Speaker 1: Who you put your trust in matters. Investors have put
Speaker 1: their trust in independent registered investment advisors to the tune
Speaker 1: of four trillion dollars. Why learn more and find your
Speaker 1: independent advisor dot com. Welcome to the Bloomberg Surveillance Podcast.
Speaker 1: I'm Tom Keene with David Gura. Daily we bring you
Speaker 1: insight from the best in economics, finance, investment, and international relations.
Speaker 1: Find Bloomberg Surveillance on iTunes, SoundCloud, Bloomberg dot com, and
Speaker 1: of course on the Bloomberg. A bevy of banking news
Speaker 1: this week a bebby. We've got the change in leadership
Speaker 1: at Wells Fargo of course announced yesterday, Deutsche Banks drama,
Speaker 1: the wrangling over its legal situation with the Department of
Speaker 1: Justice continuing, and then of course burnings out This morning,
Speaker 1: Tom from three the big banks, including Wells. We'll hear
Speaker 1: from City Group coming up at JP Morgan releasing its
Speaker 1: quarters report just minutes ago, the biggest US bank. Let
Speaker 1: me get that stuck up here right now. We had
Speaker 1: it before, a little bit of a lift, but uh, Christine,
Speaker 1: areper quite impressive. I was blown away by the thirteen
Speaker 1: percent r OE return on inequity. We'll have some chat
Speaker 1: on that here with Mr Hints. Brad Hints is at
Speaker 1: New York University of course years covering the banking and
Speaker 1: financial industry with Sanford Bernstein Professor n's good morning, Hi,
Speaker 1: how are you doing well? I think I'm good. I
Speaker 1: don't know how. Jamie Diamond's doing well here on ACCLAIM
Speaker 1: press conference and UH analyst calls as well. How badly
Speaker 1: does Mr Diamond and other bankers need a steeper yield curve? Well,
Speaker 1: it sounds h it sounds a couple of problems, right,
Speaker 1: It's not just steepness. If you notice the you'ld curve
Speaker 1: actually moved up, so it's wait, it actually went up
Speaker 1: across the entire curve. Um. But steepness will help them
Speaker 1: on their investment portfolio. Right now. You know I have this,
Speaker 1: I've got an investment portfolio. It's rolling off. I've got
Speaker 1: yield on that and port saying as it rolls off,
Speaker 1: my net interest gets squeezed. If if rates are low
Speaker 1: and the yield curve is is low and flat, as
Speaker 1: it starts to steepen, that solves one of the net
Speaker 1: interest margin problems. Of course, as the front end moves up,
Speaker 1: that helps my That helps my pricing in terms of loans,
Speaker 1: so that also helps me. So you know, the you know,
Speaker 1: the market has been focusing on the poor banks, you know,
Speaker 1: with their interest margins getting squeezed. This you know, if
Speaker 1: the if the moves are the right way, you know,
Speaker 1: it will take a lot of that pressure off them.
Speaker 1: They bring in a dollar, they bring in thirty five
Speaker 1: cents in operating income, which generates twenty two cents in
Speaker 1: net income. I would suggest, professor hints that borders on
Speaker 1: cartel return. That's why are the banks so beleaguered If
Speaker 1: I'm making twenty two it's on the dollar down at
Speaker 1: the bottom bottom bottom line. Well, it's a lot better
Speaker 1: than it, uh that that than we've seen in the
Speaker 1: in the past. And uh and and you know the
Speaker 1: banks have been struggling to beat their cost of capital.
Speaker 1: Uh you know the you know, with with luck, you know,
Speaker 1: this will be a somewhat better uh time for the
Speaker 1: for them going forward if rates continue to move in
Speaker 1: their direction. You know, it's you know, the third quarters
Speaker 1: are always you know, seasonally slower because because the markets
Speaker 1: tend to slow down in the summertime, right, So when
Speaker 1: you sort of look on quarter to quarter comparisons, at
Speaker 1: least on the investment banking site. Look a little bit funny, right,
Speaker 1: And and David, I've got to compare and contrast her
Speaker 1: Bank of America operating income is twenty seven, maybe twenty
Speaker 1: nine cents on the dollar and JP Morgan is thirty
Speaker 1: five or thirty six. That's that's in the game of finance.
Speaker 1: That's a big disparity in terms of profitability. Pulling back
Speaker 1: your fixed income trading at CHAP year over year four
Speaker 1: point three billion dollars, about a billion more than one
Speaker 1: analysts were expecting. Professor put that in some broader context
Speaker 1: for us. You're going into earnings today, a lot of
Speaker 1: people saying this is what to look for, look for
Speaker 1: the fixed income currencies and commodities. Sure, and you know
Speaker 1: what we saw over the summer was, you know, there's
Speaker 1: been you know that we've had very good credit uh
Speaker 1: in the credit markets, good volumes in there, and we've
Speaker 1: we've also had some positive movements in terms of credit
Speaker 1: spreads coming in the you know, Brexit um and you
Speaker 1: know caused a lot of volatilities. That's going to help
Speaker 1: in the gubbies and the sovereign side, and also going
Speaker 1: to pick it up in foreign exchange, So you know
Speaker 1: that's going to help the summer. So when you look
Speaker 1: at it, you know, last summer versus this summer, the
Speaker 1: year over a year, it's gonna look pretty good. When
Speaker 1: you start looking at some of the bank's quarter over quarter,
Speaker 1: you're not going to see the same thing, but you're
Speaker 1: going to have to recognize that. You know, summer is
Speaker 1: always slowed. This was a good summer for fixed income,
Speaker 1: and you know that's going to be a story that
Speaker 1: we're going to hear from these guys. The other issue
Speaker 1: you're going to hear is is investment banking right, and
Speaker 1: investment banking tends to be you know this this was
Speaker 1: we're beginning to see a slowdown and investment banking. We're
Speaker 1: talking with Axel Murk, the the co found of course
Speaker 1: of Merk Investments. We were talking about money market fund
Speaker 1: regulations that go into effect today. What effect do you
Speaker 1: think that's going to have here on on banks like
Speaker 1: JP Morgan um not Uh, everyone has seen that coming. Um.
Speaker 1: So you know, we've seen an adjustment in terms of
Speaker 1: issuance of commercial paper and that's actually affecting a lot
Speaker 1: in terms of the treasurers who who do financing. The
Speaker 1: banks are going to have have adjusted to that, and
Speaker 1: so you're going to see you know, where you do
Speaker 1: your financing, the tenor that you do for your financing. Um,
Speaker 1: it's it's not a surprise. I think most of the
Speaker 1: CFOs and treasures in America are are sort of well
Speaker 1: aware on this one. The concerns about credit persist here.
Speaker 1: On previous conference calls a lot of concerning consternation about
Speaker 1: energy credit in particular. Looking at the report that we
Speaker 1: got today, how much concern persists when it comes to
Speaker 1: credit and energy. Um, Well, we've seen the the the
Speaker 1: the oil prices recover. That doesn't solve credit problems in
Speaker 1: terms of troubled companies. It takes a while for these
Speaker 1: things to work their way through. So it's going to
Speaker 1: be a continuous It'll be people will ask questions, right,
Speaker 1: they'll they'll push on it. But the the the the
Speaker 1: immediacy is now gone. Right. The people we we we
Speaker 1: know there was a fire there, we're watching it. Right.
Speaker 1: It was when we saw smoke that the that the
Speaker 1: equity analysts began to get get very troubled. I want
Speaker 1: to go through four mumbo jumbo ideas we can do
Speaker 1: that with professor hints, I'm in the back of the
Speaker 1: class running a sea and Professor I got to get
Speaker 1: to a B plus fast fortress principles Tan your book
Speaker 1: fifty one three cents up eight percent, way out front
Speaker 1: of nominal GDP basil three tier one capital h billion
Speaker 1: eleven point nine firm s l R. I have no
Speaker 1: idea what that is, folks. It's a camera six point
Speaker 1: six and I love this one, Brad h q l
Speaker 1: A five thirty nine billion. All of this is footnoted
Speaker 1: and Joey Evangelista saving my butt today. Is this a
Speaker 1: fortress or is that just a marketing campaign? No, it's
Speaker 1: a fortress um the JPM and and you can you
Speaker 1: can say, you know most of the banks at this
Speaker 1: point and fortress balance sheets and you know, weaken with luck.
Speaker 1: If you can take this forward, the risk of the
Speaker 1: bank drops and you end up seeing the beta's going down.
Speaker 1: That hasn't happened, right, And because if you want the
Speaker 1: betas to go down, that's going to reduce the cost
Speaker 1: of capital. And these, you know, the somewhat anebic roes
Speaker 1: that you've seen from the banks may actually end up
Speaker 1: if they stay. If you know you'll you'll be beating
Speaker 1: your cost of capital. We're not there yet. There's still
Speaker 1: a lot of uncertainty on the banking side, but the
Speaker 1: credit risk to the banks has has gone down. Right there,
Speaker 1: They're sitting there with a lot of liquidity on their
Speaker 1: balance sheet. They're sitting with great capital positions. You know
Speaker 1: that that means that all of us can sleep well
Speaker 1: at night and the banking systems stable. Now, whether you
Speaker 1: want to invest in them, that's a different question. And
Speaker 1: Brad hints with us. Let's finish up here in JP
Speaker 1: Morgan and get Professor Hanson with his day. Brad and
Speaker 1: tell me about retail banking. Mr Diamond's killing it clearly
Speaker 1: within retail banking and those others doing it well and
Speaker 1: some better, some worse. David and I walked by David
Speaker 1: in Brooklyn. I'm in New York in excuse me, in Manhattan?
Speaker 1: And h did I say that? In Manhattan? When did
Speaker 1: the branches start closing down? Um, you've got you've got
Speaker 1: some some generational issues there, Tom right, which is uh,
Speaker 1: you know, I don't believe my twenty six year old
Speaker 1: son has ever visited a branch. He does everything electronically
Speaker 1: off of his cell phone. On the other hand, you know, yeah,
Speaker 1: I go over to my my little branch in New Vernon,
Speaker 1: New Jersey, and I know the people over there. So
Speaker 1: you know, there's the who the branch system has to
Speaker 1: be resized. JPM certainly is the dominant player in UH
Speaker 1: in New York City. UM. But you know, you you
Speaker 1: don't look only at the twenty year olds, right, and
Speaker 1: you recognize that the elder the elderly have all the
Speaker 1: wealth management. So keeping a few of those branches probably
Speaker 1: a good idea is the is the Boston merger thon
Speaker 1: is just one example, the merger thon of twenty or
Speaker 1: thirty years ago? Did that work out? What's for the
Speaker 1: for the banks as they rolled themselves? You remember names
Speaker 1: like n c NB, right, uh, I remember the Second
Speaker 1: National Bank of the United States. Um. Not as well
Speaker 1: as as people have had had hoped, but they did
Speaker 1: work for some. And you know, and we do know
Speaker 1: that their scale economics that exist in in in commercial banking,
Speaker 1: we still as the United States, we still have a
Speaker 1: very very fragmented banking system. Unfortunately, the large banks can't
Speaker 1: get larger, right, that's you know, the too large to
Speaker 1: fail problem, And so We're going to see a roll
Speaker 1: up of this. It's not going to happen right away,
Speaker 1: but it is. We're not seeing new banks being made
Speaker 1: right so the you know, they looking forward. You know,
Speaker 1: if you look, if you give a five year time horizon,
Speaker 1: you'd say, you know that the banking world will consider
Speaker 1: to consolidate. But it's going to consolidate below the large ones, right,
Speaker 1: it will consolidate at that next tier. Total credit card
Speaker 1: loans JP Morgan hundred and thirty three billion dollars. A
Speaker 1: few weeks back, our colleague Sam Grosbard wrote a piece
Speaker 1: for Bloomberg Business Week about the Chase Sapphire Reserve card.
Speaker 1: Demand incredibly high for this card, some that has a
Speaker 1: special plunk factor. They actually put metal in the middle
Speaker 1: of it to give it a special field of It
Speaker 1: is a wildly popular card. There is this competition Brad
Speaker 1: between City and JP Morgan when it comes to credit
Speaker 1: cards in the credit card space. How important is that
Speaker 1: to this bank going forward? Um very important to the City.
Speaker 1: Remember you know the City just did the Costco deal
Speaker 1: and that's that that's very very good for them. Credit
Speaker 1: cards are important for all of these banks. It's a
Speaker 1: major source of profitability, tough business right and and but
Speaker 1: it's it remains of one of the few areas where
Speaker 1: you can get very nice that interest margin off of
Speaker 1: a off of a portfolio. It's it's a core business
Speaker 1: of marketing, you know. And I think, JPM we can,
Speaker 1: you know, we can. We can say they've done it.
Speaker 1: They've done a great job with the Sapphire card. City's
Speaker 1: going on, you know, somewhat different idea which says we're
Speaker 1: gonna we're gonna tie in with with a costco, a
Speaker 1: retailer and pick up a portfolio that way. It's Brad
Speaker 1: has the scale for us is having you, and thank
Speaker 1: you so much, greatly appreciate it. Neil Duddy asked me
Speaker 1: this morning how do you do this? And then he said,
Speaker 1: why do you do this? This is why I do it. Daniel,
Speaker 1: you're gonna walked in the studio this morning and you
Speaker 1: think we'd speak with dr You're going about oil. One
Speaker 1: of his cottage industries is to be one of our
Speaker 1: great economic historians. The beginning of his classic Commanding Heights
Speaker 1: on an England Flat on its Back is one of
Speaker 1: the great moments in modern economic literature. And we're thrilled
Speaker 1: the doctor Organ joins us UM. This morning, Martin Wilf
Speaker 1: writes it up Dan in the Ft today about this
Speaker 1: failure of May to be like Thatcher. You are truly
Speaker 1: one of the experts on this beverage of the London
Speaker 1: School of Economics did a welfare study for England on
Speaker 1: want disease, ignorant squalor in idleness, and out of that
Speaker 1: came the welfare state of England. The Thatcher tore asunder,
Speaker 1: what is Prime Minister May trying to do now with
Speaker 1: the United Kingdom fled on its back. Of course, Uh,
Speaker 1: Thatcher tried to open the economy, make it competitive, but
Speaker 1: the welfare state, certainly UH continues and UH continues to
Speaker 1: be a very big part of the economy. So it
Speaker 1: hasn't gone away. I think Uh. Theresa May has a
Speaker 1: big problem, which is to define what is Britain going
Speaker 1: to be now? Now it's not going to be part
Speaker 1: of the EU. Is it gonna be little England or
Speaker 1: is it gonna be global England and some of it?
Speaker 1: And she's responding to the same pressures that you see
Speaker 1: across much of the industrial world. Of course, here in
Speaker 1: the United States is very vaccine and challenging question of
Speaker 1: immigration and all the emotions around it. I would suggest
Speaker 1: that Baroness Thatcher with Keith Joseph had a more organized,
Speaker 1: cohesive domestic politics to apply and to do. And that's
Speaker 1: that's absolutely run absolutely, you know, that's absolutely right, Tom,
Speaker 1: because they had had several years to think this through,
Speaker 1: to work at she's improvising, she's inherited this hand now
Speaker 1: and basically has uh that the rules of the road
Speaker 1: just are not clear. So there's been no time to
Speaker 1: think it out. So, as Martin Wolf points out, a
Speaker 1: lot of a rhetoric now is pulled from other places,
Speaker 1: even he suggests from Elizabeth Warren, just because of time here.
Speaker 1: Let's David Girl, have you switch over and talk about
Speaker 1: our American politics and the time that we've got with
Speaker 1: Dr Jurgen. Yeah. I mean, it's been phenomenal to to
Speaker 1: watch the last week on Old, the reporting in the
Speaker 1: New York Times, the story after story seeming to roll
Speaker 1: out here about Donald Trump, this campaign going off the
Speaker 1: rails more perhaps than it than it had been. You know,
Speaker 1: we were we were speaking with San Colindar yesterday about
Speaker 1: the prospects for congressional action for something happening in Washington
Speaker 1: next year. He is, let's say, pessimistic on the subject.
Speaker 1: When do we return to a place where there is
Speaker 1: governance happening in Washington? Again? Dr Yurgan, the question will
Speaker 1: we return to Well, I think that people point out
Speaker 1: that when Hillary Clinton was a Senator, she worked across
Speaker 1: the aisles and UH would be much you know, works
Speaker 1: with people. And of course, right almost from the beginning,
Speaker 1: there was this gulf between UH, the administration and UH
Speaker 1: and Congress. We saw it most One example that we
Speaker 1: saw just very recently was on this bill that lifted
Speaker 1: sovereign immunity UH towards Saudi Arabia and just a lack
Speaker 1: of communication. The day before the vote, the President sent
Speaker 1: to letters the results would be devastating for the United States,
Speaker 1: for our military personnel or diplomatic personnel. But there was
Speaker 1: no UH. There was no traction UH until the very
Speaker 1: last moment. I'm glad that you brought that up, that
Speaker 1: we can get into oil a little bit here, Tom,
Speaker 1: I I wonder what we've heard from the audies since
Speaker 1: that legislation was passed, Since that veto by President Obama
Speaker 1: was was overwritten. Of course, there were the warning warning
Speaker 1: signs beforehand from the Saudis that if this were to happen,
Speaker 1: they would sell off treasuries and and dead. What reaction
Speaker 1: have we seen and moving to oil here a bit?
Speaker 1: You know, what is that? What does that due to
Speaker 1: the region having this this new lawn. Plus I think
Speaker 1: it raises questions whether the US government is going to
Speaker 1: get sued from by you know, drone strikes things like that.
Speaker 1: I mean, that's the big concern. And so you saw
Speaker 1: twenty eight senators after the legislation was passed saying, you know,
Speaker 1: maybe we've got to look at some aspects of it.
Speaker 1: I think that this message from the Saudis was kind
Speaker 1: of shocked that that had passed. Uh. They have a
Speaker 1: lot of other things on their agenda right now. Particularly,
Speaker 1: I mean, this is a cop in the country that
Speaker 1: just invested three and a half billion dollars in uber uh.
Speaker 1: So thinking through that. Uh And meanwhile, of course they're
Speaker 1: moving ahead with this huge vision twenty thirty to remake
Speaker 1: their economy and no longer be dependent on oil. Did
Speaker 1: you think at my script today you say vision thirty
Speaker 1: Daniel or Urgan three years ago, power in two thousand
Speaker 1: and thirty. Of course, off your wonderful book the quest
Speaker 1: Where will this nation be in two thousand thirty our nation?
Speaker 1: Or saunding our nation? Um, that's what is that? That's
Speaker 1: fourteen years away. It's called three more Painful president. Well,
Speaker 1: it does raise the question of what a presidential election
Speaker 1: is going to be like in the future and what
Speaker 1: lessons are going to be taken away, uh from this
Speaker 1: campaign in terms of organization. Uh, you know, this is
Speaker 1: what we're seeing now unfolding is hardly anything that would
Speaker 1: have been imagined a year ago. And of course when
Speaker 1: you travel in the rest of the world, people are
Speaker 1: kind have been shocked watching this presidential election, saying what
Speaker 1: you're going to tell us about how to run a
Speaker 1: democracy with your scope of economics and history. We have
Speaker 1: Michael Kayson on at Georgetown the other day and on
Speaker 1: William Jennings. Bryan, do you look at this as a
Speaker 1: one off event or is there a permanence to what
Speaker 1: we've seen, the tumult that we've seen within the Republican Party. Well,
Speaker 1: I think that that. Obviously, they're very powerful forces that
Speaker 1: have come to the fore and these issues. I mean,
Speaker 1: what was the issue that really galvanized is immigration, even
Speaker 1: though apparently right now there is no net immigration coming
Speaker 1: from Mexico. Uh So I think these forces are there.
Speaker 1: And the thing is, we do need higher economic growth.
Speaker 1: We do need inclusiveness and and more entrepreneurial energy in
Speaker 1: our society, not just in Silicon Valley. What a joyous,
Speaker 1: surprising Friday, Daniel. You're gonna can't say enough about as
Speaker 1: most recent effort, the Quest m It is a synthesis
Speaker 1: of all that he's done and moves forward on this
Speaker 1: nation and our energy. Mr. Y, we we we almost
Speaker 1: were oil free. This we'll do that. Next to who
Speaker 1: you put your trust in matters, investors have put their
Speaker 1: trust in independent registered investment advisors to the tune of
Speaker 1: four trillion dollars. Why they see their role is to serve,
Speaker 1: not sell. That's why Charles Schwab is committed to the
Speaker 1: success of over seven thousand independent financial advisors who passionately
Speaker 1: dedicate themselves to helping people achieve their financial goals. Learn
Speaker 1: more and find your independent advisor dot com. We need
Speaker 1: to go to Boston and Michael McKee at a very
Speaker 1: important summitt at Toughs University. Good morning, Michael, Good morning Tom.
Speaker 1: And the good news for you is the Boston Bruins
Speaker 1: opened the season with a six to three win. Brad
Speaker 1: Marshan scores two goals, gets three assists to open the season.
Speaker 1: That's your report from Boston that I knew you wanted
Speaker 1: to have. Got that right. We're here with that from
Speaker 1: James from the it's our old friend, uh the Deed
Speaker 1: of the Fletcher School at Toughs University, and they are
Speaker 1: hosting a conference today on the future of Greece. It's
Speaker 1: Greece's turn, and we welcome the Admiral to the program.
Speaker 1: We came up for the for the conference because of
Speaker 1: course it's always great to talk to you about national
Speaker 1: security issues and graces. It's been a financial crisis for
Speaker 1: the world, but you also look at it, and you
Speaker 1: told us this before that it is a major national
Speaker 1: security issue given its geographic location exactly. You know, we're
Speaker 1: talking sports a minute ago. Think about baseball, think about
Speaker 1: the hot corner, the third base. Greece is kind of
Speaker 1: the hot corner for Europe. It's the closest to the
Speaker 1: batter in terms of offensive action, and so Greece is
Speaker 1: going to be the canary in the in the mind
Speaker 1: shaft in terms of refugees, terrorism, they're in a very
Speaker 1: precarious position, and we need to stand with Greece, and
Speaker 1: that's part of what this conference is about. Like, one
Speaker 1: of the questions that people have is we went into
Speaker 1: the crisis in two thousand nine, and in two thousand
Speaker 1: and ten they started with rescue plans, and they're still
Speaker 1: not out of it and things still seem to be deteriorating.
Speaker 1: I know you've been meeting for a day already on
Speaker 1: this have you have you come to any conclusions as
Speaker 1: to why, Well, it is a conference about Greece, so
Speaker 1: you'll allow me to reach into Greek mythology. Uh. One,
Speaker 1: it's like Sisyphus, you kind of roll the boulder up,
Speaker 1: you make progress, but it seems to kind of keep
Speaker 1: coming back down. And the other one less well known
Speaker 1: as Tantalus, who was tied to a tree, punished by
Speaker 1: the gods and dying of hunger and thirst, and the
Speaker 1: wind would glow apples almost within his reach, and the
Speaker 1: water would raise almost to his lips. So I think
Speaker 1: we've got a little bit of Sysiphus and a little
Speaker 1: bit of Tantalus going on. But I was in Greece
Speaker 1: a week ago, and I think we are beginning to
Speaker 1: turn corner there. I think we are going to see
Speaker 1: positive growth numbers there next year. Stamp tiny but positive. Well.
Speaker 1: One of the things people worry about with Greece's geographic
Speaker 1: location is obviously the introduction of bad guys into the region.
Speaker 1: In the early days of the crisis, there was a
Speaker 1: lot of talk about bringing in loans from China, bringing
Speaker 1: in loans from Russia. Never happened. Uh. What's the Greek
Speaker 1: feeling about the United States and about these other actors.
Speaker 1: They've never been a particularly great friend of the United States,
Speaker 1: but they haven't allied themselves with the other side either. Yeah.
Speaker 1: I think if you look at the long relationship of
Speaker 1: Greece with the United States, it's uh, it's overall pretty positive.
Speaker 1: And I'll stipulate I'm a Greek American, so I'm predisposed
Speaker 1: to think that way. But remember our values come from Greece.
Speaker 1: We have a long history of supporting them in independence,
Speaker 1: We have a World War Two history with Greece. And
Speaker 1: to answer the question of how it is today, I'd
Speaker 1: say it's some mixed picture. There are a number of
Speaker 1: people in Race who would like to see close for
Speaker 1: alignment with Russia, for example, Mike, because of the Orthodox
Speaker 1: connections there. But I think overall, Grief stands with the West,
Speaker 1: stands with NATO, and stands with the United States. Bon
Speaker 1: NATO is a big question of because you got Turkey
Speaker 1: right across the Bosporus there, which at one point was
Speaker 1: thought to be the next candidate to join the European Union,
Speaker 1: and now seems to be moving away. How do you
Speaker 1: assess what's going on with Turkey and the region. We
Speaker 1: have a president in Turkey, a president in Urdwan who
Speaker 1: is consolidating power as a chief executive. This coup has
Speaker 1: actually helped him because it's given him the opportunity to
Speaker 1: purge numerous political and military opponents to his regime. Uh
Speaker 1: he himself is drawing closer to Russia. So I think
Speaker 1: Turkey is going to be a problematic ally, but I'm
Speaker 1: I'm confident over time we can keep Turkey in the
Speaker 1: Transatlantic orbit. And you're right to say we moved away
Speaker 1: from a spot in the European Union for Turkey. But
Speaker 1: I think over time you'll see them come back because
Speaker 1: the other options really aren't that good for them long term.
Speaker 1: They don't want to be aligned with Russia and it's
Speaker 1: undoubtedly failing economy in the twenty first century. But they've
Speaker 1: been making awfully nice with Prutent lately. They have, and
Speaker 1: that's a function of of Urdwan's desire to appear very
Speaker 1: strong internally, his displeasure with the United States over our
Speaker 1: support for the Kurdish rebels in our retissans, in returning
Speaker 1: this Ghoulinist cleric who has taken refuge here in the
Speaker 1: United States, and or to one thinks you let the coup.
Speaker 1: Those are tactical challenges I think long term Turkey strategic
Speaker 1: futures with Europe and with the United States. It'll play
Speaker 1: out that way, may take us a few years to
Speaker 1: get there. Let me ask you, as long as you
Speaker 1: brought up the Curds quickly, we got about a minute
Speaker 1: left here. Um, Iraq, where are we with that? This
Speaker 1: talk of the US arming the Curds that just brings
Speaker 1: in Turkey into it. Um. It seems like we're not
Speaker 1: any closer to any kind of solution there. It's a
Speaker 1: tough puzzle to put together. On Iraq. Were vastly better
Speaker 1: than we were a year and a half ago when
Speaker 1: the Islamic State was on the gates of Baghdad. Now
Speaker 1: they're pushed back. We're going to take Mozel back in
Speaker 1: the next six months. I think the long term future
Speaker 1: for Iraq is a decentralized government. The currents are going
Speaker 1: to have to have a fair amount of authority, but
Speaker 1: I think Iraq holds together as a national entity. Well,
Speaker 1: the beats go on this morning. When it comes to banking.
Speaker 1: We had JP Morgan first, followed by City and then
Speaker 1: well as I'm bringing Eric oj hes U S Banks
Speaker 1: analyst with cf R A joining us now and Eric,
Speaker 1: I wonder if you could just draw a line of
Speaker 1: distinction for US here. How this the third quarter seems
Speaker 1: to be shaping up compared to the second. What's changed
Speaker 1: here over the last quarter? Well, it's actually relatively similar
Speaker 1: to the second quarter. Hall that in the second quarter,
Speaker 1: expectations were extremely low because of the losses that were
Speaker 1: recorded in the first quarter, and most of the US banks,
Speaker 1: certainly the largest ones, beat on top and bottom line.
Speaker 1: So what we're seeing this morning is the same thing.
Speaker 1: The four major banks that reported this morning have all
Speaker 1: beaten on top line and bottom line expectations, which were
Speaker 1: relatively low going into this quarter. What are we seeing
Speaker 1: in terms of credit? I wonder when you look at
Speaker 1: these banks credit portfolios, are there points of any concern
Speaker 1: for you? When you look at say commercial lending or
Speaker 1: you look at student loans on the credit side of things,
Speaker 1: what do you most focused on are most worried about? Well,
Speaker 1: in credit, we're most focused on, as is everybody on
Speaker 1: consumer lending, particularly auto and credit cards. And there is
Speaker 1: some slight deterioration, but we see trends as relatively stable. Uh.
Speaker 1: One data point is that JP Morgan Chase is building
Speaker 1: up its reserves for cards, but they say they're doing
Speaker 1: that because of growth, not deterioration. But our job as
Speaker 1: analysts dig into that a little bit. So credit quality
Speaker 1: peaked probably a couple of quarters ago. Eric, your job
Speaker 1: is to be stuck picker of the year in two
Speaker 1: thousand nine for Standard and Poors, which is a unique
Speaker 1: skill set, folks, very different. There's a research of a
Speaker 1: company and their relative performance to a group, and then
Speaker 1: there's just card the cardinal thing of by hold cell
Speaker 1: how by e holdy celly is the bank group right now?
Speaker 1: Do you have a real vision where the bank group
Speaker 1: will be twelve months or thirty six months out? Well,
Speaker 1: we have by recommendations on all of the top US banks.
Speaker 1: We think they're slightly undervalued on a pe basis um
Speaker 1: relative of to where they've been in the past. We
Speaker 1: think that they will continue to improve um. Loan growth
Speaker 1: is relatively strong, the returns of capital are improving. As
Speaker 1: long as the US economy slowly grows, I think that
Speaker 1: they can take global market here. Let me ask you
Speaker 1: my money question, which is, can you model the single
Speaker 1: digitness of their dividend growth? Are they going to be subpar? Midpar?
Speaker 1: Are they really gonna, you know, add a dividend growth
Speaker 1: above revenue growth above nominal GDP. I think that their
Speaker 1: dividends will start to accelerate in growth. And one of
Speaker 1: the reasons is that the original cap that the Federal
Speaker 1: Reserve had, you know, its banks were really uh not
Speaker 1: supposed to pay out more than thirty of normalized EPs.
Speaker 1: And it looks like that HALP is starting to be relaxed,
Speaker 1: so perhaps they can go up to the fort range.
Speaker 1: So that should certainly help with dividend growth going forward.
Speaker 1: And yes, we see dividends growing faster than GDP. We
Speaker 1: had this fixed income trading slump went on for a while.
Speaker 1: Now seems that we've come out of that come out
Speaker 1: of that loudly. It seems like when you look at
Speaker 1: JP Morgan especially here, do you think that's going to
Speaker 1: continue for some time? No? I think, um, from what
Speaker 1: I heard on the JPM conference called it is underway
Speaker 1: right now, is that Q four will moderate. So UH
Speaker 1: Q two and Q two, Q two and Q three
Speaker 1: were large out performances in terms of trading. Some of
Speaker 1: that was due to the Brexit volatility, and some of
Speaker 1: it was due just to what the results were a
Speaker 1: year ago as a comparison. UH comparisons are easing, um,
Speaker 1: but results in trading were far better than expected. Do
Speaker 1: you have a single best buy right now? We have
Speaker 1: a strong by recommendation on the shares of City Group
Speaker 1: and that's based on Yeah. Do they just close the
Speaker 1: r o E gap? Is that what that's about? Yeah?
Speaker 1: I mean there are always so far below piers. It's
Speaker 1: around six percent, while JPM is is ten whilst fargoes
Speaker 1: twelve percent. So we think they're closing the gap and
Speaker 1: that Um, it just takes many, many years to keep
Speaker 1: building the r o E. But at the legacy City
Speaker 1: Holdings assets wind down, we think the r o E
Speaker 1: growth will accelerate, David ga we need to bring the
Speaker 1: show to a screeching halt. Nine oh three Andy seconds.
Speaker 1: This morning a missile from the Secretary of Treasury to
Speaker 1: one d U S. Treasure Department, Office of Public Affair,
Speaker 1: Immediate release. Do I understand that they've lifted the ban
Speaker 1: on Cuban cigars the ban on importation of Cuban origin
Speaker 1: merchandise as accompanied baggage for personal use? Only will you
Speaker 1: be able to smoke a Cuban cigars, but you can
Speaker 1: dip them in your Cuban wrong before you there you go.
Speaker 1: They have lifted the value limitation on alcohol and tobacco products.
Speaker 1: Persons subject to US jurisdiction will be further authorized to
Speaker 1: import Cuban origin merchandise acquired in third countries into the
Speaker 1: US as a companied baggage. So yes, Tom, your Reid
Speaker 1: is correct. The cigars and rum, the individual can bring
Speaker 1: them back or can we send the surveillance Golf Street.
Speaker 1: I remember Bay of Pigs vaguely. I remember the silence
Speaker 1: in the house. I don't remember the details, but it's
Speaker 1: it's amazing to see this. This is from the Secretary
Speaker 1: of Treasury, Jacob J. Lou The Treasury Department has worked
Speaker 1: to bring down economic barries and areas such as travel,
Speaker 1: trade and commerce. He goes on to saying, we hope
Speaker 1: there'll be an American bank on every quarter with the
Speaker 1: c f R A on banking, Eric, what does the
Speaker 1: opening of Cuba mean for our American international and frankly
Speaker 1: Florida regional banks? Have you thought about that? Yeah, I
Speaker 1: think that would probably be a relatively uh small benefit,
Speaker 1: but symbolic. Yeah, may perhaps symbolic, but uh, it's a
Speaker 1: small country, and uh maybe for yeah, like you said,
Speaker 1: for regional banks that are in the Florida, we're a
Speaker 1: small country. Cubas a Swapan, Eric, there are five banks
Speaker 1: on every corner in New York City. When does the
Speaker 1: silliness end? Well, we have seen some rationalization taking place. Um.
Speaker 1: One of the most aggressive ones is JP Morgan Chase.
Speaker 1: They are closing a lot of the legacy branches that
Speaker 1: they have. I mean keep in mind that they're a
Speaker 1: combination of uh Chase, Manhattan Manufacturer's Hanover Chemical Bank one,
Speaker 1: so they can close a lot of legacy branches. And
Speaker 1: I think that we're also seeing that from Toronto Dominion. Uh,
Speaker 1: they are closing a lot of the old commerce bank
Speaker 1: branches so UM, I think and also with fifth third
Speaker 1: UH they announced the closure of one branches. So I
Speaker 1: think that we have seen the high water mark in
Speaker 1: US bank branches. How about the transition to digital I'm
Speaker 1: looking at the Wells report out this morning. Customer visits
Speaker 1: with branch bankers fell in September compared with the previous month.
Speaker 1: Looking at the number of people who opened consumer checking
Speaker 1: accounts that dropped UH and a note here in the
Speaker 1: Bloomberg News story, Wells did not give a cause for
Speaker 1: the declines. How are these big banks handling that transition
Speaker 1: to the digital space. Well, I think they're handling it
Speaker 1: extremely well. The larger banks have the resources to build
Speaker 1: up their digital presence. UH, pn C and t D
Speaker 1: have been leaders there, I think also JPM UM and
Speaker 1: in the in the longer run, that's a lot less
Speaker 1: expensive in keeping open expensive branches and paying people. UM.
Speaker 1: They also have cut the number of people in each
Speaker 1: branch unless people are needed as technology improved. Do you
Speaker 1: perceive that a regional could do merger merger mergers and
Speaker 1: become a mega big bank like does PNC with operating
Speaker 1: income of five maybe six billion? Do they aspire to
Speaker 1: approach JP Morgan's thirty two billion of operating income. I
Speaker 1: don't think that they want to go up there um.
Speaker 1: And that's simply because the liquidity and capital requirements will
Speaker 1: be so tremendous when they get up there. I mean,
Speaker 1: the fifth largest bank in the country is US bangcorps UM.
Speaker 1: Let's let's put it this way. PNC has assets of
Speaker 1: three hundred seventy billion dollars, which is well below the
Speaker 1: big four, which are around two trillions UM. And and
Speaker 1: that's simply a function of liquidity and the higher capital
Speaker 1: ratios that are demanded. Eric. Thank you so much, Erico.
Speaker 1: I'm just brilliant today. Uh and on the banking business.
Speaker 1: Will have much more on this. City Group. City Group
Speaker 1: was his best. I didn't know this, David Garran, researching
Speaker 1: the important announcement from Treasury on trade with Cuba. President
Speaker 1: Kennedy's favorite cigar was the h Upman. This according to
Speaker 1: The Observer, UH the night before he signed the embargo
Speaker 1: in peace Sallenger to go out the acclaim, Pierre Salinger
Speaker 1: to go out and buy every box and Washington here.
Speaker 1: Salinger was the first one on the beach of the
Speaker 1: baby picks to get the cigars get back before the
Speaker 1: brutal guy who's who's who's looking at the new Cuban
Speaker 1: cigars of two thousand and sixteen says they are so
Speaker 1: mild that you want them to age ten or years.
Speaker 1: I don't know, you know that it's a bit, that's
Speaker 1: a big deal Fox, but everybody can say it's been
Speaker 1: a lifetime David of Cuba over there the White House
Speaker 1: issuing a statement on this as well, President Obama, who
Speaker 1: was in Havannah recently, saying these changes represented with the
Speaker 1: progress I saw first hand when I visited Havanna to
Speaker 1: personally extend a hand of friendship to the Cuban people.
Speaker 1: That quick flight over ninety miles of blue water belied
Speaker 1: the real barriers of the past that were crossed that day.
Speaker 1: So yeah, some some real movement here. It's it's just
Speaker 1: it's like on a formal report and and and I
Speaker 1: can't concentrate. Thanks for listening to the Bloomberg Surveillance podcast.
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