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Speaker 1: Who you put your trust in matters. Investors have put

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Speaker 1: their trust in independent registered investment advisors to the tune

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Speaker 1: of four trillion dollars. Why learn more and find your

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Speaker 1: independent advisor dot com. Welcome to the Bloomberg Surveillance Podcast.

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Speaker 1: I'm Tom Keene with David Gura. Daily we bring you

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Speaker 1: insight from the best in economics, finance, investment, and international relations.

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Speaker 1: Find Bloomberg Surveillance on iTunes, SoundCloud, Bloomberg dot com, and

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Speaker 1: of course on the Bloomberg. A bevy of banking news

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Speaker 1: this week a bebby. We've got the change in leadership

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Speaker 1: at Wells Fargo of course announced yesterday, Deutsche Banks drama,

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Speaker 1: the wrangling over its legal situation with the Department of

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Speaker 1: Justice continuing, and then of course burnings out This morning,

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Speaker 1: Tom from three the big banks, including Wells. We'll hear

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Speaker 1: from City Group coming up at JP Morgan releasing its

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Speaker 1: quarters report just minutes ago, the biggest US bank. Let

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Speaker 1: me get that stuck up here right now. We had

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Speaker 1: it before, a little bit of a lift, but uh, Christine,

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Speaker 1: areper quite impressive. I was blown away by the thirteen

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Speaker 1: percent r OE return on inequity. We'll have some chat

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Speaker 1: on that here with Mr Hints. Brad Hints is at

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Speaker 1: New York University of course years covering the banking and

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Speaker 1: financial industry with Sanford Bernstein Professor n's good morning, Hi,

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Speaker 1: how are you doing well? I think I'm good. I

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Speaker 1: don't know how. Jamie Diamond's doing well here on ACCLAIM

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Speaker 1: press conference and UH analyst calls as well. How badly

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Speaker 1: does Mr Diamond and other bankers need a steeper yield curve? Well,

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Speaker 1: it sounds h it sounds a couple of problems, right,

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Speaker 1: It's not just steepness. If you notice the you'ld curve

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Speaker 1: actually moved up, so it's wait, it actually went up

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Speaker 1: across the entire curve. Um. But steepness will help them

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Speaker 1: on their investment portfolio. Right now. You know I have this,

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Speaker 1: I've got an investment portfolio. It's rolling off. I've got

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Speaker 1: yield on that and port saying as it rolls off,

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Speaker 1: my net interest gets squeezed. If if rates are low

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Speaker 1: and the yield curve is is low and flat, as

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Speaker 1: it starts to steepen, that solves one of the net

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Speaker 1: interest margin problems. Of course, as the front end moves up,

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Speaker 1: that helps my That helps my pricing in terms of loans,

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Speaker 1: so that also helps me. So you know, the you know,

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Speaker 1: the market has been focusing on the poor banks, you know,

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Speaker 1: with their interest margins getting squeezed. This you know, if

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Speaker 1: the if the moves are the right way, you know,

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Speaker 1: it will take a lot of that pressure off them.

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Speaker 1: They bring in a dollar, they bring in thirty five

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Speaker 1: cents in operating income, which generates twenty two cents in

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Speaker 1: net income. I would suggest, professor hints that borders on

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Speaker 1: cartel return. That's why are the banks so beleaguered If

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Speaker 1: I'm making twenty two it's on the dollar down at

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Speaker 1: the bottom bottom bottom line. Well, it's a lot better

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Speaker 1: than it, uh that that than we've seen in the

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Speaker 1: in the past. And uh and and you know the

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Speaker 1: banks have been struggling to beat their cost of capital.

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Speaker 1: Uh you know the you know, with with luck, you know,

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Speaker 1: this will be a somewhat better uh time for the

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Speaker 1: for them going forward if rates continue to move in

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Speaker 1: their direction. You know, it's you know, the third quarters

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Speaker 1: are always you know, seasonally slower because because the markets

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Speaker 1: tend to slow down in the summertime, right, So when

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Speaker 1: you sort of look on quarter to quarter comparisons, at

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Speaker 1: least on the investment banking site. Look a little bit funny, right,

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Speaker 1: And and David, I've got to compare and contrast her

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Speaker 1: Bank of America operating income is twenty seven, maybe twenty

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Speaker 1: nine cents on the dollar and JP Morgan is thirty

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Speaker 1: five or thirty six. That's that's in the game of finance.

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Speaker 1: That's a big disparity in terms of profitability. Pulling back

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Speaker 1: your fixed income trading at CHAP year over year four

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Speaker 1: point three billion dollars, about a billion more than one

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Speaker 1: analysts were expecting. Professor put that in some broader context

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Speaker 1: for us. You're going into earnings today, a lot of

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Speaker 1: people saying this is what to look for, look for

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Speaker 1: the fixed income currencies and commodities. Sure, and you know

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Speaker 1: what we saw over the summer was, you know, there's

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Speaker 1: been you know that we've had very good credit uh

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Speaker 1: in the credit markets, good volumes in there, and we've

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Speaker 1: we've also had some positive movements in terms of credit

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Speaker 1: spreads coming in the you know, Brexit um and you

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Speaker 1: know caused a lot of volatilities. That's going to help

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Speaker 1: in the gubbies and the sovereign side, and also going

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Speaker 1: to pick it up in foreign exchange, So you know

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Speaker 1: that's going to help the summer. So when you look

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Speaker 1: at it, you know, last summer versus this summer, the

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Speaker 1: year over a year, it's gonna look pretty good. When

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Speaker 1: you start looking at some of the bank's quarter over quarter,

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Speaker 1: you're not going to see the same thing, but you're

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Speaker 1: going to have to recognize that. You know, summer is

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Speaker 1: always slowed. This was a good summer for fixed income,

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Speaker 1: and you know that's going to be a story that

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Speaker 1: we're going to hear from these guys. The other issue

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Speaker 1: you're going to hear is is investment banking right, and

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Speaker 1: investment banking tends to be you know this this was

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Speaker 1: we're beginning to see a slowdown and investment banking. We're

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Speaker 1: talking with Axel Murk, the the co found of course

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Speaker 1: of Merk Investments. We were talking about money market fund

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Speaker 1: regulations that go into effect today. What effect do you

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Speaker 1: think that's going to have here on on banks like

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Speaker 1: JP Morgan um not Uh, everyone has seen that coming. Um.

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Speaker 1: So you know, we've seen an adjustment in terms of

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Speaker 1: issuance of commercial paper and that's actually affecting a lot

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Speaker 1: in terms of the treasurers who who do financing. The

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Speaker 1: banks are going to have have adjusted to that, and

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Speaker 1: so you're going to see you know, where you do

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Speaker 1: your financing, the tenor that you do for your financing. Um,

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Speaker 1: it's it's not a surprise. I think most of the

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Speaker 1: CFOs and treasures in America are are sort of well

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Speaker 1: aware on this one. The concerns about credit persist here.

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Speaker 1: On previous conference calls a lot of concerning consternation about

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Speaker 1: energy credit in particular. Looking at the report that we

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Speaker 1: got today, how much concern persists when it comes to

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Speaker 1: credit and energy. Um, Well, we've seen the the the

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Speaker 1: the oil prices recover. That doesn't solve credit problems in

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Speaker 1: terms of troubled companies. It takes a while for these

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Speaker 1: things to work their way through. So it's going to

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Speaker 1: be a continuous It'll be people will ask questions, right,

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Speaker 1: they'll they'll push on it. But the the the the

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Speaker 1: immediacy is now gone. Right. The people we we we

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Speaker 1: know there was a fire there, we're watching it. Right.

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Speaker 1: It was when we saw smoke that the that the

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Speaker 1: equity analysts began to get get very troubled. I want

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Speaker 1: to go through four mumbo jumbo ideas we can do

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Speaker 1: that with professor hints, I'm in the back of the

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Speaker 1: class running a sea and Professor I got to get

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Speaker 1: to a B plus fast fortress principles Tan your book

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Speaker 1: fifty one three cents up eight percent, way out front

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Speaker 1: of nominal GDP basil three tier one capital h billion

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Speaker 1: eleven point nine firm s l R. I have no

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Speaker 1: idea what that is, folks. It's a camera six point

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Speaker 1: six and I love this one, Brad h q l

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Speaker 1: A five thirty nine billion. All of this is footnoted

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Speaker 1: and Joey Evangelista saving my butt today. Is this a

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Speaker 1: fortress or is that just a marketing campaign? No, it's

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Speaker 1: a fortress um the JPM and and you can you

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Speaker 1: can say, you know most of the banks at this

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Speaker 1: point and fortress balance sheets and you know, weaken with luck.

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Speaker 1: If you can take this forward, the risk of the

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Speaker 1: bank drops and you end up seeing the beta's going down.

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Speaker 1: That hasn't happened, right, And because if you want the

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Speaker 1: betas to go down, that's going to reduce the cost

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Speaker 1: of capital. And these, you know, the somewhat anebic roes

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Speaker 1: that you've seen from the banks may actually end up

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Speaker 1: if they stay. If you know you'll you'll be beating

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Speaker 1: your cost of capital. We're not there yet. There's still

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Speaker 1: a lot of uncertainty on the banking side, but the

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Speaker 1: credit risk to the banks has has gone down. Right there,

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Speaker 1: They're sitting there with a lot of liquidity on their

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Speaker 1: balance sheet. They're sitting with great capital positions. You know

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Speaker 1: that that means that all of us can sleep well

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Speaker 1: at night and the banking systems stable. Now, whether you

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Speaker 1: want to invest in them, that's a different question. And

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Speaker 1: Brad hints with us. Let's finish up here in JP

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Speaker 1: Morgan and get Professor Hanson with his day. Brad and

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Speaker 1: tell me about retail banking. Mr Diamond's killing it clearly

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Speaker 1: within retail banking and those others doing it well and

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Speaker 1: some better, some worse. David and I walked by David

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Speaker 1: in Brooklyn. I'm in New York in excuse me, in Manhattan?

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Speaker 1: And h did I say that? In Manhattan? When did

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Speaker 1: the branches start closing down? Um, you've got you've got

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Speaker 1: some some generational issues there, Tom right, which is uh,

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Speaker 1: you know, I don't believe my twenty six year old

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Speaker 1: son has ever visited a branch. He does everything electronically

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Speaker 1: off of his cell phone. On the other hand, you know, yeah,

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Speaker 1: I go over to my my little branch in New Vernon,

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Speaker 1: New Jersey, and I know the people over there. So

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Speaker 1: you know, there's the who the branch system has to

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Speaker 1: be resized. JPM certainly is the dominant player in UH

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Speaker 1: in New York City. UM. But you know, you you

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Speaker 1: don't look only at the twenty year olds, right, and

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Speaker 1: you recognize that the elder the elderly have all the

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Speaker 1: wealth management. So keeping a few of those branches probably

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Speaker 1: a good idea is the is the Boston merger thon

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Speaker 1: is just one example, the merger thon of twenty or

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Speaker 1: thirty years ago? Did that work out? What's for the

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Speaker 1: for the banks as they rolled themselves? You remember names

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Speaker 1: like n c NB, right, uh, I remember the Second

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Speaker 1: National Bank of the United States. Um. Not as well

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Speaker 1: as as people have had had hoped, but they did

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Speaker 1: work for some. And you know, and we do know

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Speaker 1: that their scale economics that exist in in in commercial banking,

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Speaker 1: we still as the United States, we still have a

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Speaker 1: very very fragmented banking system. Unfortunately, the large banks can't

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Speaker 1: get larger, right, that's you know, the too large to

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Speaker 1: fail problem, And so We're going to see a roll

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Speaker 1: up of this. It's not going to happen right away,

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Speaker 1: but it is. We're not seeing new banks being made

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Speaker 1: right so the you know, they looking forward. You know,

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Speaker 1: if you look, if you give a five year time horizon,

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Speaker 1: you'd say, you know that the banking world will consider

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Speaker 1: to consolidate. But it's going to consolidate below the large ones, right,

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Speaker 1: it will consolidate at that next tier. Total credit card

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Speaker 1: loans JP Morgan hundred and thirty three billion dollars. A

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Speaker 1: few weeks back, our colleague Sam Grosbard wrote a piece

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Speaker 1: for Bloomberg Business Week about the Chase Sapphire Reserve card.

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Speaker 1: Demand incredibly high for this card, some that has a

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Speaker 1: special plunk factor. They actually put metal in the middle

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Speaker 1: of it to give it a special field of It

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Speaker 1: is a wildly popular card. There is this competition Brad

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Speaker 1: between City and JP Morgan when it comes to credit

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Speaker 1: cards in the credit card space. How important is that

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Speaker 1: to this bank going forward? Um very important to the City.

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Speaker 1: Remember you know the City just did the Costco deal

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Speaker 1: and that's that that's very very good for them. Credit

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Speaker 1: cards are important for all of these banks. It's a

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Speaker 1: major source of profitability, tough business right and and but

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Speaker 1: it's it remains of one of the few areas where

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Speaker 1: you can get very nice that interest margin off of

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Speaker 1: a off of a portfolio. It's it's a core business

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Speaker 1: of marketing, you know. And I think, JPM we can,

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Speaker 1: you know, we can. We can say they've done it.

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Speaker 1: They've done a great job with the Sapphire card. City's

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Speaker 1: going on, you know, somewhat different idea which says we're

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Speaker 1: gonna we're gonna tie in with with a costco, a

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Speaker 1: retailer and pick up a portfolio that way. It's Brad

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Speaker 1: has the scale for us is having you, and thank

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Speaker 1: you so much, greatly appreciate it. Neil Duddy asked me

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Speaker 1: this morning how do you do this? And then he said,

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Speaker 1: why do you do this? This is why I do it. Daniel,

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Speaker 1: you're gonna walked in the studio this morning and you

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Speaker 1: think we'd speak with dr You're going about oil. One

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Speaker 1: of his cottage industries is to be one of our

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Speaker 1: great economic historians. The beginning of his classic Commanding Heights

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Speaker 1: on an England Flat on its Back is one of

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Speaker 1: the great moments in modern economic literature. And we're thrilled

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Speaker 1: the doctor Organ joins us UM. This morning, Martin Wilf

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Speaker 1: writes it up Dan in the Ft today about this

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Speaker 1: failure of May to be like Thatcher. You are truly

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Speaker 1: one of the experts on this beverage of the London

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Speaker 1: School of Economics did a welfare study for England on

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Speaker 1: want disease, ignorant squalor in idleness, and out of that

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Speaker 1: came the welfare state of England. The Thatcher tore asunder,

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Speaker 1: what is Prime Minister May trying to do now with

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Speaker 1: the United Kingdom fled on its back. Of course, Uh,

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Speaker 1: Thatcher tried to open the economy, make it competitive, but

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Speaker 1: the welfare state, certainly UH continues and UH continues to

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Speaker 1: be a very big part of the economy. So it

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Speaker 1: hasn't gone away. I think Uh. Theresa May has a

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Speaker 1: big problem, which is to define what is Britain going

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Speaker 1: to be now? Now it's not going to be part

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Speaker 1: of the EU. Is it gonna be little England or

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Speaker 1: is it gonna be global England and some of it?

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Speaker 1: And she's responding to the same pressures that you see

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Speaker 1: across much of the industrial world. Of course, here in

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Speaker 1: the United States is very vaccine and challenging question of

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Speaker 1: immigration and all the emotions around it. I would suggest

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Speaker 1: that Baroness Thatcher with Keith Joseph had a more organized,

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Speaker 1: cohesive domestic politics to apply and to do. And that's

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Speaker 1: that's absolutely run absolutely, you know, that's absolutely right, Tom,

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Speaker 1: because they had had several years to think this through,

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Speaker 1: to work at she's improvising, she's inherited this hand now

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Speaker 1: and basically has uh that the rules of the road

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Speaker 1: just are not clear. So there's been no time to

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Speaker 1: think it out. So, as Martin Wolf points out, a

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Speaker 1: lot of a rhetoric now is pulled from other places,

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Speaker 1: even he suggests from Elizabeth Warren, just because of time here.

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Speaker 1: Let's David Girl, have you switch over and talk about

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Speaker 1: our American politics and the time that we've got with

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Speaker 1: Dr Jurgen. Yeah. I mean, it's been phenomenal to to

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Speaker 1: watch the last week on Old, the reporting in the

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Speaker 1: New York Times, the story after story seeming to roll

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Speaker 1: out here about Donald Trump, this campaign going off the

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Speaker 1: rails more perhaps than it than it had been. You know,

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Speaker 1: we were we were speaking with San Colindar yesterday about

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Speaker 1: the prospects for congressional action for something happening in Washington

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Speaker 1: next year. He is, let's say, pessimistic on the subject.

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Speaker 1: When do we return to a place where there is

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Speaker 1: governance happening in Washington? Again? Dr Yurgan, the question will

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Speaker 1: we return to Well, I think that people point out

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Speaker 1: that when Hillary Clinton was a Senator, she worked across

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Speaker 1: the aisles and UH would be much you know, works

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Speaker 1: with people. And of course, right almost from the beginning,

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Speaker 1: there was this gulf between UH, the administration and UH

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Speaker 1: and Congress. We saw it most One example that we

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Speaker 1: saw just very recently was on this bill that lifted

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Speaker 1: sovereign immunity UH towards Saudi Arabia and just a lack

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Speaker 1: of communication. The day before the vote, the President sent

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Speaker 1: to letters the results would be devastating for the United States,

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Speaker 1: for our military personnel or diplomatic personnel. But there was

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Speaker 1: no UH. There was no traction UH until the very

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Speaker 1: last moment. I'm glad that you brought that up, that

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Speaker 1: we can get into oil a little bit here, Tom,

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Speaker 1: I I wonder what we've heard from the audies since

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Speaker 1: that legislation was passed, Since that veto by President Obama

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Speaker 1: was was overwritten. Of course, there were the warning warning

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Speaker 1: signs beforehand from the Saudis that if this were to happen,

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Speaker 1: they would sell off treasuries and and dead. What reaction

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Speaker 1: have we seen and moving to oil here a bit?

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Speaker 1: You know, what is that? What does that due to

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Speaker 1: the region having this this new lawn. Plus I think

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Speaker 1: it raises questions whether the US government is going to

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Speaker 1: get sued from by you know, drone strikes things like that.

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Speaker 1: I mean, that's the big concern. And so you saw

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Speaker 1: twenty eight senators after the legislation was passed saying, you know,

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Speaker 1: maybe we've got to look at some aspects of it.

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Speaker 1: I think that this message from the Saudis was kind

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Speaker 1: of shocked that that had passed. Uh. They have a

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Speaker 1: lot of other things on their agenda right now. Particularly,

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Speaker 1: I mean, this is a cop in the country that

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Speaker 1: just invested three and a half billion dollars in uber uh.

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Speaker 1: So thinking through that. Uh And meanwhile, of course they're

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Speaker 1: moving ahead with this huge vision twenty thirty to remake

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Speaker 1: their economy and no longer be dependent on oil. Did

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Speaker 1: you think at my script today you say vision thirty

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Speaker 1: Daniel or Urgan three years ago, power in two thousand

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Speaker 1: and thirty. Of course, off your wonderful book the quest

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Speaker 1: Where will this nation be in two thousand thirty our nation?

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Speaker 1: Or saunding our nation? Um, that's what is that? That's

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Speaker 1: fourteen years away. It's called three more Painful president. Well,

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Speaker 1: it does raise the question of what a presidential election

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Speaker 1: is going to be like in the future and what

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Speaker 1: lessons are going to be taken away, uh from this

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Speaker 1: campaign in terms of organization. Uh, you know, this is

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Speaker 1: what we're seeing now unfolding is hardly anything that would

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Speaker 1: have been imagined a year ago. And of course when

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Speaker 1: you travel in the rest of the world, people are

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Speaker 1: kind have been shocked watching this presidential election, saying what

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Speaker 1: you're going to tell us about how to run a

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Speaker 1: democracy with your scope of economics and history. We have

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Speaker 1: Michael Kayson on at Georgetown the other day and on

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Speaker 1: William Jennings. Bryan, do you look at this as a

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Speaker 1: one off event or is there a permanence to what

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Speaker 1: we've seen, the tumult that we've seen within the Republican Party. Well,

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Speaker 1: I think that that. Obviously, they're very powerful forces that

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Speaker 1: have come to the fore and these issues. I mean,

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Speaker 1: what was the issue that really galvanized is immigration, even

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Speaker 1: though apparently right now there is no net immigration coming

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Speaker 1: from Mexico. Uh So I think these forces are there.

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Speaker 1: And the thing is, we do need higher economic growth.

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Speaker 1: We do need inclusiveness and and more entrepreneurial energy in

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Speaker 1: our society, not just in Silicon Valley. What a joyous,

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Speaker 1: surprising Friday, Daniel. You're gonna can't say enough about as

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Speaker 1: most recent effort, the Quest m It is a synthesis

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Speaker 1: of all that he's done and moves forward on this

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Speaker 1: nation and our energy. Mr. Y, we we we almost

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Speaker 1: were oil free. This we'll do that. Next to who

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Speaker 1: you put your trust in matters, investors have put their

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Speaker 1: trust in independent registered investment advisors to the tune of

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Speaker 1: four trillion dollars. Why they see their role is to serve,

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Speaker 1: not sell. That's why Charles Schwab is committed to the

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Speaker 1: success of over seven thousand independent financial advisors who passionately

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Speaker 1: dedicate themselves to helping people achieve their financial goals. Learn

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Speaker 1: more and find your independent advisor dot com. We need

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Speaker 1: to go to Boston and Michael McKee at a very

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Speaker 1: important summitt at Toughs University. Good morning, Michael, Good morning Tom.

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Speaker 1: And the good news for you is the Boston Bruins

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Speaker 1: opened the season with a six to three win. Brad

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Speaker 1: Marshan scores two goals, gets three assists to open the season.

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Speaker 1: That's your report from Boston that I knew you wanted

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Speaker 1: to have. Got that right. We're here with that from

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Speaker 1: James from the it's our old friend, uh the Deed

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Speaker 1: of the Fletcher School at Toughs University, and they are

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Speaker 1: hosting a conference today on the future of Greece. It's

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Speaker 1: Greece's turn, and we welcome the Admiral to the program.

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Speaker 1: We came up for the for the conference because of

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Speaker 1: course it's always great to talk to you about national

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Speaker 1: security issues and graces. It's been a financial crisis for

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Speaker 1: the world, but you also look at it, and you

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Speaker 1: told us this before that it is a major national

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Speaker 1: security issue given its geographic location exactly. You know, we're

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Speaker 1: talking sports a minute ago. Think about baseball, think about

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Speaker 1: the hot corner, the third base. Greece is kind of

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Speaker 1: the hot corner for Europe. It's the closest to the

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Speaker 1: batter in terms of offensive action, and so Greece is

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Speaker 1: going to be the canary in the in the mind

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Speaker 1: shaft in terms of refugees, terrorism, they're in a very

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Speaker 1: precarious position, and we need to stand with Greece, and

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Speaker 1: that's part of what this conference is about. Like, one

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Speaker 1: of the questions that people have is we went into

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Speaker 1: the crisis in two thousand nine, and in two thousand

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Speaker 1: and ten they started with rescue plans, and they're still

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Speaker 1: not out of it and things still seem to be deteriorating.

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Speaker 1: I know you've been meeting for a day already on

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Speaker 1: this have you have you come to any conclusions as

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Speaker 1: to why, Well, it is a conference about Greece, so

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Speaker 1: you'll allow me to reach into Greek mythology. Uh. One,

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Speaker 1: it's like Sisyphus, you kind of roll the boulder up,

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Speaker 1: you make progress, but it seems to kind of keep

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Speaker 1: coming back down. And the other one less well known

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Speaker 1: as Tantalus, who was tied to a tree, punished by

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Speaker 1: the gods and dying of hunger and thirst, and the

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Speaker 1: wind would glow apples almost within his reach, and the

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Speaker 1: water would raise almost to his lips. So I think

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Speaker 1: we've got a little bit of Sysiphus and a little

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Speaker 1: bit of Tantalus going on. But I was in Greece

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Speaker 1: a week ago, and I think we are beginning to

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Speaker 1: turn corner there. I think we are going to see

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Speaker 1: positive growth numbers there next year. Stamp tiny but positive. Well.

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Speaker 1: One of the things people worry about with Greece's geographic

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Speaker 1: location is obviously the introduction of bad guys into the region.

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Speaker 1: In the early days of the crisis, there was a

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Speaker 1: lot of talk about bringing in loans from China, bringing

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Speaker 1: in loans from Russia. Never happened. Uh. What's the Greek

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Speaker 1: feeling about the United States and about these other actors.

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Speaker 1: They've never been a particularly great friend of the United States,

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Speaker 1: but they haven't allied themselves with the other side either. Yeah.

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Speaker 1: I think if you look at the long relationship of

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Speaker 1: Greece with the United States, it's uh, it's overall pretty positive.

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Speaker 1: And I'll stipulate I'm a Greek American, so I'm predisposed

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Speaker 1: to think that way. But remember our values come from Greece.

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Speaker 1: We have a long history of supporting them in independence,

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Speaker 1: We have a World War Two history with Greece. And

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Speaker 1: to answer the question of how it is today, I'd

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Speaker 1: say it's some mixed picture. There are a number of

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Speaker 1: people in Race who would like to see close for

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Speaker 1: alignment with Russia, for example, Mike, because of the Orthodox

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Speaker 1: connections there. But I think overall, Grief stands with the West,

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Speaker 1: stands with NATO, and stands with the United States. Bon

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Speaker 1: NATO is a big question of because you got Turkey

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Speaker 1: right across the Bosporus there, which at one point was

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Speaker 1: thought to be the next candidate to join the European Union,

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Speaker 1: and now seems to be moving away. How do you

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Speaker 1: assess what's going on with Turkey and the region. We

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Speaker 1: have a president in Turkey, a president in Urdwan who

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Speaker 1: is consolidating power as a chief executive. This coup has

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Speaker 1: actually helped him because it's given him the opportunity to

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Speaker 1: purge numerous political and military opponents to his regime. Uh

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Speaker 1: he himself is drawing closer to Russia. So I think

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Speaker 1: Turkey is going to be a problematic ally, but I'm

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Speaker 1: I'm confident over time we can keep Turkey in the

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Speaker 1: Transatlantic orbit. And you're right to say we moved away

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Speaker 1: from a spot in the European Union for Turkey. But

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Speaker 1: I think over time you'll see them come back because

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Speaker 1: the other options really aren't that good for them long term.

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Speaker 1: They don't want to be aligned with Russia and it's

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Speaker 1: undoubtedly failing economy in the twenty first century. But they've

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Speaker 1: been making awfully nice with Prutent lately. They have, and

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Speaker 1: that's a function of of Urdwan's desire to appear very

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Speaker 1: strong internally, his displeasure with the United States over our

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Speaker 1: support for the Kurdish rebels in our retissans, in returning

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Speaker 1: this Ghoulinist cleric who has taken refuge here in the

428
00:24:30,680 --> 00:24:32,960
Speaker 1: United States, and or to one thinks you let the coup.

429
00:24:33,160 --> 00:24:36,760
Speaker 1: Those are tactical challenges I think long term Turkey strategic

430
00:24:36,800 --> 00:24:39,320
Speaker 1: futures with Europe and with the United States. It'll play

431
00:24:39,320 --> 00:24:41,439
Speaker 1: out that way, may take us a few years to

432
00:24:41,480 --> 00:24:43,000
Speaker 1: get there. Let me ask you, as long as you

433
00:24:43,040 --> 00:24:45,480
Speaker 1: brought up the Curds quickly, we got about a minute

434
00:24:45,560 --> 00:24:49,040
Speaker 1: left here. Um, Iraq, where are we with that? This

435
00:24:49,200 --> 00:24:51,600
Speaker 1: talk of the US arming the Curds that just brings

436
00:24:51,640 --> 00:24:55,159
Speaker 1: in Turkey into it. Um. It seems like we're not

437
00:24:55,200 --> 00:24:59,080
Speaker 1: any closer to any kind of solution there. It's a

438
00:24:59,080 --> 00:25:02,240
Speaker 1: tough puzzle to put together. On Iraq. Were vastly better

439
00:25:02,280 --> 00:25:04,920
Speaker 1: than we were a year and a half ago when

440
00:25:05,240 --> 00:25:08,360
Speaker 1: the Islamic State was on the gates of Baghdad. Now

441
00:25:08,400 --> 00:25:10,800
Speaker 1: they're pushed back. We're going to take Mozel back in

442
00:25:10,840 --> 00:25:14,200
Speaker 1: the next six months. I think the long term future

443
00:25:14,280 --> 00:25:17,879
Speaker 1: for Iraq is a decentralized government. The currents are going

444
00:25:17,920 --> 00:25:19,919
Speaker 1: to have to have a fair amount of authority, but

445
00:25:20,000 --> 00:25:35,160
Speaker 1: I think Iraq holds together as a national entity. Well,

446
00:25:35,200 --> 00:25:37,800
Speaker 1: the beats go on this morning. When it comes to banking.

447
00:25:37,840 --> 00:25:40,720
Speaker 1: We had JP Morgan first, followed by City and then

448
00:25:40,720 --> 00:25:42,640
Speaker 1: well as I'm bringing Eric oj hes U S Banks

449
00:25:42,680 --> 00:25:46,320
Speaker 1: analyst with cf R A joining us now and Eric,

450
00:25:46,520 --> 00:25:48,800
Speaker 1: I wonder if you could just draw a line of

451
00:25:48,800 --> 00:25:51,520
Speaker 1: distinction for US here. How this the third quarter seems

452
00:25:51,520 --> 00:25:53,960
Speaker 1: to be shaping up compared to the second. What's changed

453
00:25:54,000 --> 00:25:58,520
Speaker 1: here over the last quarter? Well, it's actually relatively similar

454
00:25:58,600 --> 00:26:01,639
Speaker 1: to the second quarter. Hall that in the second quarter,

455
00:26:01,800 --> 00:26:06,320
Speaker 1: expectations were extremely low because of the losses that were

456
00:26:06,400 --> 00:26:10,600
Speaker 1: recorded in the first quarter, and most of the US banks,

457
00:26:10,640 --> 00:26:14,040
Speaker 1: certainly the largest ones, beat on top and bottom line.

458
00:26:14,440 --> 00:26:17,600
Speaker 1: So what we're seeing this morning is the same thing.

459
00:26:17,960 --> 00:26:22,040
Speaker 1: The four major banks that reported this morning have all

460
00:26:22,080 --> 00:26:26,280
Speaker 1: beaten on top line and bottom line expectations, which were

461
00:26:26,320 --> 00:26:29,720
Speaker 1: relatively low going into this quarter. What are we seeing

462
00:26:29,720 --> 00:26:31,840
Speaker 1: in terms of credit? I wonder when you look at

463
00:26:31,880 --> 00:26:35,320
Speaker 1: these banks credit portfolios, are there points of any concern

464
00:26:35,359 --> 00:26:37,040
Speaker 1: for you? When you look at say commercial lending or

465
00:26:37,080 --> 00:26:39,720
Speaker 1: you look at student loans on the credit side of things,

466
00:26:39,760 --> 00:26:43,760
Speaker 1: what do you most focused on are most worried about? Well,

467
00:26:43,800 --> 00:26:48,040
Speaker 1: in credit, we're most focused on, as is everybody on

468
00:26:48,359 --> 00:26:54,000
Speaker 1: consumer lending, particularly auto and credit cards. And there is

469
00:26:54,080 --> 00:26:59,840
Speaker 1: some slight deterioration, but we see trends as relatively stable. Uh.

470
00:27:00,040 --> 00:27:04,480
Speaker 1: One data point is that JP Morgan Chase is building

471
00:27:04,960 --> 00:27:08,880
Speaker 1: up its reserves for cards, but they say they're doing

472
00:27:08,960 --> 00:27:12,960
Speaker 1: that because of growth, not deterioration. But our job as

473
00:27:13,000 --> 00:27:18,000
Speaker 1: analysts dig into that a little bit. So credit quality

474
00:27:18,080 --> 00:27:21,680
Speaker 1: peaked probably a couple of quarters ago. Eric, your job

475
00:27:21,760 --> 00:27:23,640
Speaker 1: is to be stuck picker of the year in two

476
00:27:23,680 --> 00:27:27,160
Speaker 1: thousand nine for Standard and Poors, which is a unique

477
00:27:27,160 --> 00:27:29,720
Speaker 1: skill set, folks, very different. There's a research of a

478
00:27:29,840 --> 00:27:33,320
Speaker 1: company and their relative performance to a group, and then

479
00:27:33,359 --> 00:27:36,720
Speaker 1: there's just card the cardinal thing of by hold cell

480
00:27:37,320 --> 00:27:41,320
Speaker 1: how by e holdy celly is the bank group right now?

481
00:27:41,359 --> 00:27:43,960
Speaker 1: Do you have a real vision where the bank group

482
00:27:44,000 --> 00:27:48,080
Speaker 1: will be twelve months or thirty six months out? Well,

483
00:27:48,400 --> 00:27:52,920
Speaker 1: we have by recommendations on all of the top US banks.

484
00:27:53,600 --> 00:27:58,200
Speaker 1: We think they're slightly undervalued on a pe basis um

485
00:27:59,520 --> 00:28:04,000
Speaker 1: relative of to where they've been in the past. We

486
00:28:04,080 --> 00:28:08,719
Speaker 1: think that they will continue to improve um. Loan growth

487
00:28:09,000 --> 00:28:13,720
Speaker 1: is relatively strong, the returns of capital are improving. As

488
00:28:13,760 --> 00:28:17,840
Speaker 1: long as the US economy slowly grows, I think that

489
00:28:18,080 --> 00:28:20,320
Speaker 1: they can take global market here. Let me ask you

490
00:28:20,400 --> 00:28:23,679
Speaker 1: my money question, which is, can you model the single

491
00:28:23,760 --> 00:28:28,880
Speaker 1: digitness of their dividend growth? Are they going to be subpar? Midpar?

492
00:28:29,440 --> 00:28:31,960
Speaker 1: Are they really gonna, you know, add a dividend growth

493
00:28:32,520 --> 00:28:38,640
Speaker 1: above revenue growth above nominal GDP. I think that their

494
00:28:38,640 --> 00:28:43,120
Speaker 1: dividends will start to accelerate in growth. And one of

495
00:28:43,120 --> 00:28:49,920
Speaker 1: the reasons is that the original cap that the Federal

496
00:28:49,960 --> 00:28:54,760
Speaker 1: Reserve had, you know, its banks were really uh not

497
00:28:55,000 --> 00:28:58,640
Speaker 1: supposed to pay out more than thirty of normalized EPs.

498
00:28:58,680 --> 00:29:02,040
Speaker 1: And it looks like that HALP is starting to be relaxed,

499
00:29:02,200 --> 00:29:05,600
Speaker 1: so perhaps they can go up to the fort range.

500
00:29:05,680 --> 00:29:09,920
Speaker 1: So that should certainly help with dividend growth going forward.

501
00:29:10,080 --> 00:29:14,760
Speaker 1: And yes, we see dividends growing faster than GDP. We

502
00:29:14,840 --> 00:29:18,080
Speaker 1: had this fixed income trading slump went on for a while.

503
00:29:18,160 --> 00:29:19,880
Speaker 1: Now seems that we've come out of that come out

504
00:29:19,880 --> 00:29:23,520
Speaker 1: of that loudly. It seems like when you look at

505
00:29:23,600 --> 00:29:26,480
Speaker 1: JP Morgan especially here, do you think that's going to

506
00:29:26,640 --> 00:29:30,880
Speaker 1: continue for some time? No? I think, um, from what

507
00:29:30,960 --> 00:29:35,040
Speaker 1: I heard on the JPM conference called it is underway

508
00:29:35,120 --> 00:29:40,200
Speaker 1: right now, is that Q four will moderate. So UH

509
00:29:40,520 --> 00:29:43,480
Speaker 1: Q two and Q two, Q two and Q three

510
00:29:43,560 --> 00:29:48,800
Speaker 1: were large out performances in terms of trading. Some of

511
00:29:48,800 --> 00:29:51,880
Speaker 1: that was due to the Brexit volatility, and some of

512
00:29:51,880 --> 00:29:54,000
Speaker 1: it was due just to what the results were a

513
00:29:54,080 --> 00:29:59,600
Speaker 1: year ago as a comparison. UH comparisons are easing, um,

514
00:29:59,640 --> 00:30:03,760
Speaker 1: but results in trading were far better than expected. Do

515
00:30:03,800 --> 00:30:07,360
Speaker 1: you have a single best buy right now? We have

516
00:30:07,480 --> 00:30:11,480
Speaker 1: a strong by recommendation on the shares of City Group

517
00:30:11,720 --> 00:30:15,360
Speaker 1: and that's based on Yeah. Do they just close the

518
00:30:15,480 --> 00:30:18,200
Speaker 1: r o E gap? Is that what that's about? Yeah?

519
00:30:18,240 --> 00:30:22,400
Speaker 1: I mean there are always so far below piers. It's

520
00:30:22,440 --> 00:30:26,880
Speaker 1: around six percent, while JPM is is ten whilst fargoes

521
00:30:26,960 --> 00:30:30,640
Speaker 1: twelve percent. So we think they're closing the gap and

522
00:30:31,000 --> 00:30:33,959
Speaker 1: that Um, it just takes many, many years to keep

523
00:30:34,040 --> 00:30:37,840
Speaker 1: building the r o E. But at the legacy City

524
00:30:37,880 --> 00:30:41,920
Speaker 1: Holdings assets wind down, we think the r o E

525
00:30:42,200 --> 00:30:45,800
Speaker 1: growth will accelerate, David ga we need to bring the

526
00:30:45,840 --> 00:30:51,480
Speaker 1: show to a screeching halt. Nine oh three Andy seconds.

527
00:30:51,560 --> 00:30:55,400
Speaker 1: This morning a missile from the Secretary of Treasury to

528
00:30:55,480 --> 00:30:59,960
Speaker 1: one d U S. Treasure Department, Office of Public Affair,

529
00:31:00,080 --> 00:31:05,680
Speaker 1: Immediate release. Do I understand that they've lifted the ban

530
00:31:05,800 --> 00:31:10,360
Speaker 1: on Cuban cigars the ban on importation of Cuban origin

531
00:31:10,440 --> 00:31:15,320
Speaker 1: merchandise as accompanied baggage for personal use? Only will you

532
00:31:15,400 --> 00:31:17,680
Speaker 1: be able to smoke a Cuban cigars, but you can

533
00:31:17,760 --> 00:31:20,400
Speaker 1: dip them in your Cuban wrong before you there you go.

534
00:31:20,480 --> 00:31:23,880
Speaker 1: They have lifted the value limitation on alcohol and tobacco products.

535
00:31:23,960 --> 00:31:26,680
Speaker 1: Persons subject to US jurisdiction will be further authorized to

536
00:31:26,760 --> 00:31:29,680
Speaker 1: import Cuban origin merchandise acquired in third countries into the

537
00:31:29,720 --> 00:31:31,760
Speaker 1: US as a companied baggage. So yes, Tom, your Reid

538
00:31:31,960 --> 00:31:35,400
Speaker 1: is correct. The cigars and rum, the individual can bring

539
00:31:35,480 --> 00:31:38,400
Speaker 1: them back or can we send the surveillance Golf Street.

540
00:31:45,360 --> 00:31:48,920
Speaker 1: I remember Bay of Pigs vaguely. I remember the silence

541
00:31:49,400 --> 00:31:52,520
Speaker 1: in the house. I don't remember the details, but it's

542
00:31:52,640 --> 00:31:55,080
Speaker 1: it's amazing to see this. This is from the Secretary

543
00:31:55,080 --> 00:31:59,680
Speaker 1: of Treasury, Jacob J. Lou The Treasury Department has worked

544
00:31:59,720 --> 00:32:02,280
Speaker 1: to bring down economic barries and areas such as travel,

545
00:32:02,320 --> 00:32:05,520
Speaker 1: trade and commerce. He goes on to saying, we hope

546
00:32:05,520 --> 00:32:09,760
Speaker 1: there'll be an American bank on every quarter with the

547
00:32:09,800 --> 00:32:12,760
Speaker 1: c f R A on banking, Eric, what does the

548
00:32:12,920 --> 00:32:19,320
Speaker 1: opening of Cuba mean for our American international and frankly

549
00:32:19,480 --> 00:32:24,040
Speaker 1: Florida regional banks? Have you thought about that? Yeah, I

550
00:32:24,080 --> 00:32:30,280
Speaker 1: think that would probably be a relatively uh small benefit,

551
00:32:30,760 --> 00:32:36,520
Speaker 1: but symbolic. Yeah, may perhaps symbolic, but uh, it's a

552
00:32:36,560 --> 00:32:39,800
Speaker 1: small country, and uh maybe for yeah, like you said,

553
00:32:39,840 --> 00:32:43,400
Speaker 1: for regional banks that are in the Florida, we're a

554
00:32:43,400 --> 00:32:48,440
Speaker 1: small country. Cubas a Swapan, Eric, there are five banks

555
00:32:48,480 --> 00:32:50,880
Speaker 1: on every corner in New York City. When does the

556
00:32:51,000 --> 00:32:58,240
Speaker 1: silliness end? Well, we have seen some rationalization taking place. Um.

557
00:32:58,320 --> 00:33:01,320
Speaker 1: One of the most aggressive ones is JP Morgan Chase.

558
00:33:01,760 --> 00:33:05,600
Speaker 1: They are closing a lot of the legacy branches that

559
00:33:05,720 --> 00:33:07,760
Speaker 1: they have. I mean keep in mind that they're a

560
00:33:07,800 --> 00:33:14,720
Speaker 1: combination of uh Chase, Manhattan Manufacturer's Hanover Chemical Bank one,

561
00:33:14,840 --> 00:33:18,120
Speaker 1: so they can close a lot of legacy branches. And

562
00:33:18,160 --> 00:33:22,760
Speaker 1: I think that we're also seeing that from Toronto Dominion. Uh,

563
00:33:22,800 --> 00:33:24,920
Speaker 1: they are closing a lot of the old commerce bank

564
00:33:25,120 --> 00:33:28,840
Speaker 1: branches so UM, I think and also with fifth third

565
00:33:29,360 --> 00:33:32,560
Speaker 1: UH they announced the closure of one branches. So I

566
00:33:32,600 --> 00:33:35,480
Speaker 1: think that we have seen the high water mark in

567
00:33:35,720 --> 00:33:39,120
Speaker 1: US bank branches. How about the transition to digital I'm

568
00:33:39,160 --> 00:33:42,480
Speaker 1: looking at the Wells report out this morning. Customer visits

569
00:33:42,480 --> 00:33:46,960
Speaker 1: with branch bankers fell in September compared with the previous month.

570
00:33:47,360 --> 00:33:49,640
Speaker 1: Looking at the number of people who opened consumer checking

571
00:33:49,640 --> 00:33:53,080
Speaker 1: accounts that dropped UH and a note here in the

572
00:33:53,120 --> 00:33:56,360
Speaker 1: Bloomberg News story, Wells did not give a cause for

573
00:33:56,400 --> 00:33:59,720
Speaker 1: the declines. How are these big banks handling that transition

574
00:33:59,760 --> 00:34:02,840
Speaker 1: to the digital space. Well, I think they're handling it

575
00:34:03,000 --> 00:34:07,920
Speaker 1: extremely well. The larger banks have the resources to build

576
00:34:08,000 --> 00:34:12,719
Speaker 1: up their digital presence. UH, pn C and t D

577
00:34:13,200 --> 00:34:17,120
Speaker 1: have been leaders there, I think also JPM UM and

578
00:34:18,480 --> 00:34:20,520
Speaker 1: in the in the longer run, that's a lot less

579
00:34:20,560 --> 00:34:25,640
Speaker 1: expensive in keeping open expensive branches and paying people. UM.

580
00:34:25,680 --> 00:34:29,719
Speaker 1: They also have cut the number of people in each

581
00:34:29,800 --> 00:34:33,799
Speaker 1: branch unless people are needed as technology improved. Do you

582
00:34:34,000 --> 00:34:38,120
Speaker 1: perceive that a regional could do merger merger mergers and

583
00:34:38,239 --> 00:34:42,400
Speaker 1: become a mega big bank like does PNC with operating

584
00:34:42,400 --> 00:34:49,640
Speaker 1: income of five maybe six billion? Do they aspire to

585
00:34:49,760 --> 00:34:56,800
Speaker 1: approach JP Morgan's thirty two billion of operating income. I

586
00:34:57,080 --> 00:35:01,520
Speaker 1: don't think that they want to go up there um.

587
00:35:01,600 --> 00:35:06,120
Speaker 1: And that's simply because the liquidity and capital requirements will

588
00:35:06,160 --> 00:35:09,279
Speaker 1: be so tremendous when they get up there. I mean,

589
00:35:09,360 --> 00:35:13,399
Speaker 1: the fifth largest bank in the country is US bangcorps UM.

590
00:35:13,480 --> 00:35:17,440
Speaker 1: Let's let's put it this way. PNC has assets of

591
00:35:17,640 --> 00:35:22,520
Speaker 1: three hundred seventy billion dollars, which is well below the

592
00:35:22,719 --> 00:35:25,839
Speaker 1: big four, which are around two trillions UM. And and

593
00:35:25,840 --> 00:35:30,320
Speaker 1: that's simply a function of liquidity and the higher capital

594
00:35:30,400 --> 00:35:33,399
Speaker 1: ratios that are demanded. Eric. Thank you so much, Erico.

595
00:35:33,480 --> 00:35:38,680
Speaker 1: I'm just brilliant today. Uh and on the banking business.

596
00:35:38,680 --> 00:35:42,000
Speaker 1: Will have much more on this. City Group. City Group

597
00:35:42,040 --> 00:35:45,360
Speaker 1: was his best. I didn't know this, David Garran, researching

598
00:35:45,400 --> 00:35:49,840
Speaker 1: the important announcement from Treasury on trade with Cuba. President

599
00:35:49,920 --> 00:35:53,120
Speaker 1: Kennedy's favorite cigar was the h Upman. This according to

600
00:35:53,160 --> 00:35:56,719
Speaker 1: The Observer, UH the night before he signed the embargo

601
00:35:56,840 --> 00:36:07,400
Speaker 1: in peace Sallenger to go out the acclaim, Pierre Salinger

602
00:36:07,400 --> 00:36:10,359
Speaker 1: to go out and buy every box and Washington here.

603
00:36:10,440 --> 00:36:12,360
Speaker 1: Salinger was the first one on the beach of the

604
00:36:12,360 --> 00:36:15,920
Speaker 1: baby picks to get the cigars get back before the

605
00:36:16,120 --> 00:36:19,720
Speaker 1: brutal guy who's who's who's looking at the new Cuban

606
00:36:19,800 --> 00:36:23,399
Speaker 1: cigars of two thousand and sixteen says they are so

607
00:36:23,520 --> 00:36:31,200
Speaker 1: mild that you want them to age ten or years.

608
00:36:32,400 --> 00:36:34,399
Speaker 1: I don't know, you know that it's a bit, that's

609
00:36:34,400 --> 00:36:38,040
Speaker 1: a big deal Fox, but everybody can say it's been

610
00:36:38,120 --> 00:36:44,160
Speaker 1: a lifetime David of Cuba over there the White House

611
00:36:44,560 --> 00:36:46,680
Speaker 1: issuing a statement on this as well, President Obama, who

612
00:36:46,760 --> 00:36:49,640
Speaker 1: was in Havannah recently, saying these changes represented with the

613
00:36:49,640 --> 00:36:51,759
Speaker 1: progress I saw first hand when I visited Havanna to

614
00:36:51,800 --> 00:36:53,840
Speaker 1: personally extend a hand of friendship to the Cuban people.

615
00:36:54,280 --> 00:36:57,040
Speaker 1: That quick flight over ninety miles of blue water belied

616
00:36:57,120 --> 00:36:59,680
Speaker 1: the real barriers of the past that were crossed that day.

617
00:36:59,760 --> 00:37:03,040
Speaker 1: So yeah, some some real movement here. It's it's just

618
00:37:03,719 --> 00:37:07,439
Speaker 1: it's like on a formal report and and and I

619
00:37:07,480 --> 00:37:20,799
Speaker 1: can't concentrate. Thanks for listening to the Bloomberg Surveillance podcast.

620
00:37:21,120 --> 00:37:26,240
Speaker 1: Subscribe and listen to interviews on iTunes, SoundCloud, or whichever

621
00:37:26,400 --> 00:37:30,840
Speaker 1: podcast platform you prefer. I'm out on Twitter at Tom Keene.

622
00:37:30,920 --> 00:37:34,719
Speaker 1: David Gura is at David Gura. Before the podcast. You

623
00:37:34,719 --> 00:37:51,239
Speaker 1: can always catch us worldwide. I'm Bloomberg Radio. Who you

624
00:37:51,280 --> 00:37:55,160
Speaker 1: put your trust in matters. Investors have put their trust

625
00:37:55,200 --> 00:37:58,520
Speaker 1: in independent registered investment advisors to the tune of four

626
00:37:58,680 --> 00:38:03,720
Speaker 1: trillion dollars. Why learn more and find your independent advisor

627
00:38:03,800 --> 00:38:06,239
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