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Speaker 1: Bloomberg Audio Studios, podcasts, radio news. We're no Mercedes Postrinion time.

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Speaker 2: Ken. What we're going to do is talk to Mike

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Speaker 2: Mayo here with Wells Fargo. Mike Mayo is absolutely legendary

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Speaker 2: in banking. He's one of the few people that Congress

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Speaker 2: called upon in the Great Financial Crisis to say what

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Speaker 2: in God's name is going on? And it has finally

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Speaker 2: paid off his optimism on large cat banks in Europe

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Speaker 2: and of course here in America, I have a charted

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Speaker 2: city group with a ten for one reverse split cratering

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Speaker 2: from you down and when and then it just forever

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Speaker 2: and finally a legitimate leg up. Let's start with that,

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Speaker 2: Mike Mayo. Why is banking finally getting a leg up?

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Speaker 1: Well, the times they are a change in and you're

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Speaker 1: sharing historic inflection in terms of the revenues, the earnings,

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Speaker 1: and especially fifteen years of regulation going from a headwind

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Speaker 1: to a tailwind. Now I'm not talking about going back

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Speaker 1: to two thousand and six, two thousand and seven before

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Speaker 1: the global financial crisis. I'm talking about preserving the safety

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Speaker 1: and soundness of the banks and eliminating a lot of

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Speaker 1: red tape, and that can help banks operate at a

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Speaker 1: lot of higher profit margins to help their stock raise.

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Speaker 2: Is it operational excellence or is it the gift of

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Speaker 2: the yield curve?

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Speaker 1: You know, it's really more just operational streamlining because regulation

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Speaker 1: has gotten so complex. Pull back that complexity and banks

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Speaker 1: can perform better. But yes, you've had fifteen years of

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Speaker 1: financial repression. Zero interest rates were disturbing to banks profitability.

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Speaker 1: Now you're going back, just back to normal.

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Speaker 3: So talk to us about how you think the regulatory

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Speaker 3: framework may change and what it can do to returns

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Speaker 3: on equities.

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Speaker 1: For example, Well, I think the regulatory framework was vastly

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Speaker 1: improved after the global financial crisis. Banks doubled capital, they

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Speaker 1: double their liquidity, They de risked for their consumer customers.

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Speaker 1: Remember all those subprime loans. They derisk their commercial customers.

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Speaker 1: If anything, banks have been marginalized to the benefit of

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Speaker 1: the non bank. So a lot of the more risky

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Speaker 1: stuff is going outside the bank industry. So I would say,

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Speaker 1: great job regulators from the year you know, twenty ten

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Speaker 1: through it's called twenty fifteen. But the last decade you

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Speaker 1: had complexity. Pile on top of complexity, the living will,

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Speaker 1: the FED stress test. JP Morgan submits eighty thousand pages

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Speaker 1: for each and you know, I talked to the ex

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Speaker 1: vice chairman of the fdiic has said he didn't understand

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Speaker 1: it when he reviewed it, and nor did a lot

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Speaker 1: of the banks. So it's a lot of wasted money.

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Speaker 1: So I think you can save a lot of money

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Speaker 1: on expenses at the banks, at the regulatory agencies, and

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Speaker 1: I think some of that gets passed on to the customers.

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Speaker 1: And also banks deserve to have a level playing field

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Speaker 1: when it comes to how much capital they have, So

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Speaker 1: compute those capital ratios the same way you do for

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Speaker 1: everybody else, and the numbers go up by quite a bit.

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Speaker 1: So this could improve banking returns by two hundred basis

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Speaker 1: points over a few years. That's significant, and that can

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Speaker 1: propel a bank stock rally over a few years.

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Speaker 3: So are there certain banks that are better positioned in

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Speaker 3: this type of environment or is this a blanket call

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Speaker 3: on us financials?

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Speaker 1: Well, a rising tide does lift all ships. JP Morgan

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Speaker 1: remains best in class Globile Bank. But my favorite, number one,

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Speaker 1: number two, and number three favorite is City Group. I

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Speaker 1: was on your show not to you know last year,

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Speaker 1: and it's moved, it's starting to move but it's still

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Speaker 1: that my dominant number one pick. It's a new era

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Speaker 1: for banking, but it's also a new era for city group.

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Speaker 2: I've got a chart normalize. We're going to talk about this,

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Speaker 2: folks with Mike Mayo. You're well as Fargo as we

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Speaker 2: go into the next half. For I got a chart normalized.

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Speaker 2: Back with the day Lehman collapse, I think I maybe

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Speaker 2: talked to you that day. Remember I got a JP

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Speaker 2: Morgan moonshot. When you say banks are going to do well,

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Speaker 2: are they catching up with JP Morgan or is it

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Speaker 2: all boats rising even for JP Morgan.

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Speaker 1: I'd say both. So I think the lesser bank will

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Speaker 1: narrow the gap with JP Morgan for sure. But at

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Speaker 1: the same time, JP Morgan should continue to image what

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Speaker 1: a bank generating over twenty percent returns on fifteen percent

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Speaker 1: capital with some best in class efficiency.

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Speaker 2: Mike Mayo with this, So I got JP Morgan, you

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Speaker 2: know clearly way ahead. Three hundred and seventeen thousand employees

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Speaker 2: is the working number we've got in the des screen.

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Speaker 2: You know, there's all this, you know the stuff Schinelli

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Speaker 2: basic talks about, all this, OMG, who's going to take

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Speaker 2: over for Jamie? Does that Germane to you is like,

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Speaker 2: is that part of your analysis of JP Morgan or

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Speaker 2: do you just ignore the people moving around and just

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Speaker 2: look at the financials the execution?

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Speaker 1: Well, I think good Jamie Diamond. I asked him this

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Speaker 1: question at last earning cast, said Jamie, who's your successor?

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Speaker 1: And he didn't give much of an answer.

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Speaker 2: And he's still doing that for ten years.

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Speaker 1: Well, then I finally said, so are you going to

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Speaker 1: be around for a few more years? He said yes,

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Speaker 1: So I think when you have this many moving parts,

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Speaker 1: Jamie's not going anywhere in the immediate term. Having said that,

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Speaker 1: there's a deep bench at JP Morgan. It could be

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Speaker 1: a number of three or four different people. Marion Lake

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Speaker 1: certainly is the name that comes to the four investors knowers.

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Speaker 1: She telled a lot of positions. But if Jamie stays

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Speaker 1: on for several years, it's you. We'll see what happens.

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Speaker 1: I'll say this, Yeah, I'm not. A couple of years ago,

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Speaker 1: I downgraded JP Morgan when they were spending all kinds

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Speaker 1: of money without telling us why they were spending and

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Speaker 1: everything else, and I upgraded it made it my number

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Speaker 1: one pick. After the failures from a couple of years ago.

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Speaker 1: But not one investor that I've spoken with, and I've

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Speaker 1: traveled a lot the last month, last two months, not

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Speaker 1: one investor that I've spoken with wants Jamie Diamond to leave.

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Speaker 1: So people want Jamie Diamond to stay right now, and

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Speaker 1: so I think he should get that message and stay.

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Speaker 1: And look, he'd been playing for this moment. I caught reregulation,

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Speaker 1: not deregulation, reregulation, making more common sense regulation. And he's

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Speaker 1: gonna benefit. Japen Morgan's gonna benefit. Why leave now? He's

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Speaker 1: been waiting for the to go to the ballgame your

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Speaker 1: whole professional career. You're finally getting there. You're not gonna

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Speaker 1: leave before the first home City.

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Speaker 3: I'm a former employee there at City, and when I

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Speaker 3: worked there, I felt like there's not a piece of

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Speaker 3: business we couldn't win. What happened to City? And why

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Speaker 3: is it now your number one pick?

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Speaker 1: Well, look what's compared to the time you work there.

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Speaker 1: There was a dramatic shift last year that's underappreciated by

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Speaker 1: almost everybody. They went from five decades of this global

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Speaker 1: matrix management structure that nobody understood, and now they have

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Speaker 1: five lines of business. They have payments, banking, markets, wealth

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Speaker 1: and consumer. When they have a CEO in charge of each,

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Speaker 1: they have return targets for each, they have accountability for

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Speaker 1: each one of those five lines of business. That's what

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Speaker 1: you're playing for for the next five to ten years.

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Speaker 1: But at the same time, they're at that flection point

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Speaker 1: of the J curve. You invest money and your profits

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Speaker 1: go down. They're turning up on the other side of

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Speaker 1: that J curve where those investments start to pay off

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Speaker 1: and they start spending less. So you're gonna see twice

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Speaker 1: or maybe three times better efficiency improvement at City Group

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Speaker 1: and return improvement at City Group than the other banks.

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Speaker 1: And by the way, they're passing this magical line where

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Speaker 1: they have single digit returns to double digit returns. When

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Speaker 1: you do that, you go from value destruction to value creation.

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Speaker 1: That is the number one biggest driver of bank stock performance.

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Speaker 1: It's the number one big bank stock performer so far

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Speaker 1: this year. I think it'll be the top performer by

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Speaker 1: the end of the year.

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Speaker 2: Michael Meyo with us there on City Group and we'll continue.

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Speaker 2: He is, of course large cap bank research at Wells Fargo.

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Speaker 2: Fairly to say, legendary industry. Also very cut and chiseled yep.

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Speaker 2: You know, he's like, you know, he said to me, Tom,

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Speaker 2: you got to hit the weights again, Jim Tomlin. You

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Speaker 2: know he's like time getting the gym.

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Speaker 3: Thank you, Mike Maya on your City group pick. I'm

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Speaker 3: fascinating by this now it's all coming back to me.

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Speaker 3: I walked out the out of the door of City

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Speaker 3: after a few years, sold all my stock literally on

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Speaker 3: the day I walked out the door.

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Speaker 2: Very cool.

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Speaker 3: In January of two, two thousand. Jane Fraser, she's I

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Speaker 3: think she's got a pretty good message for the street.

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Speaker 3: How is she different from other CEOs at city who

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Speaker 3: have also promised change and to clean things up in

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Speaker 3: the streamline things.

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Speaker 1: Oh boy, you're triggering me right now. I think of

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Speaker 1: the other CEOs. If he goes back, Tom Kane probably

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Speaker 1: remembers Walter Wriston, right, countries don't go pro My father.

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Speaker 2: Knew him personally. They used to talk farms in all

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Speaker 2: he worshiped Walter Wriston and then it ended.

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Speaker 1: Yeah, lending, let's lend. You know, Latin American countries will

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Speaker 1: pay us back. They did in nineteen eighty seven you

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Speaker 1: had big charges and then you had John Reid back

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Speaker 1: in the early nineties, he had the Saudi print, had

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Speaker 1: you pump it up with capital, and then you had

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Speaker 1: the whole Sandy Wild era one leader. And then you

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Speaker 1: had long term capital with the problems, and I called

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Speaker 1: that Noah's Ark because they brought two of everybody along

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Speaker 1: with the beat mergers with travelers. And then you had

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Speaker 1: Victim Pandit, which first you had Chuck Prince the lawyer,

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Speaker 1: and that remember he's gonna keep dancing till the music stops,

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Speaker 1: and that that ended very stop, and then the music

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Speaker 1: stopped and basic they effectively failed and the government bailed

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Speaker 1: them out. And then you have Victim Pandit, which was

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Speaker 1: kind of there. And then you had this guy Mike Corbett,

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Speaker 1: who didn't change the strategy at all, and through it all,

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Speaker 1: I'd say city was very arrogant, very arrogant. Jane Fraser

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Speaker 1: gets there and says, you know what, we have a

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Speaker 1: lot of problems. We have a lot of things to fix.

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Speaker 1: The first step is to recognize that you have a problem.

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Speaker 1: And it's taken a little bit longer than some people

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Speaker 1: would have liked. I understand that, and the expensives are

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Speaker 1: a lot higher than they should have been. But recognizing

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Speaker 1: a problem then last year, everyone said City's going to

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Speaker 1: mess up up three concurrent initiatives. One is this org simplification.

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Speaker 1: They went from the five decades of matrix structure, five

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Speaker 1: lines of business. They eliminated five management layers. They told

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Speaker 1: all the employees you're going to have to manage more

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Speaker 1: people's It was gut wrenching, and they fired some people

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Speaker 1: and that's always tough. And then you have there divesting,

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Speaker 1: you know, over a dozen consumer operations and a dozen

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Speaker 1: countries outside the US, and then they have this transformation

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Speaker 1: in the back office. They're doing this all at once,

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Speaker 1: and everybody says city is going to implode. Well, guess what.

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Speaker 1: Last year City medics efficiency targets. They beat, their revenue

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Speaker 1: targets they met And so going through those major changes

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Speaker 1: and people saying, what's the proof, what's the evidence? Look

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Speaker 1: at the results last year and they're guidance three years

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Speaker 1: in a row. They're now guiding if you believe them,

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Speaker 1: revenue is going higher and expenses going lower. So you're

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Speaker 1: at that huge inflection point now. So they're recognized and

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Speaker 1: they have a problem. They don't have that same degree

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Speaker 1: of arrogance. They have the ability, they have the capability

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Speaker 1: They're in one hundred countries. So if you're global, multi

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Speaker 1: national corporation, you want to do payments or global investment banking,

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Speaker 1: you got it. Their top three and credit cards to

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Speaker 1: the franchise, a new strategy and Jane Frasier as the

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Speaker 1: ultimate architect of where city groups should be the next decade.

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Speaker 2: You are more qualified on this than anybody I know

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Speaker 2: on the sales side. You know the great group of

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Speaker 2: sales side analysts that are out there. Jamie Diamond this

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Speaker 2: weekend was a Talk of the Weekend with some tape

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Speaker 2: that was, you know, out of JP Morgan and that

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Speaker 2: Mike Mayo on Work from Home.

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Speaker 1: I loved the Jamie Diamond video and the audio that

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Speaker 1: got leaped out to the press, and that's vintage Jamie Diamond.

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Speaker 2: Is I agree with that.

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Speaker 1: He just said he's going to say what he thinks,

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Speaker 1: and he says, if you don't like it, don't work

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Speaker 1: at JP Morgan. We want you to work at JP Morgan,

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Speaker 1: but if you you need to work in the office

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Speaker 1: so you can mentor people and everything else. And for

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Speaker 1: JP Morgan and Jamie Diamond, that works and that's their strategy.

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Speaker 2: Correct. When you saw when you were at credit Sweee.

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Speaker 2: You at mentors as you built your career. You went

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Speaker 2: from you know with the day you got candidate credit Sweez.

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Speaker 2: I think I spoke to you that day or the

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Speaker 2: day after. Whatever. The answer is, you need mentors, Mike

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Speaker 2: Mayo and work from home. Talk to the kids right now.

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Speaker 1: But I'd also say it's not one size fits all either. Okay.

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Speaker 1: So there's different departments at different.

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Speaker 2: Banks, different departments, but come on.

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Speaker 1: Differ different departments, different banks. I will say though Jamie

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Speaker 1: Diamond and JP Morgan, it's worked for them. They came

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Speaker 1: back early during the pandemic. Goldman Sachs. That was actually

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Speaker 1: my first meeting at Goldman Sachs. I wasn't going to

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Speaker 1: go in and my wife's a doctor, as you know,

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Speaker 1: and she says, no, you're going in to meet with

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Speaker 1: them in person, okay. And and I went to Goldman

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Speaker 1: Sachs and I'm telling you, they have this middle area

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Speaker 1: where you have to transfer to the upper floors, and

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Speaker 1: it was almost packed. And this was at a time

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Speaker 1: no one was going back to work. So the JP

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Speaker 1: Morgan and Goldman Sachs they had all their not all

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Speaker 1: they are so many employees back early and look at

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Speaker 1: the most successful. But it's not one size fits all.

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Speaker 1: So if if City Group decides they're going to allow

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Speaker 1: some people to work remotely, that might be a competitive

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Speaker 1: advantage in hiring certain people. So I saying I get it. Well,

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Speaker 1: just sometimes you can get great people if you make

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Speaker 1: some accommodation. So Jamie Diamond is not of that.

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Speaker 2: You know, we got Lisa Mateo.

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Speaker 3: I mean that's the way I actually Okay, you might

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Speaker 3: talk to us about Bank of America again, former employee,

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Speaker 3: thank you through Merrill Lynch, I've worked pretty much.

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Speaker 2: Every work to us.

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Speaker 3: Are the Bank of America story? Sometimes I g's lost

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Speaker 3: a little bit between the Jamie Diamond talk and maybe

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Speaker 3: the turnaround at City. What's what's the story at Bank

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Speaker 3: of America.

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Speaker 1: Look, we have three words that sum up the largest banks.

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Speaker 1: That is Goliath is winning. Okay, okay, scale is making

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Speaker 1: more difference in banking than ever before in the history.

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Speaker 3: Why don't you tell the European regulators that, I mean,

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Speaker 3: because we've they've.

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Speaker 1: Lost, They've lost, absolutely lost. The five biggest US capital

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Speaker 1: market players Bank America, JP Morgan, Golden Morgan, stan Goldman, Morgan, Stanley,

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Speaker 1: uh and uh Baba Yep. They've gained market sharing capital

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Speaker 1: markets since the global financial crisis, you know, in spades,

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Speaker 1: and I think they'll continue to do so. And you're

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Speaker 1: like talk about twice or three or JP Morgan four

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Speaker 1: times larger than the European bank peers. And by the way,

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Speaker 1: this whole idea that US banks should not merge, that's

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Speaker 1: like the Brian moynihan or Jamie Diamond Protection Act. Why

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Speaker 1: do you want to protect them? You should have more

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Speaker 1: large banks PNC. Bill Dempchek talks about wanting to have

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Speaker 1: another trillion dollar bank. He would like to be that,

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Speaker 1: but the unintended consequence of regulation. For the last time, thirty.

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Speaker 2: Seconds, Do you have a regional right now you would

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Speaker 2: own around that Mike Mayo theory? Do you have a

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Speaker 2: regional that could be mergeable with the people from Pittsburgh

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Speaker 2: with their beautiful baseball park.

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Speaker 1: Look, if you want to name it own, it's city group.

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Speaker 1: It's city group. It's city group. I don't want to

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Speaker 1: dilute that call. Let we're weaving all portfolio limits, okay,

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Speaker 1: but it's it's really city group. And then look and

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Speaker 1: JP Morgan Bank America. Those are the three goliath They benefit.

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Speaker 2: You're not took down.

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Speaker 1: And you know, look, P and C is a quality

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Speaker 1: bank in the national main street Bank. They're the thirty

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Speaker 1: largest cities. They have a ten year runway bill Demcheck

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Speaker 1: is an exceptional CEO, and they should have revenues growing

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Speaker 1: far past the expenses. And they'll benefit from the rising

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Speaker 1: tie of lists all ships. But again for me, it's

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Speaker 1: City Group, City Group, City Group as my primary recommendation.

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Speaker 2: Thank you so much. He's with Wells Fargo.

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Speaker 3: Folks,