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First Move with Julia Chatterley
SVB Bank Shares Suspended for News Pending; Xi Jinping Secures Unprecedented Third Term as President; Unemployment Rate Raises to 3.6 Percent in February; Shares of Financial Firms Pressured Amid SVB Woes; Hospitality Giant IHG says Demand Rebounding Strongly; Asteroid has "Small Chance" of Hitting Earth in 2046. Aired 9-10a ET
Aired March 10, 2023 - 09:00 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
[09:00:00]
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JULIA CHATTERLEY, CNN HOST, FIRST MOVE: A warm welcome to "First Move", great to have you with us and no time for a Friday feeling today. In fact,
I don't know where to start. We certainly need more than two eyes this morning, one eye on strong U.S. jobs numbers. But I have to say they'll
keep us guessing, however, on what the Federal Reserve does next.
I'll explain shortly because the other eye is watching the drama playing out in California where a lender to the tech industry known as SVB
financial, that's going to happen a few times remains under severe stress amid significant deposit outflows. Now take a look at these shares at the
firm tumbling more than 60 percent pre market before the shares were suspended.
And that followed a similar 60 percent plunge on Thursday. I'll explain too, if we can what's happening there shortly to. Now I think the key point
here is its just one bank. And it's a bank that relied heavily on the tech sector for deposits that we know are struggling more broadly and this is
key.
But I have to say its plight has spooked what feels like the entire financial sector. And it sorts of plays into many of those worst case
scenario fears like broader financial instability in a rising interest rate environment, because we still have too high inflation. And that's an even
more pronounced pickle for the Federal Reserve to be in.
But just to be clear, we aren't anywhere near that yet. There are fears, that SVB might be a sign of broader banking problems triggered a sharp
pullback in some of the major U.S. averages on Thursday. In fact, the full biggest U.S. banks losing more than $50 billion in market cap during the
session.
For now, futures are turning mostly higher, a big improvement from where we were a few hours ago. Thanks to those just released jobs numbers. I can
give you a look at Europe too, though European banking stocks are still seeing a sharp pullback, a case perhaps some investors playing catch up
with the U.S. price action on Thursday.
Now the question is, is this all an overreaction tied to the issues at one bank? The irony here, of course is that 24 hours ago, we were discussing
the absolute resilience of the U.S. economy and the need for even higher Federal Reserve interest rates. So my view calm heads perhaps are required
at this moment and keeping that third eye on the fundamentals, which remains strong.
Now the jobs numbers show the U.S. adding a stronger than expected 311,000 jobs last month. The devil however, is in the detail that headline number,
though, at least argues that the Federal Reserve does need to press on with interest rate hikes. The big question, will bank stress give Powell pause
about moving more aggressively in the future?
We're going to answer some of these questions over the next hour. I hope you're still with me. Someone who is with me though, Matt Egan he joins us
now. Matt, great to have you with us! Good luck explaining all of this. The CEO of SVB reportedly urging everyone to stay calm, as the company works
through its funding crisis. Let's just take a step back help us understand what's happening and why investors got spooked in the last 24 hours?
MATT EGAN, CNN REPORTER: Well, Julia, you know, for the first time in a long time, we are witnessing some real concerns about the health of the
financial industry. I think the question is whether or not the situation with Silicon Valley Bank is a one off or if it's a canary in the coalmine?
As you mentioned, shares have been halted pending news we're waiting for news I haven't seen anything put out from the company at this point. The
stock fell 60 percent yesterday six zero down as you mentioned sharply pre market before trading was halted.
Now this comes after earlier this week Silicon Valley Bank they announced that they are raising money in order to meet demand from depositors. They
said that they are selling more than $20 billion of securities raising $2.5 billion to try to shore up their balance sheet.
And you know we are hearing reports about some venture capital firms advising their tech startup invest companies that they've invested in. To
be careful with their money in this bank, which of course raises the specter of you know a run on the bank which is not something we want to
hear but we should note that not all banks are created equally.
You know, obviously Silicon Valley Bank cater to the tech industry which has been struggling significantly. Other banks do not just focus on one
sector. When you think about Bank of America, Citigroup, JP Morgan, all those banks, you know, they have clients who are oil companies and
retailers and media companies and small businesses.
[09:05:00]
So they're much more diversified and they might not be facing the same kind of pressure that SVB is. But at the same time, you know, there's clearly
concern about the broader industry because yesterday we saw that banking stocks had their worst day, in nearly three years, regional banks got hit.
And even those big banks like JP Morgan, they fell sharply yesterday, Julia.
CHATTERLEY: Yes and I think what we always have to remember in these situations is that investors jump several leaps ahead instantly. So in an
environment where you've got concerns with one specific bank, but then everyone looks at them in the situation and says, Oh, dear.
But we're in a situation where the Federal Reserve is hiking interest rates, because inflation is too high. They have to continue to do that. But
if we've got a situation where there's problems in the banking sector, now, what do they do, and I feel like we made all of those jumps in the space of
one trading session, and we need to actually have calm heads and cooler heads prevail.
And the key word that you use, there was diversification, because this bank was so directly connected to your point Silicon Valley to venture
capitalists. All their deposits were taken, or the majority of their deposits were taken from the sector. And when we talk about job losses and
challenges and valuations dropping, it's all really based in the tech sector.
So we're seeing shaking for one bank. And I don't think we can translate what we're seeing for this bank across the broader sector. Particularly if
we compare it to the financial crisis, and the sheer extent of regulation of oversight, stress test, Matt, that you often talk about, that the
banking sector now receives, would you agree?
EGAN: Yes, absolutely Julia, you know, in some ways, it's kind of amazing that we haven't seen this sort of concern about the financial markets,
about banks until now, when you think about how aggressively the Fed has raised interest rates, of course, that has hammered the housing industry,
and it has really hurt the tech industry.
But we really haven't seen any major, major cracks in the credit markets or in the financial markets until maybe now. But to your point, some of this
may be an over-reaction, you know, investors are jumping to the next logical conclusion about what banks could be under pressure as well.
Even though a lot of these banks have different business models, they have different customer bases. And so they're not all the same. But one thing I
should note here, Julia is there's already some talk about whether or not the government should have to step in here to provide some support.
A billionaire investor, Bill Ackman, he was tweeting about how he thinks the government needs to prop up SVB bank here by maybe trying to protect
depositors because of how central the tech community is to the economy. He said on Twitter, the risk of failure and deposit losses here is that the
next least well capitalized bank bases a run and fails and the dominoes continue to fall.
CHATTERLEY: Yes, we've gone through an era of years and years and years where there's always a backstop and we want it to continue. Matt, great to
have you with us! Thank you, Matt Egan there. Now that drama playing out in the banking sector comes as a new U.S. jobs report headline number comes in
much stronger than expected.
The U.S. reporting a whopping 311,000 jobs added in February. That's some 100,000 jobs net higher than Wall Street was looking for. But and it's a
significant one, wage growth actually came in weaker than expected and the unemployment rate rose. Rahel Solomon is here.
It's never simple and we should always celebrate jobs being added. But what we're really looking for in these numbers is whether or not the hints on
the story behind it are inflationary. What do you make of these numbers, Rahel?
RAHEL SOLOMON, CNN CORRESPONDENT: Right, Julia, it's always what it all means, right? So another stronger than expected jobs report, as you pointed
out, where have we heard that before Julia. So 311,000 jobs stronger than expected, as you pointed out, but I should say that the six-month average
is actually closer to 343.
So slightly cooler than that we've been in this range Julia, of 250,000 jobs to about 500,000 jobs being added each month for the last year, with
the exception of a few months where we saw even stronger numbers than that. And essentially what it means is that the U.S. labor market is remaining
really strong, stubbornly strong for some.
And so I would also point you to the unemployment rate, which did take up to about 3.6 percent, the labor force participation rate, the percentage of
the U.S. workforce, actually participating in the workforce that also ticked up ever so slightly to 62.5 percent.
Julia for context, pre pandemic, that level was closer to 63.3 percent. That said, we did see about 420,000 Americans enter the workforce. So that
is good news, because as you know, we have had some challenges on the supply side in terms of labor.
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I want to also show you sectors and then we can sort of parse through what this means. When we look at where we saw the strongest job gains. I think
we can pull this up for you here, Julia, leisure and hospitality adding more than 105,000 jobs for the month of February restaurants adding 70,000
jobs there.
Tech, we should say, tech headlines have been really making the news lately, but tech only represents about 6 percent of the workforce here. So
we did see some declines there. So what does all of this mean? Well, Julia, I think you hit on it perfectly there when you talked about wages, right?
It's not that the Federal Reserve is trying to see Americans make less money, but not necessarily when it comes at the expense of inflation and
wages did moderate 0.2 percent on a monthly basis, 4.6 percent annually. You know, Julia, over the last year, we've seen those annual wages up
higher than 5 percent, right?
We've talked about wages being 5.2 percent at one point. So that is a sign of good news, will this ultimately be enough to encourage the Fed to
perhaps raise rates 25 basis points versus 50 basis points? Unclear because we also get CPI next week, which we know will also be critically important.
CHATTERLEY: Yes, I mean, wouldn't that be an amazing sort of real Goldilocks scenario, if we could continue to add jobs. But you're adding in
this case, I think, lower wage jobs. So it's bringing the average down, the average wage down, and the participation rate is increasing. So that's
pushing the unemployment rate effectively higher? I mean if we could continue like this, then the Fed could do less rather than more and
continue to add jobs?
SOLOMON: Well, you know, it's an interesting point, Julia, because it almost feels as if we're seeing two different labor forces, right? As you
pointed out, we are seeing some job losses in tech, which, you know, presumably tend to be higher paying jobs. But when you look at sectors like
retail, when you look at sectors like leisure and hospitality, which are lower wage jobs, we're still seeing gains there and we're still seeing
wages moderate.
So on the one hand, we are seeing gains, but they're lower paying jobs, presumably. And it also speaks to where we're still spending services,
travel, hotels, and restaurants. So it's a very interesting time to be watching the economy, for sure.
CHATTERLEY: It - keeps us busy. I think it's going to raise comments about this. No landing slow. I'm not saying, but, yes, great points. Rahel, great
to have you with us thank you and - Rahel's point, actually, later, we've got the Head of the Intercontinental Hotels group, to talk to us about what
they saw last year, what they're anticipating this year and of course, hospitality hiring.
That's in around half an hour's time. For now, to China, where President Xi's historic third term has been officially endorsed by Beijing's
political elite, making him the most powerful Head of State in generations, as Selina Wang reports.
SELINA WANG, CNN CORRESPONDENT: Julia, in China, the role of President is largely ceremonial, but it is still symbolic and important that Xi Jinping
has secured an unprecedented third term as China's President. It's a reminder that he's got an iron grip over the country. It solidifies his
control and makes him the longest serving Head of State of Communist China since its founding in 1949.
Now back in 2018, Xi had scrapped the two term limit on the Presidency, meaning he can stay on his Head of State for life. But his true power comes
from being the Head of the Party and the military. These are rules he was already reappointed to at the Communist Party Congress back in October.
So what we saw today was political theater. He got more than 2900 unanimous votes from China's rubber stamp legislature. Then they stood up for a
standing ovation. At this ongoing big political event, we'll also see reshuffles in leadership roles and state organizations.
These are all changes that will further increase Xi's power. On Saturday, Li Qiang one is Xi's most trusted proteges. He's expected to be chosen as
China's Premier. He was the Former Party Secretary of Shanghai and oversold the brutal two month COVID lockdown last spring.
And the team of officials that run China's economy is also getting a major shake-up. The 4 main men, unlike their predecessors have not been educated
in the west or are seen as having little experience dealing with International Financial Organizations. But what they do have in common is
that they're close allies of Xi.
So what should we expect to see in this coming term, we should expect to see increasing Communist Party control at home and this continued assertive
more aggressive foreign policy abroad? Beijing views its actions as trying to restore China's rightful standing in the world as a great power.
And it looks like there will not be an easy off ramp to U.S.-China tensions. Xi Jinping's view of the relationship is turning more
pessimistic. Earlier this week, he made a rare move in directly accusing the U.S. of leading a campaign to contain and suppress China. Then the
following day Chinese new Foreign Minister warned that conflict with the U.S. is inevitable, if the U.S. does not change course.
[09:15:00]
To the people here in China, the message from Beijing is that the U.S. is trying to choke the country off, Julia.
CHATTERLEY: 7 people have been killed in a shooting at a Jehovah's Witnesses center in Hamburg, Germany. The city's Interior Minister has said
an unborn baby was among the victims. The government also died at the scene. Senior International Correspondent, Jim Bittermann joins us now on
this. Jim, a tragedy clearly, what more do we know about the government involved in this and any potential motive?
JIM BITTERMANN, CNN SENIOR INTERNATIONAL CORRESPONDENT: Well, that is the question and the German police are still looking into, Julia. They in fact,
have been investigated that all day long they have only identified him as a 35-year-old Former Member of the Jehovah's Witnesses who left the
organization about 18 months ago.
According to a Security Official, not on the best of terms it's not clear whether he left voluntarily or he was expelled. But in any case last night,
he came into the place their Kingdom Hall as they call it, where they were having a meeting last evening, just after that meeting, he started this
attack.
He had with him, semi-automatic pistol, and he fired 9 magazines have shots. According to the Security Official, this is not something that is a
terrorist related. They don't believe they're checking into the medical of the mental state of the government. As you mentioned, in fact, there were 6
people that were shot 6 adult shots, and a 7-month old unborn child who was also killed in the attack.
Then there are 8 people who are injured and according to Chancellor Olaf Scholz, in fact, some of those injured may succumb to their injuries and
may die as well. So we're keeping track of it now, Julia, but I think that's the way things stand at this moment. And we may get more on the
gunman later on, Julia.
CHATTERLEY: Yes, any further updates we will bring them to you, Jim for now thank you for that report. OK, we're going to take a break here on "First
Move" plenty more to come, stay with CNN.
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CHATTERLEY: Welcome back to "First Move", the reminder of that key U.S. jobs data for February employers adding 311,000 workers last month better
than expected. Even if it was down from January's blockbuster read, Analysts were expecting just to give you a sense of context here.
[09:20:00]
Payrolls to rise by 205,000 jobs net, the unemployment rate in the meantime ticked higher to 3.6 percent an average hourly wages rose 0.2 percent.
Joining us now, Nela Richardson, she's Chief Economist and Co-Head of the ADP Research Institute.
Nela, always great to have you on the show! I feel like the Federal Reserve should be competent by these numbers, because we've seen an easing of some
of the upward pressure on wages, but still a bumper jobs growth number net.
NELA RICHARDSON, CHIEF ECONOMIST OF ADP: Good morning, I would say, well, good morning for me. Good afternoon, I would say that it was a mixed
feeling of comfort, not quite as comfortable as they'd like to be, at this point in their rate hiking cycle for one. Yes, jobs growth is really strong
and really solid.
And we saw that accompanied with moderation and earnings, but the composition of those earnings has changed over the course of the last six
months. It's much more dominated by low paying jobs when we look at ADP at our payroll numbers, and we pay about 25 million workers in the United
States.
And we account for this composition effect; we still see that the moderation and wage growth is very, very slight. It's very modest. And it's
going to take a long time to go back down to pre pandemic levels.
CHATTERLEY: Although you see, this is really important, why it's so great to chat to you about this. So what you're saying is, is that while we're
adding some of the lower wage workers, which is pulling down that average wage growth number that we're seeing, really, it's very slight, when you
look at the aggregate picture.
What are you hearing from some of the SMEs, the small and medium sized businesses about what they're expecting to pay in terms of workers and how
perhaps concerned they are about one the ability to hire, but also economic slowdown, because they're having to calculate all of these things too?
RICHARDSON: Yes, it's a complicated picture for small firms, what they're telling us and we surveyed them very, very recently, they're telling us
that it's still hard to find qualified workers. In fact, that is their number one concern. And you see that in the at ADP numbers that we released
earlier this week, that small firms are still competing and being out manned by larger firms.
They can't find the talent, but there is some sense that this is easing. It's a little easier to find talent than it was six months ago. So that's
good news, even though it's still hard. It's the number one concern for small firms, it outranks all other concerns. Close second, though, is the
economy and they're still trying to figure out how to grow and then the economy with so much uncertainty.
CHATTERLEY: Yes and then a rising interest rate environment. Does that mean, and I know, it's difficult to predict that we're in a very different
jobs market in a rising rate environment than we have been in the past? Simply because of the challenges that we've been through and their
inability to find workers and the competition that they're facing that even in an economic slowdown, they might be reluctant to let those workers go.
Simply because the challenge, again, of rehiring, and perhaps paying people more when you try and get them back is a huge concern, too. I guess the
question that I'm asking I need to ask it more simply is does it make jobs and the labor market that much stronger and sticky, even in an economic
downturn?
RICHARDSON: You know that's a great question. The labor market is solid, it's tight, but it's incredibly fragmented. And different sectors of the
economy are going to have different reactions to higher interest rates. Construction and manufacturing and we saw that with manufacturing in
today's report.
Those are very interest rate sensitive sectors, and we saw a decline in manufacturing jobs. And so we're not going to see the sectors of the
economy move in lockstep. And that's going to be a challenge in interpreting these job numbers. Also, we're not in the same, even though
the unemployment rate is similar as it was pre pandemic, the jobs market is quite different.
It's much tighter, and there are many more job openings. And so that reluctance to let go of workers, you see that in our signals of layoffs are
still below pre pandemic levels. It means that it's going to be persistently tight for much longer, and that's going to challenge the Fed
to keep interest rates high and higher over the longer term too.
CHATTERLEY: Yes, and that's the ultimate key here and I think you've said it perfectly in the past tat that the job state is great. The problem is
that strength is coming at the cost of high inflation and managing that for the Federal Reserve here is the absolute and ultimate challenge.
So when this debate going on behind the scenes of and Rahel Solomon, one of our reporters was talking about it earlier this decision between going a
quarter of a percentage point and half a percentage point in terms of rate hikes for the Federal Reserve?
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The argument that you're making here is the emphasis still has to be on that the larger size hike. Surely, they still have a lot of work to do?
RICHARDSON: Yes, well, I think the argument is no one's talking about a pause and that's the important thing.
CHATTERLEY: Yes.
RICHARDSON: It's whether it's going to be a quarter or 50, but no one's saying no pike at all. And that is very different than just a couple of
months ago, where markets and analysts were convinced that there would be a Fed pause in the first half of the year. I think that is off the table, at
least for the next meeting, probably for the next meeting after that. And I don't think we're going to see a decrease in interest rates this year.
CHATTERLEY: Yes, this is where we cue the song by Beyonce Single Ladies. I want to get your take on something. It was a Wells Fargo report, I believe,
and it was talking about the impact of single women in particular on the labor force and that they'd grown three times faster than the broader labor
pool over the last decade.
Can you just give me some context on this? And then, you know, surprise me and shock me and tell me that wage equality, even just for the single women
has been reached? She says with raised eyebrow?
RICHARDSON: Yes, I'm thrilled that you didn't ask me to sing the song, I was worried.
CHATTERLEY: After the time.
RICHARDSON: We know this and I think we talked about this before that the pandemic has been incredibly challenging for women. Women took the bulk of
the job losses; they had that in the United States and around the world. They also have the biggest challenges as being part of that carry economy
that was so hit by the pandemic.
And so if you fast forward it, some of those challenges have not gone away, it's still very hard to find childcare, and that childcare has gotten even
more expensive than it was before the pandemic. So that means that many married women with children are staying out of the labor market, and even
proportionately single women have advanced into the labor market.
But overall, that advancement of women in the workplace has not resulted in a narrowing of pay gaps and I think that's what's the most disappointing.
We love to see an inclusive economy because that economy means that it's more positioned for growth. So the more women in the economy, the - but if
that comes at the expense of wages, it's problematic and so there's still some more work to do to close these wage gaps.
CHATTERLEY: Yes, it begins with talking about it. Thank you, important conversation to be having the whole thing actually, and your singings sadly
but we'll reconvene next time. Nela great to chat to you, thank you! You never know what you're going to be asked the Chief Economist at ADP and the
Co-Head of the ADP Research Institute speak soon, thank you more "First Move" after this.
RICHARDSON: Thank you.
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CHATTERLEY: Welcome back to "First Move"! A frantic Friday; on Wall Street major U.S. employment news and fast moving developments in the Silicon
Valley banking crisis that has rattled global banking stocks.
First to the jobs the U.S. reporting a much higher than expected 311,000 jobs added to the U.S. economy last month net. But wage growth came in
slightly weaker than expected and the unemployment rate ticked higher as we've been discussing.
In the meantime, U.S. stocks volatile overall in early trader as investors debate what this entire means for the Federal Reserve's interest rate
hiking path. We are very much data dependent. All this too, as we wait news about the future of SVB who shares have been halted for trading for pending
news. We will bring you that when we get it.
They did though tumble as we've discussed more than 30 percent during trade on Thursday, the firm being forced to raise billions of dollars' worth of
capital to plug a major losses as depositors flee the big question to be asked what all this means, if anything for the entire banking sector?
Well, I'm pleased to say we have expertise huge expertise, joining us now to discuss Mike Mayo for more a Senior Bank Analyst for Wells Fargo
Securities, Mike, thank goodness, you're here, because we certainly need your wisdom.
And I read your note earlier this morning and you said the core issue at SVB is a lack of funding diversification. Can you just put that into
English for my audience, please and help us understand why taking money from tech firms' startups in Silicon Valley is so crucial to this story?
MIKE MAYO, SENIOR BANK ANALYST, WELLS FARGO: Well, I think when you look at the industry as a whole this might be an idiosyncratic situation unique to
this bank. But the key word when it comes to the U.S. banking industry is resiliency.
And this is night and day versus the global financial crisis from 15 years ago, and then banks were taking excessive risks and people thought
everything was fine. Now everyone's concerned. But underneath the surface, the banks are more resilient than they've been in a generation.
So that's resiliency of the balance sheets with the quality of their loans, resiliency of the business models with the additional capabilities from
technology, and yes, resiliency of funding. And the funding is much more diversified. And banks can either have core funding and those are savings
accounts and checking accounts.
Or they can have overnight borrowings what I call hot money, money that can leave in a nanosecond and that hot money is what really brought down the
failure of Bear Stearns and Lehman Brothers. That's been reduced by over half in the last 15 years. So you have much more resiliency in the funding.
And so, you know, if you have money in the bank, its fine. This is not a liquidity issues, not a solvency issue. Banks are not about to fail and
mass, this is not the global financial crisis 2.0 This might be an earnings event, it could be a stock event, but it's not anything bigger than that at
the moment.
CHATTERLEY: OK, so this is vitally important. So what you're saying is if you compare the financial system, and we're talking broadly now, small
banks, medium sized banks, large banks, the oversight that we see today from the Federal Reserve the stress tests that these banks undergo, and the
regulation that we've seen put us in a very, very different situation today, in aggregate, than we were pre financial crisis.
And I think that is very important for people to understand. However, if we just bring it back to the case of this Silicon Valley Bank, given
everything that you've said, how come they're in this situation? And you don't have to be specific but if all the rules and the guidelines and the
regulations are in place, why do we find ourselves in a situation where one bank simply has the situation not under control?
[09:35:00]
MAYO: Well, it's partly a head scratcher. We're going to have to see as this plays out, you know, any bank can discretionary, say, hey, we're going
to some of our assets, some of our securities, take some losses and fill the hole.
So to the extent that, you know, a bank that, you know, doesn't have fraud, doesn't have excessive leverage, doesn't have bad loans, chooses to take an
action and has this sort of backlash is something we're going to have to look at after the fact.
So that seems to be more of a one off. And if you take a discretionary move like this, and you don't have a good reaction, then the other banks won't
take that discretionary move. But I think over seeing all of this, you have to say, you know, thank you, regulators, for all the moaning about
regulation.
The regulators are on top of this. So at least if you're a depositor, or if you're a creditor, or if you're the government or a taxpayer, you can say,
all right, I don't have to worry about the banking system functioning. Banks should be like, when you turn on the water every day.
The water should come through the faucet, you should be able to turn on your lights in your house, and likewise, your bank should always be there.
That was not the case 15 years ago with the global financial crisis that is the case now.
And each year, the banks, the largest banks are subject to a stress test that, you know, in my view, the stress test is the combination of the last
three recessions combined. And banks have to pass a scenario like that, before they can even increase their dividend or anything like that. So once
again, the key word here is resiliency.
And look, this is not a zero defect industry, you know, the banks and the overseers. Look, they try to make no mistakes. But if you're going to take
risks, there's going to be mistakes, there's going to be losses, and there are going, in some cases be failures.
So that's just part of coughs during the business. And that part of having, you know, the capital markets and the economy, the way we function, and you
have a $20 trillion economy, and the banks have the heart of that. But you know, that the heart surgeons did their job 15 years ago, and, you know,
the banking industry is pumping along strong.
CHATTERLEY: Yes, I mean, that goes back to your point that you made in the beginning, which is an idiosyncratic risk versus a systemic risk, which
you're basically saying, this simply isn't.
Your point about the big banks I think it's important to because I mentioned at the beginning of my show that the top or the biggest for U.S.
banks lost more than $50 billion worth of value in the trading session yesterday, which is quite astonishing to me. But we have a bigger backdrop
here, which and we can talk about the macro. Is that a buying opportunity Mike based on everything that you're saying?
MAYO: Well look, you have uncertainties here. You have the biggest pace of rate increases by the Federal Reserve over four decades. And so you've seen
the Fed go from zero to 5 percent, in such a quick timeframe.
So, you know, that does give investors pause that does cause for stock sell offs. And you have certainly events like a Silicon Valley, the Silicon
Valley moment, it certainly gives people pause. But I think when all the dust settles when you get through this period.
And I don't mean a day or a week, but I'm saying over the next year, I think what you're going to see is that this is a tremendous buying
opportunity for banks that are much more resilient that if and when there is a recession, banks are going to exceed expectations.
And that you're not going to see anything like you've seen in a recession, you know, for the last 50 years. This should be - when I say - this should
be bank's best recession, as far as they perform in any period in the last half century. But that's going to take time to prove.
CHATTERLEY: Yes, it's such a great point. Final quick question, the word noises and concerns when we saw the Federal Reserve, and to your point,
aggressively hiking interest rates, so I'm talking three quarters of a percentage point for all those occasions where they did and concerns that
just for the financial systems plumbing, that could cause some digestion issues.
And we've never really been in a situation like this. So we sort of have to work out how the banking sector and how the financial system handles it?
Any concerns for you on that Mike just with the sheer sort of aggression that the Federal Reserve had to tackle inflation?
MAYO: Yes, these are big body blows for the economy to take.
CHATTERLEY: Right.
MAYO: And to have rates go up so much, so fast you're going to have you know, some players experienced pain and you saw some in the crypto market
you see some with the fundraising for the private equity community.
[09:40:00]
Really, you're seeing more issues outside of the banking industry and the ricochet effect that can come back and hurt the banks, having said that the
banks have pushed off so much risk to the non-banks or what you call the shadow banking industry.
That's really the area where I think you have to watch the most but as far as the regulated banks that are regulated industry, you know, customers and
regulators and the government and taxpayers can feel a lot better. As far as stock holders it's not been pretty at the last week, but that too should
change as the dust settles, in my view.
CHATTERLEY: Yes, the calm words of Mike Mayo there and I agree with your point, there are plenty of areas elsewhere that you could look for trouble
without necessarily looking at the financial sector and the listed banks. Mike, great to have you with us! Thank you for your wisdom.
MAYO: Thanks for having me.
CHATTERLEY: Mike Mayo there the Senior Analyst for Wells Fargo Securities. A pleasure sir, thank you. OK, coming up on "First Move" robust rebound
with revenge travel, we speak to the CEO of hotel giant IHG next.
(COMMERCIAL BREAK)
CHATTERLEY: Welcome back to "First Move"! The leisure and hospitality sector leading hiring across the United States adding 105,000 jobs net last
month. It also happens to be one of the biggest markets for InterContinental Hotels Group or IHG. The firm franchises leases manages or
owns more than 6000 hotels globally, and brands that you may recognize include Holiday Inn and Intercontinental.
The group reporting resurgence in demand with revenue up 30 percent nearly in the Americas last year it also is highlighting the opportunities in
greater China with the reopening post COVID restrictions and just today, the Chinese government has said group tours by Chinese travelers to more
than 40 different countries could soon restart.
Joining us now is Keith Barr CEO of IHG Hotels and Resorts. Keith fantastic to have you on the show. You have had an astonishingly busy past year. I've
been looking through the numbers just break it down for us in terms of the Americas EMEA and Asia of course China a hotspot too, tell us what you're
seeing and doing.
KEITH BARR, CEO OF IHG HOTELS AND RESORTS: Yes, well good morning. It was a fantastic year for IHG and I'm so proud of our team around the world. As
you mentioned our revenues grew by 33 percent year-over-year our profits were up by 55 percent year-over-year and the second half was even stronger
than 2019.
[09:45:00]
So just sequential growth around the world, the Americas being the most fully recovered market, with the second half of last year ahead of 2019,
strong return of travel across Europe and Middle East and then opening up in Asia in the second half.
Of course, as you just mentioned, now Greater China, with the kind of the reversal of the zero COVID policy has really sprung back to life in 2023,
with an incredibly strong start to the year two. So travel is back, you know, 2020 and 2021 was the year of tech and goods. And now it's about
services and travels out in front.
CHATTERLEY: Yes, because the base on all of these numbers was clearly tough. What you're saying is revenge travel is a real thing. Do you expect
it to continue and to increase in 2023?
BARR: We've been talking about the potential of a slowdown since the second half of last year, and we saw every single month get stronger and stronger
and stronger. Leisure travels up versus 2019. Business travels back to normal almost groups, meetings and events are happening.
And it just seems to power on and the tailwind for the global travel industry will be getting China reopening Asia Pacific. People want to
travel and our consumer research shows that travel is one of the last discretionary spending items that people will stop doing. So it gives us a
lot of confidence about 2023 and is continuing to continue on.
CHATTERLEY: Yes, I feel like after the last three years, it is something that people feel so passionately about. And taking the opportunity while
you can get it this sort of makes sense to me. Talk to me about Greater China, because you have decided to make what you're describing I think has
a full roster of new openings across 200 different cities over the course of the next year.
Just talk to me about what you're seeing, and is this international travel in Greater China or for the most part, and if you can give me numbers, I
would love to know, Chinese tourism sort of incher Chinese tourism?
BARR: Yes, I'd love to. It's a market it's near and dear to my heart. I lived there for almost five years and helped build that China business
today. And the team is doing extraordinary job share some data points. Chinese New Year was that to 90 percent of 2019 levels.
And I just talked to the team the other day and looking at January and February for the market travels back to 96 percent of 2019 levels. So it's
a phenomenally resilient market. And that's pretty much all domestic because if you think about air lift capacity into China, it's probably only
around 10 percent.
And it's going to take time to come back. Those planes have been mothballed. Those pilots have been furloughed, potentially. So it's going
to take a while to bring it back. So the Chinese are traveling, they're traveling in China.
But the international inbound and the international outbound is going to take time to recover and so the Chinese market probably won't fully recover
until 2024, maybe beginning of 2025. But it's going to get pretty close in 2023, given the strength we're seeing so far.
CHATTERLEY: That's such an interesting point that you make, though. So what you're saying is actually the capacity is limited by the ability to travel
to these places, so plane capacities and pilots, rather than the desire and what's out there to go and visit?
BARR: Absolutely, I was talking to the CEO of one of the big Chinese travel companies and talking about digital search for international outbound
travel from China is at or above 2019 levels already.
So the Chinese consumer wants to travel internationally, and those that are actually staying much longer. So they're doing much longer trips out of
China, because they haven't been able to leave for three years. And so they may be seeing family in other parts of the world or so forth.
But definitely they want to travel and then that's going to be a great tailwind for many, many international markets as that reopens and they get
out of China. Interestingly, Hong Kong is beginning to boom, again.
Because the Chinese have enabled the Mainland China travelers to go with just their Chinese ID card versus passport. So we're seeing China travel
flood back into Hong Kong, which is fantastic. That market was really hard hit through COVID and lock downs.
CHATTERLEY: Yes, that's such a fascinating insight into what we're sort of anticipating or predicting or guessing over the return of the Chinese
consumer and how they behave. Let's talk about the United States specifically because we did just get that jobs number.
And there are all sorts of debate over what the Federal Reserve's doing? The concerns about slowdown as you talked about. It's been a challenge to
hire people for what a couple of years now, Keith, tell me what you're seeing today is it still challenging?
BARR: It's getting better, which is great news. I mean, we have over 6000 hotels, 1800 hotels in development around the world in the U.S. and in
Greater China, and we need people. And I took the jobs report in January and February as half full, not half empty.
Because if you looked at and you mentioned in your opening in the 517,000 jobs in January 125,000 were in hospitality and leisure and this one once
with the 300,000 jobs I think it was 105,000 were in hospitality and leisure and we're still not staffed back up to where we need to be.
[09:50:00]
So from our perspective it's actually disinflationary, from a wage perspective, is bringing people back into the workforce, enabling us to
operate at full capacity and open up all these amazing hotels across our brands from Holiday Inn Express to Intercontinental and great resorts like
- too so I'm excited to see the workforce grow, and the sectors that really need people.
CHATTERLEY: Yes, I mean, that's your point about the disinflationary trend of that we also saw in the numbers with the average wage coming down.
You've said it and I have got to ask, how much more or less are you paying the people you're hiring today, compared to those that you were hiring in
2019? I know it's difficult because it's some of its own some of its franchisees, but can you give me any ballpark sense?
BARR: It varies from market to market, excuse me around the world. In the U.S., for example, we did see wage inflation, right? We saw minimum wages
go up in certain states. But the great thing about our business is we're able to price on a daily basis.
And so we saw our average rates rise significantly around the world, particularly in the leisure segment. So give you some data points, leisure
up 14 percent in rate, business, travel up 7 percent groups meetings and events up 7 percent and rate too.
And so while we are seeing inflationary pressure on wages, which are coming off now, we're able to price for that and really be able to drive
performance in our hotels, and really make sure we can protect the profits of our owners and our franchisees.
CHATTERLEY: Keith, phenomenal to chat to you. Thank you so much great conversation.
BARR: Thank you.
CHATTERLEY: We will speak to you soon. Keith Barr the CEO of IHG Hotels and Resorts. Revenge travels real that's the headline. All right, coming up
next, who will take home Hollywood's top prizes. We'll look at the contenders and possible last minute surprises too. Oscar night just around
the corner. Stay with us.
(COMMERCIAL BREAK)
CHATTERLEY: Welcome back to "First Move"! We're just days away from the biggest night of the year in Hollywood. And it's one that could make
entertainment history. That could be big wins for everything everywhere all at once.
Michelle Yeoh could become the first Asian woman to win Best Actress and only the second actually woman of color in history after Halle Berry, while
in the Best Actor Category Elvis Star Austin Butler takes on fan favorite Brendan Fraser, who's making a stunning comeback with the whale. The Oscars
take place on Sunday evening in L.A and we'll have all the action on Monday's "First Move".
And finally, speaking of movies, a story that might remind you of the film "Don't look up" from a couple of years ago. Scientists say a newly
discovered asteroid roughly the size of an Olympic swimming pool has a small chance of colliding with Earth. Small it could happen 23 years from
now OK; I've got time to work it out on Valentine's Day, no less.
How do they know that? But NASA says there's no reason to panic saying that chances of collision is extremely low. The data geek in me wants more
analysis on that but we've got a few years to work it out.
[09:55:00]
And finally, one last check of the markets. Wall Street as you would imagine, is volatile and currently lower as you can see the NASDAQ the
underperformer, a continuation of the sizeable losses we saw in the previous session, due in part to the funding crisis facing tech industry
lender, Silicon Valley Bank.
Banking stocks too lower across the board is Silicon Valley Bank fights for survival. One of the biggest banking losers in the first few minutes of
trade was First Republic Bank it's shares also currently halted. SVB for its part remains halted for trading too with news pending.
And the U.S. Treasury is saying it's aware of the situation and is in touch with regulators. All eyes on that any further updates we'll bring them to
you throughout programming for now that's it for the show.
If you've missed any of our interviews today, there'll be on my Twitter and Instagram pages you can search for @jchatterleycnn. I'm going to go and lie
down now in a darkened room. "Connect the World" is up next. Have a great weekend!
(COMMERCIAL BREAK)
END
