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Speaker 2: This is the most important interview of the day. What
Speaker 2: you got to understand is most titles in the investment
Speaker 2: business are not like some think tank thing from senior management.
Speaker 2: They're mostly decided in a Starbucks, like a two forty
Speaker 2: Greenwich downtown. She has the greatest title of anybody and
Speaker 2: Surveillance Head of Investment Strategy in Equity Advisory Solutions. It
Speaker 2: bny mel and that can only be Alicia Levine. I
Speaker 2: have never seen the divergence of opinions like literally, I'm
Speaker 2: not exaggerating, never What is your equity advisory solutions in
Speaker 2: this chaos?
Speaker 3: So long and strong?
Speaker 4: But you're right, it has been a relentlessly frustrating year.
Speaker 4: There's a lot of fear about tariffs and policy and
Speaker 4: the speed with which unusual suggestions are coming out of
Speaker 4: the White House. I'll just call it that. And yet,
Speaker 4: and yet, we just had one of the greatest earning
Speaker 4: seasons in a long time. Earnings up about sixteen percent
Speaker 4: for the fourth quarter. Okay, and the market saying, what
Speaker 4: are you all yapping about? Okay, what do you all
Speaker 4: yapping about?
Speaker 3: Don't forget, it's a lot of y happening.
Speaker 5: We yep.
Speaker 4: But what it's earnings, its growth and its margins. We
Speaker 4: know this right, and it's interest rates. This is what
Speaker 4: drives market. So I love the conversation. We live for
Speaker 4: the conversation, that's what we do. But essentially we're looking
Speaker 4: at the fundamentals and we say, it's good that there's
Speaker 4: a two way market this year. I like the two
Speaker 4: way market because last year when everyone was on the
Speaker 4: same side of the boat. Oh there's no recession that
Speaker 4: you know, no hard landing, it's great, it's great as great.
Speaker 4: Fed's gonna cut seven times this year. Yeah, there's there's
Speaker 4: there's there's room.
Speaker 3: For error there.
Speaker 4: And I prefer investing in an environment like this where
Speaker 4: he's back and forth.
Speaker 2: Can you see this, folks on YouTube? You can you
Speaker 2: can address this. Alicia Levine, did you get the white
Speaker 2: blazer from Taylor Swift? Is that is that? Are you
Speaker 2: wearing the YSL white blazer today?
Speaker 3: I got my own style, yes, Alicia.
Speaker 6: So you talked about earnings coming in strong. It seems
Speaker 6: like this is a market that has to have earning
Speaker 6: because it doesn't seem like the Fed's going to do
Speaker 6: a lot for us this year. How confident are you
Speaker 6: that earnings can in fact come.
Speaker 7: Through this year.
Speaker 4: So I think earnings can come through this year. We've
Speaker 4: seen some degradation in the last week or two. I
Speaker 4: think this is management saying we're just not giving guidance
Speaker 4: right here right. I think there's just a reluctance to
Speaker 4: go all in because nobody knows what the policy is
Speaker 4: going to be, and so just leaving a little bit
Speaker 4: of wiggle room for an arbitrage on what sized tariff,
Speaker 4: ten percent, twenty five percent, which country. What we'd like
Speaker 4: to remind our clients and the market is the US
Speaker 4: has a massive trade deficit with Europe. If there are tariffs,
Speaker 4: our trade partners suffer more than we do. It's fascinating
Speaker 4: to me that Europe's out performing the US by the
Speaker 4: way on this. And the question you have to ask
Speaker 4: yourself is how sustainable is this?
Speaker 3: Because in the end, we slowly, slowly just.
Speaker 4: Increase our imports from Europe and rather than having you know,
Speaker 4: a trade surplus with them. That's what the market is
Speaker 4: sussing out. And in the end, the hit to earnings
Speaker 4: on one round is not going to be that high. Now,
Speaker 4: if there's retaliation, that's a very different story. But the
Speaker 4: market's telling you that it does not believe the White
Speaker 4: House essentially on this technology.
Speaker 6: Is technology going in the mag seven but just broader tech,
Speaker 6: whether it's chips or whatever.
Speaker 5: Is that going to continue to be the leader in
Speaker 5: this market? Or is this market? Does is it broadening out?
Speaker 5: Does it need to broaden?
Speaker 4: Feels more cyclical to us. Okay, so I think that
Speaker 4: I think that the mags. Look, the top ten stocks
Speaker 4: are thirty seven percent of the index. Now everybody's losing
Speaker 4: sleep over this. Oh, it's the most concentrated market ever.
Speaker 3: You know what.
Speaker 4: There's more concentration in Japan, there's more concentration in Germany.
Speaker 3: Okay, So concentration of the.
Speaker 4: Top ten is nothing unusual, nor is it fatal. I
Speaker 4: do think that there's just a breather here and some
Speaker 4: of the market, some of the multiple has to just
Speaker 4: sit and have.
Speaker 3: The earnings grow into it. Because the earnings are still
Speaker 3: very good Alicia Levine.
Speaker 2: With being y wealth with us. We welcome here in
Speaker 2: your community. Crossination on YouTube, Subscribe to Bloomberg Podcast. Alicia
Speaker 2: Levine has prodigious math skills, which she likes to hide,
Speaker 2: but the fact is she's got massively outstanding chops. So
Speaker 2: let's go there right now. When you look at the
Speaker 2: four cross moments, forget about the fancy stuff like kurtosis
Speaker 2: and arrests. Just look at the variance that creates an
Speaker 2: intelligent sharp ratio where you're getting a risk reward payoff
Speaker 2: twelve months out thirty six months out to diminish variants.
Speaker 2: Do I want to be less diversified more diversified? Do
Speaker 2: I want to do factor or sector analysis? Or is
Speaker 2: it every individual stock for itself?
Speaker 4: So I think this is a great year for individual stocks,
Speaker 4: thank you, rather than the index. That is a healthy market, right,
Speaker 4: so that makes for an interesting market. That's the two
Speaker 4: way conversation. I think that's where you want to be here,
Speaker 4: But that doesn't.
Speaker 2: Mean you well look ahead, continue please, But.
Speaker 4: That doesn't mean you just discard overall diversification.
Speaker 3: Diversification is the.
Speaker 4: Important of smoothing out of returns, and we've had clients
Speaker 4: that said to us last year, why am I even
Speaker 4: in overseas markets? Why should I bother with like you
Speaker 4: know x US developed and said, well, you have to
Speaker 4: because the valuation is so.
Speaker 3: Extreme that there is going to be there will be a.
Speaker 4: Day where there's some resolution of this, and you want
Speaker 4: to be in the market, and let me do it
Speaker 4: is to be in it, and Paul.
Speaker 2: What's important here is Katie Greidfeld's wonderful story on Vanguard
Speaker 2: and the index funds. Did you see those numbers? I
Speaker 2: mean everybody's going away from Alicia Levine, so there is
Speaker 2: two it. I mean they're all index index, index index, Alicia.
Speaker 6: How about some sectors if I want to go find
Speaker 6: some value in the US market outside of technology?
Speaker 5: What screens wall for you guys these days?
Speaker 4: So we love industrials, We love financials here. I mean
Speaker 4: financials are a really interesting story.
Speaker 5: Buying Jpmork and Goldman Sachs, that kind of thing.
Speaker 6: Am right?
Speaker 4: Well, I can't talk about specific names if we like overall,
Speaker 4: I think that the capital providers, the alternative capital providers,
Speaker 4: they're taking a pause here. There's a reason they after
Speaker 4: the election, because you're going to see more activity, friendlier
Speaker 4: face at the FTC. This is all good for financials. Listen,
Speaker 4: if you lessen the regulatory burden, that sector becomes less
Speaker 4: of a utility and more of a growth sector again,
Speaker 4: and then the multiple changes and in the end it's
Speaker 4: not just the earnings moving higher. Because of it, you
Speaker 4: get a better multiple, and we think that's sustainable.
Speaker 2: Here MAG seven.
Speaker 3: MAG seven is going to be well, it's been the
Speaker 3: LAG seven yea for.
Speaker 2: A cup of coffee. It's been the lag seven.
Speaker 3: For a cup of coffee.
Speaker 5: You look for three years, so three years.
Speaker 2: Yeah, I think Alicia doesn't drink senka. Let's be sure
Speaker 2: that's Lily. It's like early or whatever.
Speaker 3: Yeah, it's ULTI.
Speaker 4: But look, the MAG seven needs to at least be
Speaker 4: in line. In other words, it can't massively underperform the market.
Speaker 4: In order to get to the place where we think
Speaker 4: the market is.
Speaker 2: Your securities research would be in Why Wealth suggesting they will.
Speaker 4: Underperform, not that it'll underperform. We still think you have
Speaker 4: massive earnings and massive marge. The cash flow and cash flow, wello,
Speaker 4: I sat here many times talking about the cash flow margin.
Speaker 3: So the question is, does all.
Speaker 4: The spending on AI crush that cash flow margin?
Speaker 3: It does on the margin.
Speaker 4: The market lives in a second derivative, It lives on
Speaker 4: the rate of change, so to that you could get
Speaker 4: some just sort of flattening out of performance. But that
Speaker 4: doesn't mean it's over, and it doesn't mean it's two thousand.
Speaker 2: Thirty second audible. Alicia and I bust their chops about
Speaker 2: education of offspring, and that what's the tip point of
Speaker 2: one hundred thousand dollars a year tuition? When do people
Speaker 2: just say no?
Speaker 4: They're not saying no, They're not saying guys, the market's
Speaker 4: up fifty eight percent over the last two years. Real
Speaker 4: estate's up forty five percent in the last four years.
Speaker 3: No one's saying no.
Speaker 2: Alicia Levine, thank you so much, Absolutely brilliant. Thank you.
Speaker 1: You're listening to the Bloomberg Surveillance Podcast. Catch us Live
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Speaker 2: We've spent a couple of weeks trying to get him
Speaker 2: in here. He's with Hart Tree Partners. Edward Morris's absolutely
Speaker 2: definitive on hydrocarbon. Think of Daniel Jurgen's surprise. Ed Morris
Speaker 2: shows up about page twenty three in the prize from
Speaker 2: a few years ago definitive at City Group and of
Speaker 2: course now with Hart Tree Partners. When was the first
Speaker 2: time you were in riod.
Speaker 8: It was in the late nineteen seventies.
Speaker 2: With Faisal, with King Faisel.
Speaker 8: Yes, but I didn't see him at that point in time.
Speaker 2: What is the sharp okay, fine, but what is the
Speaker 2: strongest difference now between the Royalty of Riod Is They
Speaker 2: look out at this Maelstrom versus our stereotype of Saudi Arabia.
Speaker 8: So the sadiast have come a long way. They're looking
Speaker 8: at how to keep it public happy. They they are
Speaker 8: trying to diversify their economy as quickly as they can,
Speaker 8: and it's looking to the future rather than building on
Speaker 8: the present for the past.
Speaker 2: What is their relationship with Russia? This idea of Opec
Speaker 2: plus is it a what's a distinction of that relationship?
Speaker 8: The relationship is kind of critical. Think about where the
Speaker 8: Saudis are, where Opek is. The Saudis have a production
Speaker 8: capacity today between eleven and twelve million barrels a day.
Speaker 8: That's what they had in nineteen eighty nineteen eighty was
Speaker 8: a long time ago. OPEC's production capacity then was around
Speaker 8: thirty two to thirty three million barrels a day. Today
Speaker 8: it's thirty five thirty six million barrels a day. The
Speaker 8: oil market was then sixty million barrels a day and
Speaker 8: today it's one hundred million a day. So they discovered
Speaker 8: that they could not on their own balance the market,
Speaker 8: they could not put a floor under prices, and they
Speaker 8: needed to expand, and they had the opportunity to do
Speaker 8: so in the middle of the last decade when we
Speaker 8: had volatility across the planet, and a lot of that
Speaker 8: volatility was a result of the two fastest growing oil
Speaker 8: producing countries in the world, Russia and the United States.
Speaker 8: They were looking in the middle of the last decade,
Speaker 8: actually around twenty thirteen, just at the time before Russia
Speaker 8: had his first invasion of Ukraine, and they saw that
Speaker 8: the production growth was a million barrels a day in
Speaker 8: both countries if you look back a couple of years,
Speaker 8: and they decided to bring prices down. They thought if
Speaker 8: they could bring prices down to around seventy dollars a barrel,
Speaker 8: they would lose They would see the world lose two
Speaker 8: million barrels a day of oil and it didn't happen.
Speaker 2: Paul, I want to mention this. Everyone was looking for
Speaker 2: one hundred and it was a lone voice at City Group,
Speaker 2: a big grizzled Edward Morris, you know, a bit older,
Speaker 2: saying well, maybe not he nailed the move to seventy.
Speaker 6: So ed how do you think about Russia as a
Speaker 6: global supplier these days, because it seems like just in
Speaker 6: the last few days things are changing. When you think
Speaker 6: about the Trump administration how they're viewing Russia.
Speaker 5: Do you expect.
Speaker 6: Russia to be a bigger global supplier. I'm not sure
Speaker 6: where that oil went.
Speaker 8: You know, it all depends on when you're talking about
Speaker 8: what your horizon is and what could possibly happen. And
Speaker 8: you have to remember that it wasn't that long ago.
Speaker 8: It was twenty nineteen when Putin visited Russia, visited Saddi
Speaker 8: Raby right after the attack on the app Cake facility
Speaker 8: and said, listen, we're going to be cooperating with you
Speaker 8: through your Ramco IPO, and then we're going to be
Speaker 8: out on our own and section. The CEO of Roznev
Speaker 8: said right after that IPO, we're out on our own
Speaker 8: we are going to be growing oil production at home
Speaker 8: and abroad. They have right now the Vastok field in
Speaker 8: northern Siberia, and that field can produce its scheduled to
Speaker 8: produce two million incremental barrels a day. They are wash
Speaker 8: in oil and they need to do something about it.
Speaker 2: So President Trump says, drill, baby, drill, and we don't
Speaker 2: waste time on that. But what we can state with
Speaker 2: Edward Morse is oil a weapon for the United States
Speaker 2: in our geopolitics.
Speaker 8: Oil is certainly an important part of the foreign policy
Speaker 8: in the country. It cannot be weaponized other than the
Speaker 8: degree to which you can put sanctions on a country.
Speaker 8: I don't know what weaponizing it means. I don't know
Speaker 8: what we're going to pursue. Energy dominance means. I know
Speaker 8: what it means as a soft, powerful instrument of policy.
Speaker 8: And let me give you an example. We have become
Speaker 8: the largest exporter of energy in the world, the largest
Speaker 8: exporter of LNG. That LNG export growth enabled the United
Speaker 8: States to replace every drop of Russian energy, but particularly
Speaker 8: natural gas, going into Europe, and it did so at
Speaker 8: a time when it was able to globalize a gas
Speaker 8: market that had not been globalized. We have made oil
Speaker 8: because we don't allow destination restrictions. We've enabled natural gas
Speaker 8: to be global and the price of it is based
Speaker 8: at Henry Hubb in the United States. That's kind of
Speaker 8: soft diplomacy. We have an ability to expand l G globally,
Speaker 8: but it's a soft ability. We have an ability to
Speaker 8: say multilateral lending institutions ought to be pushing natural gas.
Speaker 8: They ought to be backstopping regasification. It's cleaner than coal,
Speaker 8: it's helpful to the global economy. But that's soft diplomacy.
Speaker 8: It's not using it as a weapon.
Speaker 6: So talk to us about the demand side of the equation.
Speaker 6: I know, when you think about some of these commodities,
Speaker 6: like global oil, you really have to have a call
Speaker 6: on demand.
Speaker 5: What do you think demand?
Speaker 2: Is brilliant question, But even more brilliant do you drive
Speaker 2: an EV?
Speaker 8: I got to tell you I did drive an EV
Speaker 8: until we moved back to New York full time, and
Speaker 8: then I discovered that it was too expensive to have
Speaker 8: a car to deal with Actually, the rush on garages
Speaker 8: right at the edge of the zone from where New
Speaker 8: York one to go south there.
Speaker 2: Coming up on the congestion text, Paul, continue with.
Speaker 5: Your demand view here of the next year or two.
Speaker 8: So as we know, there's been a difference of demand
Speaker 8: views between people in this country, between OPEK and the
Speaker 8: ia OPEK and the IAU. Demand is kind of very
Speaker 8: simple if you look at it. Historically, we've had a
Speaker 8: regular drop in the oil intensity of GDP around the world,
Speaker 8: starting at the really end of the post World War
Speaker 8: Two growth of road transport in reconstructed Europe, reconstructed Japan,
Speaker 8: and in the unterstate highway system in the US, We've
Speaker 8: had a year after year a drop in the percentage
Speaker 8: of demand growth per unit of GDP growth. Now, that
Speaker 8: doesn't mean that oil demand comes to an end. It
Speaker 8: means it slows down, okay. And to give you an example,
Speaker 8: if we go back to nineteen seventy seventy one, for
Speaker 8: every one percent increase in the world in global oil
Speaker 8: demand and GDP, there was a one point one point
Speaker 8: two percent increase in oil demand. Today's about zero point
Speaker 8: three to one. So if we have three percent global
Speaker 8: GDP growth, we have a million barrels a day on
Speaker 8: a one percent based on one hundred million barrel a
Speaker 8: day market of oil demand. And that's continuing to slide.
Speaker 8: So think of it as we're not going to have
Speaker 8: much more than million barrels a day of demand growth.
Speaker 2: We're going to thrilled that with us today. Edward Morris,
Speaker 2: of course you know I'm from City Group at harttreet Partners.
Speaker 2: Now definitive and geopolitics of oil and also of course
Speaker 2: pricing of will do you have at heart treat? Are
Speaker 2: you allowed to have a Brent guess? Do you have
Speaker 2: an oil barrel guess? Or is it a folk spot?
Speaker 8: No, No, it's not a problem. We live in the
Speaker 8: most volatile market the world has seen, based on things
Speaker 8: that are out of our control. We don't know what's
Speaker 8: going to happen here and there. It's a relatively evenly
Speaker 8: balanced market. But for the fact that Opek, going back
Speaker 8: to your first question, okay plus has taken so much
Speaker 8: oil out of the market that it now amounts to
Speaker 8: eight million barrels a day. That's a lot of shut
Speaker 8: in production capacity that can come on. And if we
Speaker 8: look at the volatility today, we have prices going up
Speaker 8: in part because of the drone attacks on the CPC
Speaker 8: pipeline coming out of the CASPI and bringing Russian and
Speaker 8: Kazakh oil into the Mediterranean. We have an announcement from
Speaker 8: Kurdistan from Baghdad that the pipeline from Kurdistan threw Turkey
Speaker 8: into the medical training is going to be revived next week.
Speaker 8: That's we've lost maybe three hundred thousand barrels a day
Speaker 8: out of the CPC pipeline. We'll get perhaps three hundred
Speaker 8: thousand barrels a day out of Iraq unexpected by next week.
Speaker 8: So given that volatility, we think oil is in the range.
Speaker 8: The range is sixty eight to seventy eight.
Speaker 2: I assume it's ghosh, that's French ghoshe of you to
Speaker 2: do by hold sell right now. I don't want to buyhold,
Speaker 2: sell and big oil. But how do you position big
Speaker 2: oil when I see Chevron announcing massive layoffs, massive restructure
Speaker 2: and you know it's weak double digit return over thirty years.
Speaker 2: Is big oil prosperous? Is it thriving? Is it the
Speaker 2: stereotype of our ute?
Speaker 8: Well, as we know, some big oil is prospering and
Speaker 8: some big oil is not prospering. Maybe for some investments
Speaker 8: that they were making in the past, in the recent past,
Speaker 8: in the drive to go heavily into renewables and into
Speaker 8: things that weren't providing the same level return. But look
Speaker 8: at the production growth of Chevron, the production growth of
Speaker 8: Exxon on a global platform based in part of the
Speaker 8: United States. They're increasing their output. They're increasing their output
Speaker 8: of oil and gas in a world in which they're
Speaker 8: very competitive.
Speaker 2: Talk to us.
Speaker 6: I'm watching the television show Landman at the life in
Speaker 6: the oil patch in West Texas. So I now consider
Speaker 6: myself an expert on global oil and gas. Here talk
Speaker 6: to us about the US. We're now a net exporter
Speaker 6: of energy. What is our role in the global energy market? Visavsay,
Speaker 6: maybe like an OPEC plus or something.
Speaker 8: We have transformed the energy market to the world, including
Speaker 8: the oil market. If you go back to twenty ten,
Speaker 8: we were a gross importer and a net importer, and
Speaker 8: our production base if you add NGLs and other liquids,
Speaker 8: was around eight million barrels a day. The last month
Speaker 8: for which we have data, our production of liquids was
Speaker 8: twenty three million barrels a day. We have moved from
Speaker 8: being the largest gross and net import of the world
Speaker 8: to being the largest gross exporter. We export sixteen to
Speaker 8: seventeen million barrels a day of liquids nobody. That's more
Speaker 8: than the combined exports of Russia and Saudi Arabia. Our
Speaker 8: production is more than the total production of Russia and
Speaker 8: Saudi Arabia combined. And we've become a net exporter on
Speaker 8: the order of magnitude of four million barrels a day.
Speaker 8: So that has made the basic difference in the global
Speaker 8: market is a wild difference. Is what gives the US leverage.
Speaker 2: I'd love to get you back in here in a
Speaker 2: six months three month basis, doctor Morris. Let me ask
Speaker 2: you one final question, and it's sort of from sixty
Speaker 2: thousand feet in philosophical how bad did Anglo miracle screw up?
Speaker 2: I mean, within the arch of Edward Morris's tenure owning
Speaker 2: the high ground on this how bad did German leadership
Speaker 2: screw up? From abnaw or forward.
Speaker 8: So my personal experience in it is dealing with the
Speaker 8: effort by Germany to become dependent on Russian gas. So
Speaker 8: I was in the State Department at the time.
Speaker 2: That the serving both Carter and Reagion.
Speaker 8: And the US and France were the only NATO countries
Speaker 8: that said, hey, you've got to look at you Germany
Speaker 8: have to look at dependence. Yes, you can import gas,
Speaker 8: but think about what it will do to your foreign policy.
Speaker 8: Think about what leverage you've lost in terms of that dependency,
Speaker 8: your inability to say no. And we saw that over time,
Speaker 8: and I think Germany has really learned that lesson in
Speaker 8: terms of being very reluctant as they go through this
Speaker 8: election process of this coming Sunday, almost all of the
Speaker 8: parties are reluctant to do more than say, we might
Speaker 8: consider importing oil on a spot basis, but not on
Speaker 8: the full contract based thirty seconds.
Speaker 2: Does Tesla have a future?
Speaker 8: I think evs have a future. I'm not going to
Speaker 8: pick one versus another. But they're fun cars to drive,
Speaker 8: They're cleaner than other cars to drive, and they're getting
Speaker 8: more and more mild. So if I were to buy
Speaker 8: a car again, I would certainly not hesitate to buy it.
Speaker 2: Now. There we are the purson we need. Edward Morris,
Speaker 2: thank you so much. Thank you for joining Bloomberg and
Speaker 2: Bloomberg Surveillance today, doctor Morris. Of course they are in
Speaker 2: the tumult, the maelstrom that is oil today.
Speaker 1: This is the Bloomberg Surveillance Podcast. Listen live each weekday
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Speaker 1: Just say Alexa, play Bloomberg eleven thirty Postnion time Ken.
Speaker 2: What we're going to do is talk to Mike Mayo
Speaker 2: here with Willis Fargo. Mike Mayo is absolutely legendary in banking.
Speaker 2: He's one of the few people that Congress called upon
Speaker 2: in the Great Financial Crisis to say what in God's
Speaker 2: name is going on? And it has finally paid off
Speaker 2: his optimism on large cap banks in Europe and of
Speaker 2: course here in America, I have a charted city group
Speaker 2: with a ten for one reverse split cratering from you know,
Speaker 2: down and when and then it just forever and finally
Speaker 2: a legitimate leg up. Let's start with that, Mike Mayol.
Speaker 2: Why is banking finally getting a leg up?
Speaker 7: Well, the times they are a change in and you're
Speaker 7: seeing historic inflection in terms of the revenues, the earnings,
Speaker 7: and especially fifteen years of regulation going from a headwind
Speaker 7: to a tailwind. Now I'm not talking about going back
Speaker 7: to two thousand and six, two thousand and seven, before
Speaker 7: the Global Financial crisis, I'm talking about preserving the safety
Speaker 7: and soundness of the banks and eliminating a lot of
Speaker 7: red tape, and that can help banks operate a lot
Speaker 7: of higher profit margin to help their stock rate.
Speaker 2: Is it operational excellence or is it the g the curve?
Speaker 7: You know, it's really more just operational streamlining because regulation
Speaker 7: has gotten so complex. Pull back that complexity and banks
Speaker 7: can perform better. But yes, you've had fifteen years of
Speaker 7: financial repression. Zero interest rates were disturbing to bank's profitability.
Speaker 7: Now you're going back, just back to normal.
Speaker 6: So talk to us about how you think the regulatory
Speaker 6: framework may change and what it can do to returns
Speaker 6: on equities for example, Well.
Speaker 7: I think the regulatory framework was vastly improved after the
Speaker 7: Global financial crisis. Banks doubled capital, they doubled their liquidity,
Speaker 7: They de risked for their consumer customers. Remember all those
Speaker 7: subprime loans. They de risk their commercial customers. If anything,
Speaker 7: banks have been marginalized to the benefit of the non
Speaker 7: bank So a lot of the more risky stuff has
Speaker 7: gone outside the bank industry. So I would say, great job.
Speaker 7: Regular from the year you know, twenty ten through it's
Speaker 7: called twenty fifteen. But the last decade, you had complexity
Speaker 7: pile on top of complexity, the living will the FED
Speaker 7: stress test. JP Morgan submits eighty thousand pages for each
Speaker 7: and you know, I talked to the ex vice chairman
Speaker 7: of the FDIC has said he didn't understand it when
Speaker 7: he reviewed it, and nor did a lot of the banks.
Speaker 7: So it's a lot of wasted money. So I think
Speaker 7: you can save a lot of money on expenses at
Speaker 7: the banks, at the regulatory agencies, and I think some
Speaker 7: of that gets passed on to the customers. And also
Speaker 7: banks deserve to have a level playing field when it
Speaker 7: comes to how much capital they have, so compute those
Speaker 7: capital ratios the same way you do for everybody else,
Speaker 7: and the numbers go up by quite a bit. So
Speaker 7: this could improve banking returns by two hundred basis points
Speaker 7: over a few years. That's significant, and that can propel
Speaker 7: a bank stock rally over a few years.
Speaker 6: So are there certain banks that are better positioned in
Speaker 6: this type of environment or is this a blanket call
Speaker 6: on us financials?
Speaker 7: Well, a rising tide does lift all ships. JP Morgan
Speaker 7: remains best in class globile bank. But my favorite, number one,
Speaker 7: number two, and number three favorite is City Group. I
Speaker 7: was on your show not to you know last year,
Speaker 7: and it's moved, it's starting to move, but it's still
Speaker 7: that my dominant number one pick. It's a new era
Speaker 7: for banking, but it's also a new era for City Group.
Speaker 2: I've got a chart normalize. We're going to talk about this,
Speaker 2: folks with Mike Mayo, you or well as Fargo as
Speaker 2: we go into the next half. For I got a
Speaker 2: chart normalized. Back with the day Lehman collapse. I think
Speaker 2: I maybe talked to you that day. I can't remember.
Speaker 2: I got a JP Morgan moonshot. When you say banks
Speaker 2: are going to do well, are they catching up with
Speaker 2: JP Morgan or is it all boats rising even for JP.
Speaker 7: Morgan, I'd say both. I think the lesser bank will
Speaker 7: narrow the gap with JP Morgan for sure, But at
Speaker 7: the same time, JP Morgan should continue to matter. What
Speaker 7: a bank generating over twenty percent returns on fifteen percent
Speaker 7: capital with some best in class efficiency.
Speaker 2: Mike Mayo with this, So I got JP Morgan, you
Speaker 2: know clearly way ahead. Three hundred and seventeen thousand employees
Speaker 2: is the working number we've got in the DS screen.
Speaker 2: You know, there's all this you know the stuff Shinelli
Speaker 2: bask talks about all this OMG, who's going to take
Speaker 2: over for Jamie? Does that germane to you is like,
Speaker 2: is that part of your analysis of JP Morgan or
Speaker 2: do you just ignore the people moving around and just
Speaker 2: look at the financials and the execution?
Speaker 7: Well, I think Jamie Diamond. I asked him this question
Speaker 7: the last earnings cost, said Jamie, who's your successor? And
Speaker 7: he didn't give much of an answer.
Speaker 2: And he's still doing that for ten years.
Speaker 7: Well, then I finally said, so are you going to
Speaker 7: be around for a few more years? He said yes,
Speaker 7: So I think when you have this many moving parts,
Speaker 7: Jamie's not going anywhere in the immediate term. Having said that,
Speaker 7: there's a deep bench at JP Morgan. It could be
Speaker 7: a number of three or four different people. Marion Lake
Speaker 7: certainly is the name that comes to the four investors knowers.
Speaker 7: She telled a lot of positions. But if Jamie stays
Speaker 7: on for several years, it's you know, we'll see what happens.
Speaker 7: I'll say this, Yeah, I'm not a couple of years
Speaker 7: ago I downgraded JP Morgan when they were spending all
Speaker 7: kinds of money without telling us why they were spending
Speaker 7: and everything else. Then I upgraded it made it my
Speaker 7: number one pick after the failures from a couple of
Speaker 7: years ago. But not one investor that I've spoken with,
Speaker 7: and I've traveled a lot the last month, last two months,
Speaker 7: not one investor that I've spoken with wants Jamie Diamond
Speaker 7: to leave. So people want Jamie Diamond to stay right now,
Speaker 7: and so I think he should get that message and stay.
Speaker 7: And he'd been Look, he'd been playing for this moment.
Speaker 7: I caught reregulation, not deregulation, reregulation making, you know, more
Speaker 7: common sense regulation. And he's gonna benefit. JP Morgan's gonna benefit.
Speaker 7: Why leave now? He's been waiting to go to the
Speaker 7: ballgame your whole professional career. You're finally getting there. You're
Speaker 7: not going to leave before the first time.
Speaker 5: City.
Speaker 6: I'm a former employee there at City, and when I
Speaker 6: worked there, I felt like there's not a piece of
Speaker 6: business we couldn't win.
Speaker 5: What happened to City and why is it now your
Speaker 5: number one pick?
Speaker 7: Well, look what's compared to the time you work there.
Speaker 7: There was a dramatic shift last year that's underappreciated by
Speaker 7: almost everybody. They went from five decades of this global
Speaker 7: matrix management structure that nobody understood. And now they have
Speaker 7: five lines of business. They have payments, banking, markets, wealth,
Speaker 7: and consumer. When they have a CEO in charge of each,
Speaker 7: they have return targets for each, they have accountability for
Speaker 7: each one of those five lines of business. That's what
Speaker 7: you're playing for for the next five to ten years.
Speaker 7: But at the same time they're at that flection point
Speaker 7: of the J curb. Invest money, your profits go down.
Speaker 7: They're turning up on the other side of that J
Speaker 7: curb where those investments start to pay off and they
Speaker 7: start spending less. So you're going to see twice or
Speaker 7: maybe three times better efficiency improvement at City Group and
Speaker 7: return improvement at City Group than the other banks. And
Speaker 7: by the way, they're passing this magical line where they
Speaker 7: have single digit returns to double digit returns. When you
Speaker 7: do that, you go from value destruction to value creation.
Speaker 7: That is the number one biggest driver of bank stock performance.
Speaker 7: It's the number one big bank stock performer so far
Speaker 7: this year. I think it'll be the top performer by
Speaker 7: the end of the year.
Speaker 2: Michael Mayo was there in City Group and we'll continue.
Speaker 2: He is, of course large cap Bank research at Wells Fargo.
Speaker 2: Fairly to say, legendary and also very cut and chiseled. Yep,
Speaker 2: you know he's like you know, he said to me, Tom,
Speaker 2: you got to hit the weights again. Hit the gym. Time,
Speaker 2: come on, you know he's like time getting the gym.
Speaker 2: Thank you, Mike Maya.
Speaker 6: On your City group pick. I'm fascinating by this now
Speaker 6: it's all coming back to me. I walked out the
Speaker 6: out of the door of City after a few years,
Speaker 6: sold all my stock.
Speaker 5: Literally on the day I walked out the door. Very
Speaker 5: cool in January of two two thousand.
Speaker 6: Jane Fraser, she's I think she's got a pretty good
Speaker 6: message for the street. How is she different from other
Speaker 6: CEOs at City who have also promised change and to
Speaker 6: clean things up in the streamline things.
Speaker 7: Oh boy, you're you're triggering me right now, I think
Speaker 7: of the other CEOs. If he goes back, Tom Kane
Speaker 7: probably remembers Walter Wriston, right, countries don't go pro Father.
Speaker 2: Knew him personally. They used to talk farms in all
Speaker 2: he worshiped Walter Riston and then it ended.
Speaker 7: Yeah lending, let's lend. You know, Latin American countries will
Speaker 7: pay us back they did in nineteen eighty seven. You
Speaker 7: had big charges, and then you had John Reid back
Speaker 7: in the early nineties. He had the Saudi Prince had
Speaker 7: to pump it up with capital, and then you had
Speaker 7: the whole Sandy Wow era A one later. And then
Speaker 7: you had long term capital with the problems, and I
Speaker 7: called that Noah's Ark because they brought two of everybody
Speaker 7: along with the mergers with Travelers. And then you had
Speaker 7: Vicram Pandit, which first you had Chuck Prince, the lawyer,
Speaker 7: and that remember He's gonna keep dancing till the music stops,
Speaker 7: and that that ended very music stop, and then the
Speaker 7: music stopped, and basically they effectively failed and the government
Speaker 7: bailed them out. And then you have Victim Pandit, which
Speaker 7: was kind of there. And then you had this guy
Speaker 7: Mike Corbett, who didn't change the strategy at all, and
Speaker 7: through it all, I'd say city was very arrogant, very arrogant.
Speaker 7: Jane Fraser gets there and says, you know what, we
Speaker 7: have a lot of problems. We have a lot of
Speaker 7: things to fix. The first step is to recognize that
Speaker 7: you have a problem. And it's taken a little bit
Speaker 7: longer than some people would have liked. I understand that,
Speaker 7: and the expenses are a lot higher than they should
Speaker 7: have been. But recognizing a problem. Then last year everyone
Speaker 7: said City's going to mess up. Three concurrent initiatives. One
Speaker 7: is this org simplification. They went from the five decades
Speaker 7: of matrix structure, five lines of business. They eliminated five
Speaker 7: management layers. They told all the employees you're gonna have
Speaker 7: to manage more people's It was gut wrenching, and they
Speaker 7: fired some people and that's always tough. And then you
Speaker 7: have they're divesting, you know, over a dozen consumer operations
Speaker 7: and a dozen countries outside the US, and then they
Speaker 7: have this transformation in the back office. They're doing this
Speaker 7: all at once, and everybody says city is going to implode. Well,
Speaker 7: guess what last year City medics efficiency targets. They beat,
Speaker 7: their revenue targets they met. And so going through those
Speaker 7: major changes, so people say, what's the proof, what's the evidence?
Speaker 7: Look at the results of last year, and they're guidance
Speaker 7: three years in a row. They're now guiding if you
Speaker 7: believe them, revenue is going higher and expenses going lower.
Speaker 7: So you're at that huge inflection point now. So they're
Speaker 7: recognizing and they have a problem. They don't have that
Speaker 7: same degree of arrogance. They have the ability, they have
Speaker 7: the capability. They're in one hundred countries. So if you're
Speaker 7: a global, multi national corporation you want to do payments
Speaker 7: or global investment banking, you got it. They're top three
Speaker 7: in credit cards, they have their franchise, a new strategy,
Speaker 7: and Jane Frasier as the ultimate architect of where city
Speaker 7: groups should be in the next decade.
Speaker 2: You are more qualified on this than anybody I know
Speaker 2: on the sales side. The great group of sales side
Speaker 2: analysts that are out there. Jamie Diamond this weekend was
Speaker 2: a Talk of the weekend with some tape that was,
Speaker 2: you know, out of JP Morgan and that Mike Mayo
Speaker 2: on Work from Home.
Speaker 7: I loved the Jamie Diamond video and the audio that
Speaker 7: got leaped out to the press, and that's vintage Jamie Diamond.
Speaker 8: It is.
Speaker 2: I agree with that.
Speaker 7: He just said he's going to say what he thinks,
Speaker 7: and he says, if you don't like it, don't work
Speaker 7: at JP Morgan. We want you to work at JP Morgan,
Speaker 7: but if you you need to work in the office
Speaker 7: so you can mentor people and everything else. And for
Speaker 7: JP Morgan and Jamie Diamond that works and that's their strategy.
Speaker 2: Correct when you stop. When you were at Credit Sweee,
Speaker 2: you had mentors as you built your career. You went
Speaker 2: from you know, the day you got candidate Credit Sweez.
Speaker 2: I think I spoke to you that day or the
Speaker 2: day after whatever. The answer is, you need mentors. Mike
Speaker 2: Mayo on Work from Home, talk to the kids right now.
Speaker 7: But I'd also say it's not one size fits all either. Okay.
Speaker 7: So there's different departments a different banks.
Speaker 2: Different departments, but come on.
Speaker 7: Different departments, different banks. I will say though Jamie Diamond
Speaker 7: and JP Morgan, it's worked for them. They came back
Speaker 7: early during the pandemic Goldman Sachs. That was actually my
Speaker 7: first meeting at Goldman Sachs. I wasn't going to go
Speaker 7: in and my wife's a doctor, as you know, and
Speaker 7: she says, no, you're going in to meet with them
Speaker 7: in person, okay. And and I went to Goldman Sachs
Speaker 7: and I'm telling you, they have this middle area where
Speaker 7: you have to transfer to the upper floors, and it
Speaker 7: was almost packed. And this was at a time no
Speaker 7: one was going back to work. So the J P.
Speaker 7: Morgan and Goldman Sachs, they had all their all, they
Speaker 7: had so many employees back early and look at the
Speaker 7: most successful. But it's not one size fits all. So
Speaker 7: if if City Group decides they're going to allow some
Speaker 7: people to work remotely, that might be a competitive advantage
Speaker 7: in hiring certain people. Some saying get it. Well, just
Speaker 7: sometimes you can get great people if you make some accommodation.
Speaker 7: So Jamie Diamond is not of that.
Speaker 2: You know, we got Lisa Mateo. I mean that's the
Speaker 2: way it was.
Speaker 6: Actually, Okay, might talk to us about Bank of America again,
Speaker 6: former employees, thank you through Merrill Lynch, I've worked.
Speaker 5: Pretty much every work talked to us. Are the Bank
Speaker 5: of America story? Sometimes I g's lost.
Speaker 6: A little bit between the Jamie Diamond talk and maybe
Speaker 6: the turnaround at City.
Speaker 5: What's what's the story at Bank of America.
Speaker 7: Look, we have three words that sum up the largest banks.
Speaker 7: That is Goliath is winning. Okay, okay, scale is making
Speaker 7: more difference in banking than ever before in the history.
Speaker 5: Why don't you tell the European regulators that, I mean,
Speaker 5: because we've they've.
Speaker 7: Lost, they've lost, absolutely lost. The five biggest US capitol
Speaker 7: market players Bank America, JP Morgan, Golden Morgan, stan Goldman,
Speaker 7: Morgan Stanley, UH and uh and uh babaye. They've gained
Speaker 7: market sharing capital markets since the global financial crisis, you know,
Speaker 7: in spades, and I think they can continue to do so.
Speaker 7: And you were like talk about twice or three or
Speaker 7: JP Morgan four times larger than the European bank peers.
Speaker 7: And by the way, this whole idea that US banks
Speaker 7: should not merge, that's like the Brian moynihan or Jamie
Speaker 7: Diamond Protection Act. Why do you want to protect them?
Speaker 7: You should have more large banks pn C. Bill Demchek
Speaker 7: talks about wanting to have another trillion dollar bank. He'd
Speaker 7: like to be that, but the unintended consequence of regulations.
Speaker 2: For the last time thirty seconds. Do you have a
Speaker 2: regional right now you would own around that Mike Mayo theory?
Speaker 2: Do you have a regional that could be mergeable with
Speaker 2: the people from Pittsburgh with their beautiful baseball park.
Speaker 7: Look, if you want to name it own, it's city group.
Speaker 7: It's city group. It's city group. I don't want to
Speaker 7: dilute that call. Let's be a group we're waving all
Speaker 7: portfolio limits. Okay, but it's it's really City Group. And
Speaker 7: then look and JP Morgan and Bank America. Those are
Speaker 7: the three goliath they benefit.
Speaker 2: You're not even going to look down.
Speaker 7: And you know, look, PNC is a quality bank for
Speaker 7: the National main Street Bank. Then the thirty largest cities,
Speaker 7: they have a ten year runway bill. Dempcheck is an
Speaker 7: exceptional CEO, and they should have revenues growing far past
Speaker 7: the expenses, and they'll benefit from the rising tie of
Speaker 7: lists all ships. But again for me, it's City Group,
Speaker 7: City Group, City Group as my primary recommendation.
Speaker 2: Thrill Devian today, thank you so much. He's with Wells Fargo. Folks.
Speaker 1: This is the Bloomberg Surveillance Podcast. Listen live each weekday
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Speaker 2: The daily look at the front pages, the Lisa Mateo moment, Lisa,
Speaker 2: what do you have to all?
Speaker 9: Right, Well, we know prisident Trump has been warning of
Speaker 9: steep tarrifs on European goods. So the water journalize this
Speaker 9: interesting article because they're saying it's going to be a
Speaker 9: blow to Bernard our Nose LVMH Empire. So they go
Speaker 9: into the connection between the two because they say he's
Speaker 9: trying to kind of work those ties avoid the tyrists
Speaker 9: they do back when they were up and coming property
Speaker 9: developers in Manhattan.
Speaker 7: The families know each other.
Speaker 9: You have his second oldest, our No's second oldest son
Speaker 9: is friends with Jared Kushner. You have Ivanka friends with
Speaker 9: our No's daughter. Ourn is at the friends because they.
Speaker 2: Want a bag goes. I'll take that one.
Speaker 7: Not too bad.
Speaker 6: Rich Gal has Bernard Arnold number five ninety six billion.
Speaker 2: That's good for him. They got some real challenges right now, though,
Speaker 2: I mean I believe.
Speaker 9: They do because China sales fell, Yeah.
Speaker 2: China, and there's some other issues as well. And the
Speaker 2: real anx here, which I read in Lemonde in France,
Speaker 2: is they've basically businesses had it in France with the
Speaker 2: taxes and the real relationship here is our Nose bait
Speaker 2: to put manufact in Texas. No, and you know, I
Speaker 2: don't know what products, you know, not Tiffany jewelry, but something.
Speaker 2: It's the manufacturing. And I mean I mean, do you
Speaker 2: want to buy a Lewis Futon bag. This is made
Speaker 2: in Texas. On it does that? Take the charm away?
Speaker 3: Take it away?
Speaker 2: It does? It does.
Speaker 9: Okay, we'll sit with kind of luxury. The Neiman Marcus
Speaker 9: century old flagship store in Dallas. You mentioned Texas, it's
Speaker 9: going to shut down. The owner of SAX Fifth Avenue
Speaker 9: made the announcement.
Speaker 7: Okay.
Speaker 9: So what stands out is because it comes after they
Speaker 9: just announced that they were acquiring Nemen. This big merger
Speaker 9: happened December. The store apparently going to close March thirty. First,
Speaker 9: it was in this memo from SAX Global. It was
Speaker 9: seen by the Post. So they received the notice in
Speaker 9: the landlord to terminate their occumency. It doesn't have to
Speaker 9: do with acquisition, the source is saying. It's saying it
Speaker 9: has to do with kind of a tiff with one
Speaker 9: of the buildings, multiple landlords over a certain piece of property.
Speaker 9: The corporate you know, offices above will stay there, but
Speaker 9: the store will close.
Speaker 5: Booming, booming, Mark Well, Texas is booming overall.
Speaker 2: There's good morning to all of Chestnut Hill in Boston
Speaker 2: and the Smith family at General Cinema. And that was
Speaker 2: the Glory years, needless markup and what you know Richard
Speaker 2: Smith Rather and his kids did there. They really husband
Speaker 2: the image forward. And I don't know how many owners
Speaker 2: it's been through since General Cinema had them. But the
Speaker 2: answer is it's a whole world. I don't get department stores,
Speaker 2: ju Lisa, do you spend a lot of time?
Speaker 5: I don't know.
Speaker 2: Costco is not a department store, right.
Speaker 5: No, definitely not.
Speaker 9: Okay, they've limited selections, which I like. Okay, So not
Speaker 9: sure if any of you have either had overhead been
Speaker 9: experiences that are just gone wrong on an airplane before.
Speaker 9: So apparently there's this battle for the carry on space.
Speaker 3: I've seen it.
Speaker 9: You know, people shove their bags and they're trying to
Speaker 9: fit it. You have the other people who kind of
Speaker 9: toss it in, you know, first class or Economy plus
Speaker 9: before they hit the back.
Speaker 3: They kind of do that too.
Speaker 9: It's delaying the process. So people complaining. So the Wall
Speaker 9: Street Journal came out with the proper etiquette and what
Speaker 9: the rules are and what you're supposed to do. So
Speaker 9: you're supposed to put the larger carry on in the
Speaker 9: overhead been the smaller item under your seat. Because a
Speaker 9: lot of people take the smaller items.
Speaker 5: You're one of them.
Speaker 3: Yep, you put the smaller rag in the overhead bin.
Speaker 3: That's what you do.
Speaker 6: Yeah, well I've got now what I've noticed, Even on
Speaker 6: a seven thirty seven, all the overhead bins have been
Speaker 6: refurbished so that they're much bigger, so your big roll
Speaker 6: on thing doesn't lie flat, it lies on its side,
Speaker 6: and you can get more of them in there.
Speaker 7: So they've actually, i think.
Speaker 6: Improved the whole overhead thing because they know how it's
Speaker 6: checking bags, because that's a disase.
Speaker 2: I don't know where the airlines are and the whole
Speaker 2: thing solvable in one day. That's the thing I don't get.
Speaker 2: It's like we all have problems, like the red Sox
Speaker 2: Middle relief is a problem. Baggage on airplanes is not
Speaker 2: a problem. Lisa Mattel with the newspapers, Thank you so much.
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