Closing Bell - Closing Bell Overtime: Markets Stage Late-Day Comeback After Swiss Officials Reassure On Credit Suisse 3/15/23

Episode Date: March 15, 2023

The Nasdaq eked out a gain today for its third straight positive session, while the Dow and S&P 500 finished negative but well off their lows. Canaccord’s Tony Dwyer and former PIMCO Chief Economist Paul McCulley discuss what the recent market moves mean for the Fed next week while our Hugh Son discuss the latest moves around Credit Suisse. KBW CEO Tom Michaud discusses the regional banking sector as investor worries continue to plague the stocks. Plus, former Wells Fargo CEO Dick Kovacevich talks how to run a bank during a crisis and former SEC Chair Jay Clayton on new investigations from the DOJ and SEC into Silicon Valley Bank. 

And who knows what happens tomorrow? That is the scorecard on Wall Street, but winners stay late. Welcome to Closing Bell Overtime. I am John Fort with Morgan Brennan. And we've got the full coverage of the new banking fears unfolding in Europe and the impact on markets and your investments. And we've got Adobe earnings just minutes away. Also coming up this hour, we're going to talk to former Wells Fargo CEO Dick Kovacevic and current KBW CEO Tom Michaud about contagion risks and the stability of the global banking system. Plus, former SEC Chairman Jay Clayton will join us to talk about Silicon Valley Bank and news that the Justice Department and the SEC are now investigating its collapse. So let's get straight to the news out of Europe that sparked today's sell-off and

the headlines this afternoon that partially turned things around. CNBC's Hugh Son is here to explain what's going on. Hugh, why does Credit Suisse matter for U.S. depositors, U.S. investors, and is it because incidents like this scare the whole banking sector and scared banks lend less? Hey, John, yeah, there isn't that direct a correlation for U.S. deposit holders. They're actually, as my understanding, really not, you know, wealth management, you know, clients. That's more for the Europeans. You know, if there's a presence in the United States, it's through investment banking. And so if you see the big American banks sell off today, that's because, you know, Credit Suisse is a global, financially important institution.

It's got relationships with all the big banks, Goldman, J. Morgan, B of A. And so if it starts to teeter and gets closer to an incident, then you're going to see the repercussions pass through to the other big global investment banks. It's a developing situation. We've had just in the past hour or so, the market came back slightly, I'll say slightly here, but news that the Swiss National Bank could provide Credit Suisse with liquidity if need be. I guess walk us through what that process could look like and whether that shores up the confidence levels for the banking system globally more broadly,

given the fact that things are fragile. So, Morgan, the headline out of the Swiss authorities essentially is that they're saying, look, this is an institution that is well capitalized, but if necessary, we are ready and willing to provide liquidity. In other words, their coffers are open for Credit Suisse if it gets closer to an incident. However, this doesn't give me the sense that the story is ending. Another headline, and I'd be remiss not to mention this, Bloomberg has just reported an hour ago, first of all, that the backstop was in discussions, and that part ended up being very true very quickly.

The second part of that is this is something that's been talked about for a long time in context of Credit Suisse, which is, you know, they're not, they don't have the scale necessary. They've been foundering perhaps a, you know, forced wedding with UBS, which is another, you know, Swiss lender and the bigger one. So a forced sort of, you know, nuptials creating a national champion would be the solution, the end game for the situation. That was reported by Bloomberg News. Again, this has been long rumored. And so, you know, there are potentially other issues to drop in terms of this story. Is the read through here the common thread? Yeah, Credit Suisse is a whole different size bank than Silicon Valley Bank. But banks that had flaws, with all this pressure coming to bear with

interest rates, it's causing those flaws to turn into cracks, and perhaps those cracks turn into ruptures for the entire market and banking system. Yeah, yeah. There's some very different things about Silicon Valley Bank and Credit Suisse, obviously operating in different parts of the world. I think it's very smart of you to point out the commonalities, however. And if you look at the situation with Silicon Valley Bank, they suffered an exodus of deposits. That was a fatal blow for them. Credit Suisse, they're not being helped by the fact that their revenue base has collapsed. And by the way, in the fourth quarter, they lost 37 percent of their deposit base. And really, that puts pressure on the entire enterprise. And

that's where we are today. So there are more similarities than there are differences, I would say. All right. Explaining it for us, Hugh Sun, thank you. Let's turn now to the global impact we're seeing across markets today and this late session comeback. Joining us is Tony Dwyer from Canaccord, former PINCO chief economist Paul McCulley and CNBC senior markets commentator Mike Santoli. Welcome, everyone. Paul, starting with you, if the banks start doing the Fed's job, which is what I guess some are hoping might happen and maybe the Fed doesn't hike this month, you might start to say, yay, but would that be the beginning of a bad news is bad news era

where banks are battening down the hatches? Would that mean perhaps a greater chance of a hard landing? In the fullness of time in that scenario, yes, but it doesn't have to be that way. What needs to happen right now is that central banks need to stop tightening, not pause to see what's going to happen, but stop. This is the end of the tightening cycle. And the next move would be an ease is the right message because monetary policy is restrictive as measured by an intense inverted yield curve and an inverted yield curve and financial stability do not work together. Just to dig into that a little bit more, Paul, before I get to the rest of the panel, though, I mean, we have the ECB policy decision expected tomorrow. Do you think

the ECB, in light of everything we've seen play out with Credit Suisse, is actually going to stop or are they going to keep hiking? I think they should stop tomorrow. I will not pound the table. They will because that's not my specialty of expertise. But I think the Fed will stop, period. End of sentence. OK, Tonya, I just want to mention quickly, Adobe's report is out. We are going through it. The stock is moving higher at the moment after hours. Okay. A little bright spot there in the after-hours trade after what's been a largely down day for the broader markets. Tony, you've been pretty cautious on the equity markets for a while.

I want to get your thoughts on everything we're seeing play out, whether these are one-offs when we talk about Silicon Valley Bank or even the other two regional banks that have failed in the past week here or Credit Suisse. And I guess just how real the risk here is of contagion or what that contagion could actually mean in terms of recession when arguably you've seen the market today trading like we're going into a recession. Well, Morgan, thank you for having me. So this whole thing, the banking system's in pretty good shape. I mean, there's one-offs.

And I think that the story out of Silicon Valley Bank has more to do with the excesses over the last 15 years that have been built up in the private market and the venture market rather than credit as a whole. But when you add all this up, we've been in the recession camp for quite a while because we follow the money. I like to put aside some of the great academic stuff we do and some of the formulas and quant programs we make. Where are you going to get the money? The banks aren't lending it because the yield curves are inverted. This situation is going to make it so they're going to even tighten their lending standards further.

Money supply has been negative for the first time post-World War II on a year-over-year basis. And the leading economic indicators are at a level that have always suggested a recession. So I think we keep asking the wrong question when we talk about, is the banking system safe? I think it is. The question is, when you're already at full employment and there's been a severe restriction already in money that's probably going to get worse, you still need money to grow and to invest. And the only good news that I can find in this, Morgan, and I think it is the good news, this doesn't happen at the beginning of stuff. This happens when you're already well into the whole event. By event, I'm meaning,

you know, the anticipation of a negative economic backdrop. Yeah. That point within a bear market, arguably, when something or a Fed tightening cycle, when something actually breaks. Mike, how are the markets seeing it today? Because when you see the plummet in price for crude oil, you see gold popping, you see copper coming off. Obviously, we saw the downdraft in equities, though the Nasdaq 100 came back to end the day. It speaks to a recession trade that's been afoot in this market. Right. And it shows you that really the markets had just swiveled in a hurry toward the potential recession risk in a much more directed way than it had been before. And I think really it is the speed with which sort of the storyline change and the perceived threats have completely changed in

the last couple of weeks that it really drives the kind of extreme volatility we've seen in the market implied message. Now, I don't think that means the verdict is in. You know, we've had a couple of these scares. We had two big stagflation scares last year when you put in some lows in the in the in the market. We've also had these periods of time in the last couple of cycles where it stayed, quote, late cycle for a very long time. So I'm a little bit reluctant to say, you know, here we go. Turn over the hourglass. Here's when the recession is going to start. But the market is clearly more on alert for that and more on alert for being sensitive to the potential for central bank mistakes and whether the Fed's going to, you know, kind of plow ahead and do more hikes here or send the wrong message.

So I understand the sensitivity. It doesn't seem like a domestic banking crisis to me. But what it does seem like the behavioral effects of what happened in Silicon Valley are going to be more restrictive of new credit and maybe a little more risk averse than we thought it was just going to be the case a couple of weeks ago. And that's not something that drives more economic growth. OK, now, now, Tony, let me get your sense of what you think investors should do because of all this. I mean, there's if there's even less certainty about how many rate hikes we're going to get, I mean, I think Paul thinks we should get no more, but and when, how should investors adjust their approach to fixed income? Well, at this point, you're not getting 5% on a six-month bill anymore. So that trade is kind of coming and going. But, John,

our policy over the course of the last nine months, really, other than a couple of tactical trading opportunities, has been to be light and tight. By that, I mean light and exposure. So if you can have an extra amount of cash, that's good. A little bit under, more defensive in the benchmark, but not extremely so. Remember, when bad news becomes bad news, you're making that final push lower, which we're expecting. And at that point, if you're overly negative going into that, John, you can't, it's like double buying to get bullish. I want to be able to attack the low. The Fed has raised rates in a historic pace into a generationally levered system. This should play out pretty quickly as we get into the downside. And I think the opportunity, look at the two-year, right?

A week ago, it's at over 5%. Now it's under 4%. That tells you the Fed had gone way too far. Now we're getting close to the point where you can actually use the weakness as an opportunity in early cycle sectors as we come out of this a little bit later in the first half. Yeah. And bespoke today, pointing to the spread between the two year and the three month Treasury yields as another signal, the inversion there as another signal that economic growth is poised to slow. Paul, the word stagflation was just raised. Mike just talked about it. Stagflation scares. Are we poised for that possibility to actually manifest here when you still have inflation that's too high and now you have a banking sector that's in focus as the Fed gets

ready to meet next week? Yeah, I think that we could have a quote unquote stagflationary scenario ahead. I don't think that's the end of the world. It's a consequence of the intersection in cyclical time that we're dealing with. So I don't look at it as, you know, we go back to the 70s, long periods of stagflation and all of that. Right now, effectively, either you're going to get a recession or you're going to get something that smells like stagflation. So I will take the stagflation. And that would be reflecting the fact the Fed's going to say we're not going to push inflation lower aggressively now, even as the economy tightens up on the back of tightening financial conditions. So, yeah, I think that we can get a stagflationary outcome. But it's not your grandmother's stagflation. It beats the hell out of what would happen if we don't deal with this financial instability

and an inverted yield curve, which is simply not sustainable in a normal capitalist economy. Okay. Paul, Tony, thank you. Mike, see you in just a bit. Meanwhile, Adobe earnings are out. Stock is up after hours. Frank Holland has the numbers. Frank. Hey there, John. Shares of Adobe up more than 4% right now after a beat on the top line. They reported record Q1 revenue, also a beat on the bottom line, profit 12 cents above estimates.

Adobe also raised its full year guidance. In the release, its CEO said, we are raising our annual targets based on the tremendous market opportunity and continued confidence in our execution. Went on to call Adobe products, which include Photoshop and Acrobat, mission critical to fueling the global digital economy. Looking deeper in the report, the company also beat estimates for digital media AAR. that's a metric of subscription spend of existing customers. The estimate was for $13.63 billion. Adobe came in at $13.67 billion. So again, beats on the top and the bottom line. Adobe also raising its full-year guidance. Shares up more than 4% right now.

Back over to you. Yeah, Frank, it's that raise that has my attention as well, you know, on the top and bottom lines for revenue and EPS. And plus, Adobe's got Adobe Summit happening next week, where it's arguably their big event of the year. We should expect some updates to product. Given the broader economic situation, this is very different, right? Usually you would see this turbulence in marketing spend, but Shantanu and Ryan, the CEO, was telling us last quarter this is a different company because of the cloud moves and the diversification that they've made, right? Yeah, you know, absolutely. I mean, this company

is really focused on offering digital products. A couple quarters ago, they were talking about how important these products were to small business owners. Of course, we saw a lot of small business generation. And as you mentioned, a very different story than we've heard from a lot of other cloud providers, especially those that really depend on subscriptions. For example, just yesterday, SentinelOne reported they were very conservative with their guidance. They were worried about the macroeconomic situation. And that's for cybersecurity, which we all know is in a high demand right now, especially with all the geopolitical tension. So a very encouraging sign to see Adobe raise its guidance, especially when it comes to EPS. Again, I think speaking to what its CEO said in the release, a lot of confidence about their execution.

OK, shares popping 5 percent right now in the after hours trade. Frank Holland, thank you. After the break, we're going to talk to KBW CEO Thomas Schoed about the troubles at Credit Suisse, Silicon Valley Bank and the broader contagion concerns throughout the financial system. Overtime's back in two. Stay with us. Welcome back to Overtime. Credit Suisse shares plunging today, hitting a record low and injecting more uncertainty in the global banking system. That drama in Europe after the failure of Silicon Valley Bank and Signature Bank in the U.S. Let's bring in Tom Michaud,

CEO of KBW, a Stiefel company. Tom, it's good to have you on a day like today. And certainly, this is a developing situation. We've been getting headlines just in the past hour or so that Credit Suisse meets the capital and liquidity requirements imposed on systemically important banks, but that the S&B is saying, if necessary, it would provide credit suites with liquidity. Nonetheless, this is a name that has been plagued by issues for a number of years now. Just how worrisome is this to a banking system that some folks on our air have said today is, quote, fragile? Well, I think this is an important moment for the regulators really around the world, as we're seeing, to bring confidence and orderliness back to the system. The reason why we have global SIFI designations is because these companies are recognized to be

very important to the global system. As we've seen with Silicon Valley and with Signature, it may not be a kind moment for the securities holders of these companies. But as far as for the confidence in the system, I would anticipate that the regulatory bodies are going to make sure that the system continues to function properly. Tom, we saw regional banks in the U.S. take it on the chin again today on this news. So how do the regional banks sort of survive this moment? Is it consolidation, regulation, just better supervision? It's confidence. So remember, we have 4,700 banks in the United States. We have two banks, very big banks that recently failed and failed suddenly,

which I think is a big moment for the marketplace. We have one that just shut down. But by and large, the industry is in very good shape. Clearly, a few management teams did not manage their institutions appropriately through this rate moment. However, the vast majority of the industry is in very good shape. I've probably talked to more bank CEOs in the last week than in any other one week in a long time. And I can tell you, all is generally pretty quiet, but I can tell you the concern level is still high. But what does it take to bring that confidence? I personally believe it's depositors need to know that their deposits are safe and that the federal government via the FDIC is going to do what it needs to do to create the liquidity for these regional banks to meet every demand for a deposit. It's the reason why the FDIC was established. A whole banking can do things on your phone, we can see and we have seen in the past week just how quickly a situation can reverse and a failure can unfold. That being said, this notion of regulators stepping in to shore up

deposits and backstop deposits, how big of a gamble is this? Because, yes, maybe it injects confidence into the system and it injects confidence from from a consumer and from a bank customer standpoint on the one hand. But on the other hand, you're starting to you're starting to move into nationalization, federalization territory where the where the American banking system is concerned, or at least the appearance of it, which is something Roger Altman brought up on our air earlier today. Yeah, so I think it's a couple of things. I think number one, when things calm down, we're gonna have a very robust conversation about how the structure of regulation is gonna be in the future. And my expectation is the banking industry

is gonna welcome that because we want confidence to be high. I think in the near term, what I've heard is that the Fed has been very accommodative for the industry to meet any demands for liquidity in this moment. So we certainly need that and more of that. But I do think if we get to the next gear, my opinion would be to try to use tools that have been used in the past to possibly temporarily put in place better guarantees, more guarantees to make sure that depositors across the country

have confidence. They should have confidence today because the industry is quite sound. But if we get that extra gear, I think the government should do all it can take in what is becoming, I think, a little bit more of an uncertain economic outlook just to make sure that the banking system is sound and steady. Tom, is net interest margin in big trouble? It seems like just like SVB was blindsided by the implications of rapid rate hikes, maybe depositors were too, but now they want theirs. I think we're going to do an entire revaluation of our earnings models once we get through these couple of weeks. Whatever we thought a week ago is not the case now. I mean, I think that, yes, the story is about the banking system, but the bigger story

is there's a lag effect to monetary policy and there are going to be unintended impacts. You never really know when it's going to happen. And we're just seeing one right here, right now. I'm sure there'll be continued pressure on the economy as rates go higher. And I think we're just seeing one right here right now. I'm sure there'll be continued pressure on the economy as rates go higher. And I think we're going to have to absorb all that information. But I also would say the more pressure that comes on the banking industry, the harder it is for banks to make loans. And look, these mid-sized and smaller banks are the leading lenders to a lot of small businesses in the country.

I would remind everyone who are the engines to deliver triple P to the economy during COVID. It was not the big banks. They were helpful. But it was really the mid and small banks that drove that distribution. And what's very interesting here, too, is there was a 40 percent increase in deposits from the end of 2019 to 2021. The biggest increase I've seen in my career that led to this moment really almost was Silicon Valley because he had all these deposits that came into the system. The vast majority of the industry was really, really conservative with how they did that. Unfortunately, we found some examples of some managements who didn't get it right. But the reality is the banking system at this size is very, very important and it needs confidence behind it.

Yeah, perhaps speaking to all the stimulus and an easier money era that is now gone in just a year. Thomas Schoed, we appreciate your insights and I'm sure we'll be talking to you a lot more in the coming days. Thank you for joining us. Thank you. Let's get a check on an after-hours mover, UiPath. Jumping after a strong report, the automation software company reporting adjusted earnings of $0.15 a share. Analysts were expecting $0.06 a share. Revenue also came in well ahead of estimates, as did the company's first quarter and full year revenue outlook.

Now, let's... Yes, man. Yeah. The well-positioned companies are continuing to weather this storm. We saw it with MegaCapTech outperforming today, and now you're seeing it with earnings after the bell. Automation is interesting because it goes to that idea, when you've got fewer heads to do the work,

is there technology that can take over? UiPath moving in that direction. Adobe actually also trying to move in that direction with some AI. Let's get a check on Five Below now to retail with Melissa Repka. Hey, John. So Five Below reported after the bell and it came in line with expectations. For earnings per share, it reported $3.07. And for revenue, it reported $1.1 billion.

But its stock is moving down because of the company's light outlook for the year ahead. It's notable that it came in weak with its first quarter and its full year outlook, despite the fact that the company is opening a lot more stores and pushing into higher price points. So it's opening a concept called Five Beyond, which, as you might guess, is a lot of higher-priced items, but it's still expecting a softer year than investors were. Back to you. All right, Melissa, thank you. Still ahead, we're going to talk more about the turmoil in global financials, and we're joined by former Wells Fargo CEO Dick Kovacevic, who says he believes the U.S. banking industry is still safe. Plus, check out the move in oil today falling sharply. It's the WTI crude down 4 percent, 68.32 right now.

So bouncing back a little bit, but Mike Santoli breaking down the charts on crude and another key economic bellwether after this break. Welcome back to Overtime. Let's get a CNBC News update with Contessa Brewer. Contessa. Hi, good afternoon, John. In Texas, a Trump-appointed federal judge says he will issue a decision as soon as possible on a temporary ban of a widely used abortion pill while he considers a lawsuit filed by an anti-abortion group. That group claims the FDA should not have approved it 23 years ago. In a four-hour hearing, lawyers for the group and for the Justice Department argued over Mifepristone's safety and whether the plaintiffs should have been able to even file this suit in the first place.

The Justice Department says the former head of Wells Fargo's retail banking division has agreed to plead guilty to obstructing a government examination of misconduct in which the bank employees opened millions of unauthorized accounts for customers. NASA has staged its own version of a fashion show today, unveiling the gear that Artemis 3 astronauts will wear on the moon. It says, look, these spacesuits incorporate new technology that allows enhanced mobility while protecting against the moon's many hazards. I mean, Morgan, I'm thinking now, let's just put in my head the thought of a catwalk on the moon.

Why not? Yeah, and I'm sure it would actually probably be a lot more graceful than what we're seeing on our screen right now. But I do love the fact that we have just highlighted these suits because it's coming. Us going to the moon and staying there is coming. It's about time. Yeah. Contessa, it only took 50 plus years. Contessa Brewer, thank you. Canadian Pacific bucking the sell-off today, finishing up 5%. The Surface Transportation Board, a key rail industry regulator, approving Canadian Pacific's $31 billion acquisition of Kansas City Southern. The approval coming with some environmental and competition conditions, including a seven-year

oversight period, and the STB holding a press conference, first in the board's history, to discuss the decision, given increased scrutiny about this deal and concerns it will increase safety risks as more freight moves through more communities in this tie-up. It's a topic that's an even greater focus just in recent weeks after last month's Norfolk Southern G Railman in East Palestine. The board stands ready. It has the explicit statutory authority to hear those complaints and if the facts are established to enter further orders

to make sure that these communities and these other railroads like metro are protected so the combination creates the first and only freight rail network linking canada the u.s and mexico called cpkc it was struck the deal was struck in 2021 after a dramatic bidding war with canadian national and it combines the sixth and seventh largest railroads in the in the u.s or in north america which together are still the smallest of the Class 1 railroads. The deal is expected to add 800 new union jobs to shorten the average length of trains by just under 20 percent. It's interesting, John, to see shares pop. We actually saw some concern in recent weeks,

given what we've seen with all of these derailments and all the focus and scrutiny on the rail industry more broadly. But at least ahead of that, there had been sort of a widespread market expectation that you would see this deal go through, given the fact that it was a two-year, very complicated regulatory process that involved Kansas City Southern and a voting trust and basically the two railroads combining, but not operating as if they were combined until you got this green light today. So now that process actually happens. All right. We'll see what this bigger company can do with margins. Now let's turn to oil sinking today into its lowest level since December of 2021. Mike Santoli is back taking a look at the energy complex

and one other key economic bellwether. Mike, I can't wait. Yeah, John, not only low since late 2021, but at a level crude oil is actually first reached or most recently reached two years ago. So when you do one of these two year round trips, I thought it was interesting to take a look at a somewhat longer profile here. So that goes back a couple of years. And it obviously had a precipitous decline here. It's a market gearing up for potential big slowdown. You know, some sloppiness in this market, as well as some other commodity markets where you have some cyclical exposure.

And it kind of brought back this right here. That was the late 2018 plunge in oil that kind of goes all the way back also two years before that. And that was right before, remember, the overall markets were throwing a tantrum and the Fed did pivot right at the end of 2018, said no more rate hikes. In fact, by several months later, they were cutting rates. So that's not the only variable, but it's sort of an indicator of where we are in terms of sentiment about the economic cycle and the monetary cycle. Now, take a look at energy stocks relative to semiconductors. This is one I like to check in on once in a while because it's sort of these are bellwethers of two different subsegments of the economy, the kind of high cyclical growth, inflationary and then the deflationary digital

economy. This is the market peak before the covid crash. That's why we're at this date. So you see they've kind of traded back and forth and now oil or energy stocks decisively kind of crack below the level of semiconductors. Now, semis have actually been a pretty good standout here for the last several months. It's one of the areas of leadership coming into this rough patch for the markets that we have to see if it is going to hold up, whereas energy really has surrendered last year's lead. Yeah, you got to wonder how much the CHIPS Act and all the funding that we have to see if it is going to hold up, whereas energy really has surrendered last year's lead, guys. Yeah, you got to wonder how much the CHIPS Act and all the funding that's going to come out of that is helping to create a support for the semiconductor sector. And I think this entire conversation, it's going to put that much more focus on FedEx when we get those results,

because that is a broader global economic barometer of health as well. So we'll be watching for that. Mike Santoli, thank you. Up next, we'll talk to former Wells Fargo CEO Dick Kovacevic, who was at the bank during the financial crisis, about what he makes of the latest turmoil in the banking system. Welcome back to Overtime. Let's get more on the big story of the day. Banks selling off globally over investor worries about a spreading bank crisis. Joining us now, someone who was at the top of the major bank during the great financial crisis. It wasn't so great. Joining us now is former Wells Fargo CEO, current chairman emeritus Richard Kovacevic. Dick, good to see you. So are the banks going to do the Fed's job from here by choking off access to credit?

No. The banking industry is in excellent shape. It has lots of capital. It has sufficient liquidity. We have here a situation where a single bank who is very unusual, There's not another bank like it in the United States or probably anywhere who failed to risk manage their company. And it set off a run, a bank run, a typical bank run. And what happens in a bank run is that no one is looking at the qualities of their institution.

They're taking their money out and putting it into another institution to spread the risk. And then they'll ask questions afterwards. And it's an unusual situation. But when the industry is strong as it is today, it will settle down. And it's there's no relationship between what's happening today than the crisis we had in 2008. Well, I was really just asking about if the banks are going to do the Fed's job then by slowing down access to credit, which some people are saying is a reason for the Fed to pause now. So are you saying that the Fed perhaps doesn't, shouldn't pause to keep inflation under control? No, I think the Fed's going to do 25 basis points. They probably were going to do 50.

They won't do that now. And they will do 25 probably, and then another 25, because the Fed also realizes is this is just a liquidity issue. And you don't want, you don't slow down liquidity by reducing loans. You do the opposite, as a matter of fact. You keep the economy going well and strong.

And it can't. Now, again, the Fed's job is to make sure that there is liquidity in the market. If the Fed is worried about a bank, it may want to stop that bank and stop it from lending money. They're not worried about the financial institutions in this country because they're very strong. They want to make sure that they have the money available to them so they can continue to make loans and serve their customers. And that's probably the most important reason why we have a Federal Reserve, is to provide

liquidity to safe banks when the markets aren't operating appropriately. Yeah. I want to go back to the point you just made that essentially, you know, SVB was kind of a one-off. I mean, we did see three U.S. banks, regional banks, fail in the past week. And I think the question's been raised on whether the fact that Wells Fargo was essentially in the doghouse with regulators and wasn't allowed to essentially grow assets for a time, whether that enabled SVB and some of these

other West Coast banks that have been in focus in recent days to grow unusually fast in terms of deposits and assets, and that that essentially led to their woes. I want to get your thoughts on that. No, not at all. Again, I don't think any other large bank would have wanted deposits from a very narrow, volatile industry like the venture capital industry to be anywhere close to 90 percent of their company. In fact, they probably would have been, at least when I was running the company, I wouldn't want more than 5 percent.

So this is a very unusual situation. It kind of makes your point, is that there are plenty of banks in the Bay Area that could have been doing what SBP did, but he elected not to do it it because it's very risky to have a bank just in this very narrow area with very narrow customers and customers that have a very volatile business model. Is it a foregone conclusion, Dick, that we are now going to see more regulations, maybe an expansion of the concept of SIFI to some of these larger regional banks, given everything we've seen play out? Can I just make a statement? There is nothing, absolutely nothing, that the Federal Reserve, the FDIC, and the California

Financial Institution could not have done to manage SBP. This is so simple to see what was in that company that there is an absolute you don't need anything from Congress to tell these people how to do their job. They failed to do a very simple job of ensuring that there was diversification, particularly in this case, with interest rates, to make sure that this was a safe and sound bank. Yeah. And the lack of hedging around that bond portfolio has been brought up and everything else. Dick Kovacevic, we appreciate your insights

today. Thanks for joining us. My pleasure. Up next, former SEC Chairman Jay Clayton on whether probes from the SEC and the Justice Department into the collapse of Silicon Valley Bank could lead to what we were just talking about, more banking regulations. Stay with us. Welcome back. The DOJ and SEC opening investigations into the collapse of Silicon Valley Bank. This is the FDIC attempts to find a buyer for the firm. Joining us now to discuss is former SEC chairman and CNBC contributor Jay Clayton.

He is currently the non-executive chairman at Apollo Global Management. Jay, it's great to have you on today. I want to start with how usual or unusual is it to see a probe such as this opened up into SVB, given the fact that we saw this cataclysmic failure play out so quickly? And then, of course, reports that senior executives had sold stock, albeit maybe preplanned, but sold stock as this was unfolding. Well, Morgan, it's good to be with you. And let me answer very quickly your question. It's not unusual at all. But let's take a step back and talk about where we are. And I put this into four buckets at the moment. The first is something you mentioned, which is inquiries by the SEC. You mentioned criminal authorities and the like about what happened here and whether there is culpability.

That should happen. It will happen over time. The people who do that, they do a good job at it. The second bucket is an assessment of regulatory oversight, and in particular, supervision, whether the supervision here was appropriate, and whether the regulations that are in place are appropriate for the markets of today. That, of course, should happen and should be regulars. The third bucket is politics. And I want to applaud people from both sides of the aisle who came out in bipartisan support of the swift action taken by the Federal Reserve, the FDIC, and the Treasury. I, for one, believe that this action was absolutely necessary.

And we only had hours to wait before we gave confidence back to depositors across our regional banking system. I applaud them, and it was great to see the bipartisan support. What we don't need are quick political soundbites around my first two buckets. Those things will come out over time, and we should do a sober assessment, in particular of regulation and supervision. And let me just go to my last bucket, which is what do we do today about where our markets are? And I think what we've had over the last 72, 96 hours, however you want to put it, is a bit of a lesson in behavioral economics. Behavioral economics is ruling the day at the moment. We had a classic bank run starting. We stopped it. Today, we had behavior from counterparties to Credit Suisse. We've had the Swiss National Bank take action. What we need to be looking at

is what is happening in terms of people making significant de-risking or dash-to-cash type moves that are destabilizing, and how do we address those? And that's the thing where we should be focusing our regulatory energy of the moment, because continued stability is what we need above all those other things at the time. Yeah. There's a lot to unpack there. But before we do that, the fact that you are the non-executive chairman at Apollo, we do know, and I know from my own reporting, that Apollo is very interested in the loan book for SVB. But we also know, and we've been getting the headlines today, that the government is likely to only sell Silicon Valley Bank to another bank. How do you anticipate this process going, especially given the fact that you do have these regulatory probes afoot and you do have all of these liabilities that are being sorted through as well?

Look, I'm not going to comment on behalf of Apollo here. I'm here as a former regulatory member of the FSOC and the like. What I can say about these processes is when you have operations that need to take place, you need people to actually do those operations at failed institutions. So it is desirable to get the assets and the operations and the customer service and all these interconnections into the hands of people who are able to continue to operate them. That is part of any kind of resolution. And, you know, we're seeing that go on. And when people decide to the extent to which they would like to participate in that, they do think about not just market risk, but they think about regulatory risk.

All right. Jay Clayton, thank you. Morgan, I just think it's so interesting, this moment that we're in where we're trying to figure out how to prevent this from happening again. How much of it is a regulation? Who can even buy the bank? There there's every question you ask, every answer you get from every guest on our network. It raises another question. And I think we're in some ways we're only just scratching the surface on this bigger, broader story. I mean, mark to market accounting. We didn't even get into that yet. So that for another day, I guess. Up next, the after hours earnings movers that should be on your radar.

We'll be right back. PagerDuty earnings are out. Christina Partsenevelis has the numbers. Christina. Well, shares of PagerDuty are moving right now 2.5% higher in after-hours after posting. A top and bottom line beat. The cloud computing firm posted a 6-cent earnings per share beat on a revenue of $101 million. The company still isn't profitable on an unadjusted basis,

which is why investors look to revenue growth to get an idea of how fast the underlying business is growing. And this would actually be the first time PagerDuty actually hit $100 million in quarterly revenue. That's a 29% increase year over year for the quarter. The outlook, though, for the near term coming out a little mixed. Q1 earnings per share beat expectations, but Q1 revenue of $102 to $104 million came in a little light. Stock is up almost 14% just over the last 12 months or so. Today, shares are up 2.3% in after hours. That was my chair. All right. Well, Christina Barsenevelis, thank you. Up next, a closer look at another software stock that was bucking the sell-off pressure all day and closed higher by double digits. Can you guess which one?

After the break. Let's get to one of today's big winners. Productivity software company Smartsheet closed up 18% after a top and bottom line beat and a guide to better margins than the street expected. CEO Mark Modder told me why his largest customers who have billions of dollars in revenue are growing their spend faster than the smaller ones. When you're talking about savings with B's or revenue opportunities with B's, there's capacity to invest behind those. I think oftentimes smaller companies, when they're making decisions about efficiency on 10,000, 20,000, 30,000, they get sometimes boxed out by the larger things in play, like banking. So we're very fortunate to have over 3,300 of the super large companies globally, that's defined as 10,000 employees or more, who are active on the platform.

Big getting stronger is a pattern we're seeing across enterprise software. Mader also said his efficiency message is resonating both with investors and employees. Well, I think the question we can ask any employee is a simple one. Would you rather be in control of your destiny or not in control of your destiny? It's like, I would like to be in control of my destiny. So this notion of generating cash, not being beholden to the rising cost of capital, even people who are not at the executive level understand that concept. And that is something which, again, I'm very grateful that we hit that scale point in our company's life where we can now control our destiny. We can be

thoughtful about those investments we make and not having to go to the capital markets at every turn to make that investment. Well, that about sums it up, doesn't it, Morgan? Having cash and access to it equals control of your destiny in this market. Absolutely. And I mean, it sort of speaks to the bull case, right, for some of these enterprise software companies, the ones that can increase efficiency, increase productivity. Maybe you see companies tightening their belts, but if there is more savings to be had by making those investments,

they're going to do it with those companies. Case in point, the conversation you just had right there. Yeah. I also talked about how he's planning to use AI across their product suite to make features more discoverable, you know, reduce churn, sure, but also give a better, more premium product experience. The companies that are able to do that perhaps accelerate out of this period that we're in. Of course, investors want to think about what comes next. Yeah. Meantime, we ended up dodging somewhat of a bullet here with major averages ending the day well off their lows. The Nasdaq actually turning positive yields lower today. ECB in focus tomorrow. FedEx after the bell tomorrow. That's going to do it for overtime. Fast money starts now.