercial real estate that is maybe not as front and center and emotional as Silicon Valley Bank is. But certainly it's a slower bleeding problem. And so we are certainly not out of the woods, though it is a big relief to the market to see the regional bank stops how back up, particularly with the likes of a first republic and some banks on the West Coast, like Western Alliance and Park West, that some of the market was concerned about yesterday. Not a how many cups of coffee you on

today? I won't disclose that on there. I like folks. It's a lot Sonali Basak always there for that caffeinated highs. We thank you so much at. Are coming out. We'll continue the conversation.

The UK's communications regulator says the BBC has to change. We'll tell you why next in talking tech. And as we look as mother move is out there in the market arc, innovation ETF saw its biggest inflows since 2021.

That ETF round up around two and a half percent in the session. We'll dig into the specifics. That's next. This is Bloomberg. Time for talking tech. The BBC has got to change, says Melanie

Dawes, the head of the UK's communications regulator, saying that the public broadcaster should let freelancers who are not involved in news reporting have more freedom of expression on social media. This comes after a high profile row between BBC management and popular football show host Gary Lineker over his tweet, commenting on the UK government's new immigration bill and whether that tweet breached the broadcaster's commitment to impartiality. Meanwhile, Blackstone agreed to by sea then for eight dollars fifty cents per share and the enterprise value of about four point six billion dollars for the event management software company Blackstone has received a fully committed one billion dollar credit facility as part of the financing of this transaction, which it expects to close mid-year. And finally, Cathie words ARC Innovation ETF is getting a strong vote of investor confidence. The ETF attracted close to 400 million dollars of inflows on Friday, according to overnight data compiled by Bloomberg. The largest influx since April 20 21, a

time when the fund hit its all time high during the cheap money era. Caroline, money still going somewhere in this current volatility coming up. And we're going to be talking about what comes next for Silicon Valley banks leadership after its fallout. We're going to be turning to a key focus of leadership with IBM CEO Ginni Rometty, former, of course. She's out with a book on exactly that leadership coming up. And also, let's just dig in a little bit for a moment into the markets, because what a day we're having the Nasdaq having its best day since, well, the beginning of February. CARNEY up more than 2 percent IPO in

next. So we were so worried about IPO exposure. Recent companies have gone public. Did they back with SBB? They're managing to push up higher one point three percent risk sentiment returning a little bit. And certainly in the era of Bitcoin, we're currently seeing twenty five thousand eight hundred fifty is where we trade the highest since June of last year from New York to San Francisco. There's a bit in that.

It's 430 p.m. in London, stocks finishing up the session in Europe. The stock, 600 euro main gauge of equities up one and a half per cent, snapping three straight days of losses, recovery in banking shares, but also getting a boost from energy. More static in currency markets. Euro dollar 1 0 7 after a little bump in trading on Monday session. We do see, though, that kind of yields climb higher story German 10 year burned up 20 basis points, UK 10 year gilts up 15 basis points. A lot of consideration about resetting

for central bank expectations, not just the Fed, but the ECB as well. We'll continue to track those European markets all week, keeping you up to date with the news from around the world. Here's the first word with Mark Crumpton Mark. Thank you so much. President Biden plans to sign a new executive order intended to reduce gun violence. Mr. Biden will announce the move during a visit to the location of a mass shooting in Monterey Park, California. The president is invoking the limited

authority of the executive branch to enter the country closer to universal firearms, background checks, something that he has been unable to get through Congress, although it remains popular in voters surveys. Emanuel McCray faces parliamentary brinksmanship and protests this week over his plan to raise the retirement age. Wednesday, a group of 14 lawmakers from the National Assembly and Senate will meet behind closed doors to finalize a single bill to be presented for a house of both votes. A vote of both houses. At the same time, unions will gather their forces for another day of strikes and protests against the proposed changes.

Credit Suisse CEO or Corner says the bank had seen inflows of client funds on Monday after markets and U.S. banks were pummeled by the collapse of Silicon Valley Bank. So far, it's pretty calm. Even so, material good inflows yesterday still all too. You know, I had a client meeting which was very positive.

And that one. So, so far it's come. But I think it's early days to look at. Mr. Corner spoke exclusively with Bloomberg's Francine Lacqua Global News 24 hours a day on air and on Bloomberg Quicktake, powered by more than twenty seven hundred journalists and analysts in over 120 countries. I Mark Crumpton. This is Bloomberg. Welcome back to Bloomberg Technology AM Caroline Hyde in New York.

And let's keep ourselves up to date with U.S. authorities currently examining the collapse of Silicon Valley Bank for misconduct by officers, including whether stock sales for examples by executives. And she violated trading rules. So according to a source. Want to bring in a big name from Silicon Valley. For her take on all of this. Ginni Rometty. She is a former CEO and chairman of IBM

board, member of JP Morgan. And she's out with a new book on leadership called Good Power Leading Positive Change in Our Lives, Work and World. Boy, Jenny, do we need some positive change? What do you make of the focus in particular of oversight of board membership of executive management at this moment? Well, look, I think something I learned over a long time in working with boards, it's never been more important and the importance to have on your board people with all different disciplines. So you just had Mel on earlier talking about the importance of cybersecurity or those that have regulatory experience, et cetera.

So it just goes to show it is a job that everyone really does need to take seriously. You sit on the board of JP Morgan, of course, one of the only big bank with still the same CEO. From the crisis era was still that management oversight. And I'm interested in what you'll take us from a banking perspective of these three almost overnight collapses and what this means for the sector in general. Well, you guys have been reporting on

it, and I think they'll be you know, there'll be many quarterbacking events taking place after that. And certainly from a regulatory side, obviously, 200 billion. And what changes as a result of that bank that size versus the systemically important banks management decisions? You just alluded to that. And then I think will be interesting,

the discussion about the role technology played in whether it was in the quick dispersion of facts and things that were not true. Some of the same technology that really Silicon Valley being brought to life. And then I think at the end of the day, it says a lot about really what we all have to do now with the venture venture cap community. And I think it's going to make difficult for some parts of the V.C.

world that it was already difficult for like women back to the seas. Right. Which was it's only maybe 2 to 3 percent of the whole community. Now it's even less. And what this will mean is more conservative.

And people then tend to do business with who they know. And so networks typically then have less women in them. So I think there'll be unintended consequences like that to come to. It's interesting you bring that up. Four hours ago, we had someone on saying that. But also pointing out that so many founders, diverse founders from minority groups, women, it was Silicon Valley Bank. They would often write the first check.

You had a storied career, IBM, you know, the world of technology. Do you have any experience of working with SBB and what their role was in the valley? Well, certainly worked with many and bought many companies. Right. That that they had certainly helped launch. And by the way, there are other V.C. firms.

I mean, another one, a great one. Rethink is one that invests in just women, the largest woman owned V.C. firm in this country and women only investments. So I think, you know, my experience has been positive and that there've been many, many good companies that we acquired. It appears the world of technology is under duress at the moment. There aren't many positive headlines. Do you share that assessment? Well, look, I just I think when you say it's under duress, I think to paint it all in one brush is probably not exactly right. And I talk a lot about it in the book in

that everybody eventually has to have a chapter two. And I think that's what you see happening with a lot of companies. We've had chapter two, three, four, five, six. Yes. So I certainly learned that point of reinvention and learned about that balance of growth and efficiency that has to happen. And so to me, this is just this Chapter 2. And, you know, it can be very dangerous

when somebody attacks your profit pool as an example. But this is a bit of growing pain, and I think that's what you see happening in parts of the market. Jenny, there was one opinion piece that I saw that caught my attention for more reasons than one. And I wanted to get your perspective on some of the criticism that has been leveled at so-called diversity. Well, destruction on the board of SVP, what do you make of that as someone who basically thinks a lot about diversity on boards and in executive management teams? Yeah. Look, you know, in the book, Good Power and you saw with its name was which I actually named in retrospect, actually have a whole chapter dedicated to something called Good Tech, which on one hand talks about ushering new technologies in safely.

Like a I like you've had a lot of discussion about chat. BPT And on the other side of it is this point about I only use the word diversity because to me diversity is a number. Inclusion is a choice. And I always said I lived exactly at the intersection of society and business. I need a good workforce.

I authentically believe a diverse workforce is the best workforce that gives you the best products. And so I don't view this as anything other than doing what is, you know. Yes, right for society. Right for community, but right for my company and for the products and the customers. So I think it's a shame to miss place that focus on it. To me, it is all about having a better company and it's about culture. And at the moment, we look at the

headlines coming from matter, having to lay off another 10000. Talk to us a little bit about your experience and having to pivot business models, having to lay off people. What do you think can be done by Mark Zuckerberg? Look, first, I would say whenever you have to lay off people, it is a very hard thing. So put that point aside, because these are real people, real families that you impact. No one likes to do it.

But I think the other thing when I just mentioned that about this is act two for many companies. People often think about what they do, how they do their work. I write a lot about this in the book. Is just as important how they do it. So in other words, you have to be more efficient. You have to do things faster consumerism. But then also how you do it with the

workforce I think is probably the most important thing. So how tough things are done. And again, I almost think that's the subtitle of the book, which is about doing hard things.

But doing them in a good way doesn't mean you don't drive. I mean, Caroline, what jumps out at me is how quickly conversations change. Ten days ago, we're fixated on artificial intelligence.

SBB happens. No one utters those words. And the health of the tech sector gets called into question. What do you I mean, where do we go with this, Carol? I know the focus has to return on ultimately business models on a time where interest rates go high. You have to do more with less. Jenny, you pivoted IBM to focusing on artificial intelligence, on the rebirth of cloud. What do you make of this fascination

with Chachi Petey and the hype cycle that was around it? Yeah. Look, I think what it calls this is not going to be a technology issue. This is going to be a trust issue. I feel like I've learned so much over the last 15 years that trying to bring a guy into the world and there's all different kinds of A.I. and I'm a little bit afraid. This gets all brushed with one brush of chat GP, because while it can do some wonderful things, as I think we all already know, you can get things that are factually incorrect, but they sound authoritatively correct. So to me, what I'd love to see now. It's wonderful that everyone's thinking about A.I.

because I think it can do so many good things. I just don't want the downside now to push you decide, which tells me that anybody both using it anybody or building it to think about the up and the down at the same time versus let's look at all the good things and bad things to take care of. This would be different now. Bring it in. Thinking about both at once.

And so, you know, the recession up for an education. All right. Archie Beatty, as an example, kids can cheat on their tests. I would have loved even a small thing at the same time to have come out, which was an app that said, you know, this might have been created by Chachi Beatty. Now people are building those now and there's discussion of water marking. But the point is that people understand what it's good for, what it's not how it's trained. I mean, look, it's trained by the good

and bad of humanity. Now, there's other kinds of A.I. that you train very carefully. So there's such good. And so this is now about my view, building trust in that technology. So we really get its benefit. We we brought the discussion back. Caroline Hyde artificial intelligence just for a minute. Ginni Rometty, former CEO and chairman of IBM, thank you so much for your time.

And coming out and make your check out Jenny's new book on leadership called Good Power Leading Positive Change in Our Lives, Work and World. Coming up, more on Silicon Valley Bank, the fallout from a major player in the tech startup world and how these sees are dealing with what to do next. Trey Stephens from the Founders Fund joins us here in S.F.. This has been the.

Over the weekend, all the firms, including us. We had put together plans to land capital from our balance sheets to help these companies make payroll. I think that would have at least over the crisis for a couple of weeks while the right solutions were in place. That was General Catalyst CEO Herman Teenager there talking about his firm's plans to provide funding to portfolio companies over the weekend and beyond. And as the Silicon Valley bank meltdown

was unraveling, other D.C. firms were also quick to react to protect themselves and protect their portfolio companies. For example, Founders Fund and Delight, say Founders Fund partner Trey Stephens is here with me on set. Let's go back to basics. When did you realize something was wrong potentially with Silicon Valley Bank and take action? I think it goes back for over a month where some of the news started coming out about a potential issue with the balance sheet at SBB Wednesday night. Obviously, there was the announcement about additional funding and coming into Thursday morning. I think there was this recognition that things were going to move very quickly. And it's really hard to overstate just

how quickly things moved in the first few hours of Thursday morning. So Bloomberg had reported that found his fund had pulled its own operational cash, I suppose, from Silicon Valley Bank. And then there's the consideration around what portfolio companies should do. What was the decision that a course of action that the Founders Fund thought best? Well, the first consideration is the fiduciary duty to our peers. We want to be in a good position with heart, with our cash.

So we were doing the right thing for for those those investors and then also doing as much as we could on the portfolio side of things, too, to shore that up and communicate that we thought there was some risk that they should be looking into the communication. Trey, it's such a difficult balancing act when Silicon Valley is ultimately a very small space. What do you make of the criticism and the worry around social media and the amplification of the fear? Come Wednesday, Thursday? Sure. I mean, I think obviously there's a lot

of, as you say, communication risk that you take in, you know, making sure that your portfolio companies are aware of what's going on, that they have the information they need to make the best decision possible. You know, certainly even on art and it was about prioritizing the stack of our portfolio. Like how do we communicate with as many of them as possible to give them a fighting chance? And I think our biggest regret in the whole situation is that we weren't able to talk to all of them before the situation and kind of already unraveled by the time the SBB CEO gave his press conference at twelve thirty on that day.

Any regret around just how SBB was seen in that moment? You know, I don't I don't think any of this was about like a judgment of SBB, obviously they've been a great partner in Silicon Valley for a long time. And we have close relationships with many people at the bank. And, you know, I think for us it was about being intellectually honest and having a conversation about, you know, what we needed to do to do the right thing. As I said, for our peers and for our portfolio company is kind of by the amount of exposure that they had to this as well. And, you know, these people aren't responsible for what happened at SBB, and they just had to do the right thing to make sure that they can make payroll. ISE Heyman said in the video that you guys played at the outset.

Yeah. Interesting him on. He's one of a collective of venture capitalists that hope they can continue to do business with Silicon Valley Bank and its reincarnated form. He's found his share that hope. I think we're certainly open to continuing a relationship with whoever ends up being the right player and partner in Silicon Valley moving forward. Obviously, the biggest concern at this point is that it seems like there's been a sort of a bi friction that's happened as a result of the response of the federal government where, you know, there's like regional banks on one side and you have the you know, the big banks on the other side and making sure that our companies are diversified to the extent that they're going to have a good Treasury plan that protects the deposits.

That's good. That's what you will focus on. Some in some sense, defense and defense related technology. Does all of the energy in that subsector just stop now or do you continue writing checks? Do you continue to see rounds in that space in particular? I don't really perceive that there's going to be any shift in the way that we as a fund think about making investments. Certainly there is macroeconomic headwinds that we've been facing for the last 18 months or so, but the government continues to be a customer. The you know, the world must go on. And I think for the sectors that I'm personally most interested in, kind of these are the intersection of technology and strategic industry. These things are going to continue largely as they as they have been for a long time. Because you're exactly chairman

co-founded Angel Industries. You're also on the board of Flex Board at these critical infrastructure players as well. I'm just interested in your experience with government.

I mean, your career was started with a congressman. How do you think government has reacted? Are you specifically asking about SBB or to the changes in the technique? Is this a benefit ultimately to come in and support the situation, whether it be from the depositors perspective and indeed just ultimately the view of government and technology at large? Yeah. Well, I think the most inconvenient thing about the the situation last week was actually the name of the bank. You know, it got instantly politicized. I don't think this was political at all. I think the government did what they needed to do to protect and shore up these smaller regional banks and to ensure that there weren't any further runs. And so it seems like they acted quickly.

They did the right thing. And hopefully that stability is going to play it play itself out in the coming weeks because it's your area of focus. What is stopping the public sector, the military from adopting the best in technology, the best in class technology from Silicon Valley and the other areas you look at? Sure. I mean, I don't necessarily think it's about geography. I would say most of the best technology company is working with the government are not based in San Francisco. But you know that the primary thing that's been problematic is not policy. It's not the authorities in the

procurement system. It's just culture. The government hasn't been as forward leaning and understanding that they need access to the best talent possible to build things that are relevant to the fight in the future. And these are largely software problems. And I think most top talent software engineers are likely to be optimizing ads and not sitting in concrete basements. Building the future of the DVD has to building the future even in this current scenario. We want to thank you so much.

Spending time with US Founders Fund partner Trey Stephens. Meanwhile, coming up, Uber, Lyft or DASH shares jumping today after a California appeals court upholds the current law, which classifies gay workers as independent contractors instead of employees. More on that next. Back.

Rubin left another gig, economy companies scored a victory after a California appeals court upheld the current law, classifying gig workers as independent contractors instead of employees. Boomer Jose Rosenblatt Covid NIKKEI Joel explained the appeals court decision. The appeals court decision is actually it's complicated, but the upshot is that. The voter approved initiative that the ride hailing companies bankrolled in 2020 is voter approved. And there's there's nothing.

There's nothing to do about that. That's that's that's the ruling in a nutshell. OK. Ultimately, is there any further argument to be had, any further changes that need to be made by Uber and Lyft, or is business model free to run the business model? Is there arguing? The ruling says that it's free to run. There will be other challenges.

There have been in other states and worldwide, including in London. So it's not that it's not just over, but in the states. This is a this is a significant ruling. I haven't heard back from the A.G. yet. The attorney general who has sued Uber over this and Lyft. It's not unclear if they're going to appeal to the state Supreme Court yet. They may not.

But to clarify, Joe, that is an avenue open to them, technically. That is that that's an avenue open to them. I think a voter approved initiative just a step back for one very brief moment. The ride hailing companies that pay 200 million dollars in their ad campaign to initiate this proposition to do an end run around state law.

And they got with all that money, they got the initiative passed a voter initiative. And there's not much to do about that, I think, illegally. Joe, great to have your analysis. We thank you, Joe Rosenblatt. As he waits for that call from the A.G. Moema, that does it for this day 2 edition of Bloomberg Technology Beyond the Bell 9 a.m. yet. Yeah. And you can recap day two on the podcast. I ha.

Apple, Spotify, Bloomberg, wherever you get your podcast, Carrie. And let's just check in on these markets because once again, we are ripping higher. This is a story of even though inflation runs hot and the S&P, the NASDAQ on the high side, too, is tracking inflation. The Fed all impacting the technology sector. This is been back.

2023-03-16 20:40

Show Video

Other news