Nelson Peltz: Money Is Leaving Small Banks And That’s A Very Dangerous Situation

Following is the unofficial transcript of a CNBC interview with Trian Partners Founder & CEO Nelson Peltz on CNBC’s “Squawk on the Street” (M-F, 9AM-12PM ET) today, Monday, March 20^th.

Money Is Leaving Small Banks And That’s A Very Dangerous Situation, Says Trian’s Nelson Peltz

SARA EISEN: Here on CNBC big investors weighing in all week long on the banking crisis, or at least the turmoil. Nelson Peltz from Trian joins us now by phone. Nelson, thanks, thanks for calling in. You have an interesting idea about how to solve this, this problem which I don’t know financials are up today, but First Republic is still making new lows. What do you think needs to happen?

NELSON PELTZ: Well, let me tell you Sara, I don’t claim to be a banking expert, but I think there are common sense solutions here which I’m sure some regulators will find out why they don’t work. But simplistically, all the money as we know is leaving all the small community banks and the regional banks and going to the, to the three or four largest banks in America, and that’s a very dangerous situation and it’s got to be resolved.

And what I would do is this, I would put together a plan that applies only to the US banks and that the Fed gets an insurance premium for any money you leave in a US accredited bank, over $250,000, so you’re creating income now for the Fed and in exchange for that, they guarantee the overage.

They limit certain banks to how much deposits they can take. So for example, if the CB rate is 3%, whatever it may be, you’re paying a fraction of that back to the government as an insurance premium knowing that your deposits are fully insured by the US and that should only apply to the US banks and I will tell you what will happen.

You will have money flooding in here from all over the world. People will feel safe. You can leave your money in your bank down the block, or you can give it to Bank of America. It doesn’t make a difference and that’s something that I would do. They do it anyway. Let’s create some income for them. Let’s have this system smooth out and give people peace of mind.

EISEN: So in other words, just to understand it fully Nelson, you’re talking about having consumers all of us who put money in banks essentially pay for our insurance of our deposits through fees that, small fees within our funds that we’re depositing?

PELTZ: Sara, only if you decide to have over 250,000 in the bank. The first 250 is insured. You can still spread it all over the place, but if you choose to leave it all in one bank, you’re going to pay a small percentage of your CB rate or what have you, as a insurance premium to the federal government.

EISEN: Right. So I mean you can imagine the pushback would be on just putting fees on the consumer, putting it on the consumer’s shoulders. Why not just charge the banks which is what the FDIC does for insured deposits?

PELTZ: Yeah, I like I like the idea of having the consumer do it. Let them understand that they have a conscious decision to leave it in one place or move it around. That’s up to them. And if they choose to leave it in one place for convenience or comfort or what have you, they’re not paying any money, they’re just getting less of a return, for example on their CBs.

EISEN: Have you pitched this idea to—

PELTZ: I have—

EISEN: The FDIC, to members of Congress?

PELTZ: I discussed it with a host of our elected officials in Washington. They all either liked it or didn’t understand it. I’ve given it to, I’ve spoken to two CEOs of our four largest banks on Friday.

There were varying degrees of affection for it and I have, I was gonna call the, that the the FDIC today but I decided I’d tell you about it and Sarah, and you can decide and your your what your viewers can decide whether they think it makes sense or doesn’t.

EISEN: But the regulators watch too.

DAVID FABER: Yeah everybody. Nelson, it’s David.

PELTZ: Hi David, how are you?

FABER: Hi I’m well thank you. I’m well and I’m happy to see you via phone. Did you move your money at all during this period? You know, I don’t know if you had any at Silicon Valley Bank, but you might have at First Republic. I mean, have you been concerned at all?

PELTZ: I have been concerned I had a pittance in SVB that I didn’t even know it was there because that’s when I made but it was under the 250 limit but most of my money is at the Bank of America so, you know, I feel comfortable.

FABER: Yeah, it does feel Nelson like this could be coming to an end. Certainly, there are many who hope so that this sort of mini panic. I mean, do you know, do you sense that maybe we’ll just move past this obviously most of the regionals and community banks are made up of accounts that are far below 250,000. I know my sense is the money has stopped moving certainly at the velocity it was last week.

PELTZ: Oh, I agree with you, David. I think I think the velocity has come down a huge amount. And I think we have I think the peak of the panic is probably behind us. But that doesn’t stop the next one from coming.

FABER: No, we never know where that’s going to be. Of course, that’s always a question as well. You know, I’m just trying to understand sort of how this will be received or whether you know the Treasury would say Nelson—

PELTZ: Hopefully David—

FABER: That we’ve already got an uninsur– you know, we kind of have implicitly insured or FDIC or Fed that we’ve already implicitly insured all these deposits. You think they need more? You think they need an explicit guarantee of some kind?

EISEN: They need the money.

PELTZ: I think they need an explicit guarantee. I think it’s only for US banks and I think each bank is got to have a limit on how much deposits they can take. I mean, you know Bank of America can take as much as they want.

But my bank down the street shouldn’t but within that limit, then, then I as a depositor, if I choose to leave over 250 there, I know that on my CBs, I’m gonna get a smaller yield on the average over 250 but for convenience, etc., I don’t have to it’s all there and it’s insured.

Look, I should not be penalized in America today having money in a US Bank. That’s something I should have the ability to sleep comfortably at night about. Okay, there are a lot of other things about junk bonds.

I’ve got all kinds of Bitcoin, all the other stuff, shame on me. But if I’ve left my money in a bank, and a US Bank, I should never have to think about for a second that it’s not going to be there.

MICHAEL SANTOLI: Nelson, it’s Mike, you know, I wonder if you think that maybe we’ve seen the worst of the deposit flight and the stress on the regional bank sector at this point and hope we all hope that’s true whether you think there’s any any bargains there in that area.

I know you have exposure to some of the financials, the asset managers, the custody banks, which have been caught up in some of this as well. But what about more mainline banks?

PELTZ: Look, we don’t have an investment in mainline banks because I don’t understand their balance sheets. I wonder if they understand their balance sheets. I did look at Credit Suisse’s balance sheet about five or six years ago with with guys at Trian who are much smarter than me and we had really a hard time finding any real equity. But that was a long time ago. Maybe they got better. I doubt it.

EISEN: What if we put in place a system like this where basically, the jumbo depositors were paying their way to get to get insurance. Would that would that make you more comfortable about buying a regional bank stock?

PELTZ: I’m not I’m not following your question.

EISEN: I mean, I know you said you don’t like banks because of the because of the balance sheets but if we saw something that ring fenced this problem, whether it’s your idea where the where they pay for the for the insurance on the large deposits or or whatever it is some sort of bazooka, if that makes regional banks an attractive investment.

PELTZ: They may be attractive to people who are much smarter than me. I mean, I like financials without balance sheets. We think it’s got a lot of growth ahead of it, but they are not, they’re not regulated. I like to be as far away from regulation as possible.

FABER: Hey Nelson of course, last time we spoke was what’s now become an iconic moment with you announcing the proxy fight is over with Disney. I, given you’re here I wanted to ask you, you know the stock’s down a lot from that day.

PELTZ: I know it is.

FABER: Do you still own it or, yeah, or are you are you out of Disney just wanted to sort of get your take.

PELTZ: We’re neither. We’re not out and we’re not in as much as we were and we’re watching very carefully and hoping that Bob is going to do everything he said he was going to do and I wish them luck and we’re going to watch and wait and hopefully he’ll get it done. And if he doesn’t, we will make a decision then depending on where the stock is to get back in again.

FABER: Right. Alright so you’ve sold some, but you haven’t sold all is what I’m hearing you say?

PELTZ: That’s correct.

EISEN: Nelson, this whole banking turmoil has has made people fear recession more that it’s going to come sooner and that it’s potentially going to be harder. What what do you see from your companies and of course following this market action? Is that something you’re expecting?

PELTZ: Yeah, I think so. I think you gotta be, you know, more defensive than not at this point in time. Look, but if you put your money which I think we do in high quality companies, then over a period of time, you’re going to get well rewarded. You know, the dot coms and all that we’ve seen these things come and go.

And, and I think if you look, we’re in Unilever, we’re in Wendy’s, we’re in pretty boring companies, and they’re great businesses and they do well through this period of time and they do well in good times. But they’re never the flavor of the week.

But at the end, they are great businesses, pay great dividends and their earnings grow. So those are the businesses we’re comfortable with, and we can have an impact on them. I can’t have an impact on a bank. I wouldn’t even know where to begin.

EISEN: Right, just the regulators may be here with this idea. And finally, Nelson, everybody has a strong view about what the Fed should do this week. Jay Powell has a big decision. He’s got inflation still but now he has this this potential crisis of confidence in the banking system. Do you have a strong opinion?

PELTZ: Yes, I do. And I that’s why I think—

EISEN: I’m shocked.

PELTZ: That’s why what I’m suggesting restore it brings the confidence into the banking system, which is really needed, and we will save a lot of these fine local banks, which will lose, which are losing their deposits if they haven’t been lost already.

And that’s something you need to preserve. And you’ll wind up a lot of foreign money coming into the US banks because they’ll feel safe about it. And you know whether that creates inflation or lowers interest rates.

I’ll let let some economists make a decision on that. But if I was someone living in Turkey and I had cash and my plan was put forth, I would put all my money in US banks because I know I’m gonna be protected by the US government.

EISEN: Yeah, no, we’re gonna put it to Jay Clayton next hour. We have him former SEC regulator. I was just wondering if you thought that they should stop raising interest rates right now.

PELTZ: No, yeah, I always think they should stop raising interest rates. I mean, there’s got to be a better way to stop inflation than taking a sledgehammer to everybody. I really do. But that’s the formula. That’s what they do.

And it looks like they’re going to continue to do it. Maybe this banking crisis will slow it down a bit. But I think we’re in for rising interest rates for a while. And we’ve got to understand that. We had a point in time, we had 10 years basically of free money. Money was free. That’s part of the reason that we got into some of this mess. When money is free for too long, it’s a, it’s a real problem.

EISEN: Yeah and we’re seeing things break as a result, given this where we were we started this conversation on the banks. Nelson, thank you for putting it out there with us this morning.

PELTZ: My pleasure. Have a great day, guys. Thank you.