Speaker 1: Bloomberg Audio Studios, podcasts, radio news joining.
Speaker 2: Us now after the bank swere a Michael Mayo as well, Mike,
Speaker 2: let me dovetail in technology into banking. You and I
Speaker 2: remember E. F. Hutton they didn't keep up in technology. A. G. Edwards,
Speaker 2: They didn't keep up in technology, and on and on.
Speaker 2: Which bank is leading in using potential AI and in
Speaker 2: using present technology?
Speaker 3: Well, that's an easy first question, Tom that JP Morgan
Speaker 3: is the in video of banking. They're leading with AI.
Speaker 3: They have it centralized. They say that, you know, most
Speaker 3: of their employees use it every day to save a
Speaker 3: bit more productivity. They seem strategically and operationally ahead of
Speaker 3: the pack. They do spend a lot of money on
Speaker 3: technology than eighteen billion dollars this year on technology, and
Speaker 3: you know, the amount to AI continues to increase, so
Speaker 3: they think it's real. They're embracing it, and it's you know,
Speaker 3: it starts more non cumfort facing activities. But they're certainly
Speaker 3: ahead of the game.
Speaker 2: Mike Mayo with US folks. Howard Lutnik moving from eight
Speaker 2: fifteen to eight forty five Secretary of Commerce here in
Speaker 2: half an hour.
Speaker 1: Paul Sweeney, Hey, Mike, when we came into this second
Speaker 1: Trump administration. One of the sectors that was really called
Speaker 1: out as if a potential beneficiary was the financial services industry,
Speaker 1: primarily from a perspective of maybe loosening of some of
Speaker 1: the restrictions on the big banks. What have we seen,
Speaker 1: what have we learned so far?
Speaker 3: Well, yesterday was the first ever Better Reserve Conference to
Speaker 3: overhaul regulations, specifically capital rules, and I had the pleasure
Speaker 3: to present on one of the panels. I was back
Speaker 3: in Washington, d C. At the Federal Reserve Board for
Speaker 3: the first time in thirty three years. Wow, And I
Speaker 3: would say this was remarkable. This was at their headquarters building.
Speaker 3: In the front row was Chairman Pale and Vice Charevin
Speaker 3: Bowman taking notes all day on by different panels. By
Speaker 3: the way, Sam Altman was the keynote speaker. And they're
Speaker 3: operating with eyes wide open to modernize bank regulation, to
Speaker 3: keep up with the times, update some stale parts of it,
Speaker 3: and to create a more level playing field with more
Speaker 3: transparency and a more holistic approach. I think that what are.
Speaker 1: Some of the big items, Mike, that you think may
Speaker 1: be ripe for change.
Speaker 3: Well, I think the capital rules. I mean, this is
Speaker 3: really there's an alphabet soup of acronyms. They overlap, they
Speaker 3: double counts. It's convoluted. So I think they can make it,
Speaker 3: you know, less complex, less convoluted. You know. In my
Speaker 3: opening slide yesterday, I said, thank you regulators for a
Speaker 3: great job you did after the global fancer crisis. But
Speaker 3: the rules are too confusing, too constraining, and too costly,
Speaker 3: and so to the extent that you can make them,
Speaker 3: you know, less complex, that's important. The extent that you
Speaker 3: can make it less constraining. I mean, banks have been marginalized.
Speaker 3: I mean, as a percentage of total corporate loans, banks
Speaker 3: have gone from sixty percent down to forty percent. Loan
Speaker 3: growth to the last two years of justin for inflation's
Speaker 3: been negative, and you see a lot of the loan
Speaker 3: go to the shadow working industry. So those are some
Speaker 3: of the changes.
Speaker 2: Mike Mayo with us here with Willis Farger, we continue
Speaker 2: with mister Mayo. We welcome all of you on your
Speaker 2: commute to crastination at home in the office our new
Speaker 2: distribution YouTube. Thank you so much for subscribing to Bloomberg
Speaker 2: Podcast Punk.
Speaker 1: So, Mike, give us a sense of timing here. I
Speaker 1: know that, you know, the Jamie Diamonds of the world
Speaker 1: would like these rules kind of relaxed yesterday. Realistically, what's
Speaker 1: the timing here, Well.
Speaker 3: This year is about updating the stress test. You saw
Speaker 3: that last month in terms of a little bit more clarity,
Speaker 3: a little bit more less harsh, i'd say, and the
Speaker 3: assumptions are already more harsh than the actual experience during
Speaker 3: the global pancer phrases. We're not talking about going back
Speaker 3: to two thousand and seven or those sorts of days.
Speaker 3: So that's this year. I think next year there's international
Speaker 3: capital rules that's likely to get modified, and then by
Speaker 3: the year after that, I think you should start seeing
Speaker 3: efficiency benefits and this can be win win win. The
Speaker 3: regulators can win because you cost less money for the oversight.
Speaker 3: The banks can win for more profitability. But the customers
Speaker 3: can win because that profitabilities, you know, a bit of
Speaker 3: that's going to be passed on to them and they'll
Speaker 3: have more options mic mail.
Speaker 2: On the banking front, you look at your major overweight
Speaker 2: view M and t up in Buffalo, maybe a bit
Speaker 2: of a caution there. Finally you get a hockey stick
Speaker 2: move in City Group, a really really nice move even
Speaker 2: after the ten to one reverse split of decades ago.
Speaker 2: Reaffirm your strung by on City Group.
Speaker 3: Well, tom As, you know, I've been on your show
Speaker 3: a few times since last year. It was slow going,
Speaker 3: you know through parts of last year the tariff sell off,
Speaker 3: but City Group remained my dominant number one pick by
Speaker 3: a mile wife and I, well, look what's underappreciated. They've
Speaker 3: transitioned from fifty years of a global matrix missmashed structure YEP,
Speaker 3: to five lines of business payments, banking, markets, consumer and well.
Speaker 3: And each one of those lines of business, you know,
Speaker 3: has a P and L. They have returns, they have
Speaker 3: targeted returns, and they have a CEO that's in charge
Speaker 3: of achieving those targeted returns. Now, you say, Jane Frazer,
Speaker 3: the CEO does not get a Nobel prize for doing that.
Speaker 3: But City is now getting operated more like a normal company,
Speaker 3: and they're only six quarters into this new structure. Short
Speaker 3: term people are selling the stock inappropriately due to the teriff.
Speaker 3: City is a tariff beneficiary. They moved five train dollars
Speaker 3: of money every day around the world. Now it might
Speaker 3: be moving to different countries. Also, a lot of the
Speaker 3: customers around the world need trade financie they need more
Speaker 3: trade financee now or in exchange. So this really fits
Speaker 3: right into cities right, you know, structural positioning. While they
Speaker 3: make the structural.
Speaker 2: Change, perceive it on price to book using the b
Speaker 2: Q screen on the Bloomberg, I got JP Morgan two
Speaker 2: point four to four price to book. City Groups really
Speaker 2: recovering from a Deutsche Bank disaster, if you will, folks
Speaker 2: out to point nine. So City Groups at point nine
Speaker 2: JP Mortgan is a two point four four Mike in
Speaker 2: your head? How much of that delta can City Group
Speaker 2: make up?
Speaker 3: Well, they can. Look which my kids do I love more?
Speaker 3: And uh, you know, I notice the two stocks that
Speaker 3: have been on our firm signature picklist. So Jake Morgan's
Speaker 3: best in class, City's worst in class. So I do
Speaker 3: think that City can re rate on training below book
Speaker 3: value when it's not a crisis where they're making these
Speaker 3: sort of moves. Is a little unusual. So I think
Speaker 3: the stock has fifty percent upside over the next two
Speaker 3: and a half years to one hundred and fifty dollars.
Speaker 3: And that's there's no analytical gymnastics were doing that. That's
Speaker 3: simply as City's returns go up from seven percent last year,
Speaker 3: and that's return on tangible equity to ten or eleven
Speaker 3: percent next year, and then higher after that. Mathematically you
Speaker 3: get higher stock ranks. So it's there's a line of
Speaker 3: site for the restructuring. And Tom, you know what you
Speaker 3: neique for any industry, any industry when you say there's restructuring. Okay,
Speaker 3: what's going to happen to revenues? Citi's revenues were up
Speaker 3: eight percent year a year of the second quarter. Here
Speaker 3: with City have a unique story of restructuring with revenue growth,
Speaker 3: and that's unique for any company.
Speaker 2: Paul, get one more in here with mister Mandie.
Speaker 1: It's got to go work out exactly.
Speaker 2: So are you doing an upper body or lower body today? Mike?
Speaker 3: This is a lower body day. Thanks for asking, and
Speaker 3: I'm doing my deadlifts and squats and I'm still trying
Speaker 3: to push forward.
Speaker 2: Michael Barni are as well.
Speaker 1: Paul, get one more exactly. Hey, Michael, what did you
Speaker 1: take away from the Big Banks earnings last week?
Speaker 3: This is an on inflection. This is an on ramp
Speaker 3: to double digit EPs growth after having negative year of
Speaker 3: year EPs growth for much the last year and a
Speaker 3: half and we see this double digit EPs growth for
Speaker 3: the next ten quarters the end of twenty twenty seven,
Speaker 3: so after that we'll see
Speaker 2: Mike Man, thank you so much, with Wells Fargo there
Speaker 2: in City Group and also on the technology over two
Speaker 2: seventy Park Avenue