Speaker 1: Bloomberg Audio Studios, podcasts, radio news. We're no Mercedes Postrinion time.
Speaker 2: Ken. What we're going to do is talk to Mike
Speaker 2: Mayo here with Wells Fargo. Mike Mayo is absolutely legendary
Speaker 2: in banking. He's one of the few people that Congress
Speaker 2: called upon in the Great Financial Crisis to say what
Speaker 2: in God's name is going on? And it has finally
Speaker 2: paid off his optimism on large cat banks in Europe
Speaker 2: and of course here in America, I have a charted
Speaker 2: city group with a ten for one reverse split cratering
Speaker 2: from you down and when and then it just forever
Speaker 2: and finally a legitimate leg up. Let's start with that,
Speaker 2: Mike Mayo. Why is banking finally getting a leg up?
Speaker 1: Well, the times they are a change in and you're
Speaker 1: sharing historic inflection in terms of the revenues, the earnings,
Speaker 1: and especially fifteen years of regulation going from a headwind
Speaker 1: to a tailwind. Now I'm not talking about going back
Speaker 1: to two thousand and six, two thousand and seven before
Speaker 1: the global financial crisis. I'm talking about preserving the safety
Speaker 1: and soundness of the banks and eliminating a lot of
Speaker 1: red tape, and that can help banks operate at a
Speaker 1: lot of higher profit margins to help their stock raise.
Speaker 2: Is it operational excellence or is it the gift of
Speaker 2: the yield curve?
Speaker 1: You know, it's really more just operational streamlining because regulation
Speaker 1: has gotten so complex. Pull back that complexity and banks
Speaker 1: can perform better. But yes, you've had fifteen years of
Speaker 1: financial repression. Zero interest rates were disturbing to banks profitability.
Speaker 1: Now you're going back, just back to normal.
Speaker 3: So talk to us about how you think the regulatory
Speaker 3: framework may change and what it can do to returns
Speaker 3: on equities.
Speaker 1: For example, Well, I think the regulatory framework was vastly
Speaker 1: improved after the global financial crisis. Banks doubled capital, they
Speaker 1: double their liquidity, They de risked for their consumer customers.
Speaker 1: Remember all those subprime loans. They derisk their commercial customers.
Speaker 1: If anything, banks have been marginalized to the benefit of
Speaker 1: the non bank. So a lot of the more risky
Speaker 1: stuff is going outside the bank industry. So I would say,
Speaker 1: great job regulators from the year you know, twenty ten
Speaker 1: through it's called twenty fifteen. But the last decade you
Speaker 1: had complexity. Pile on top of complexity, the living will,
Speaker 1: the FED stress test. JP Morgan submits eighty thousand pages
Speaker 1: for each and you know, I talked to the ex
Speaker 1: vice chairman of the fdiic has said he didn't understand
Speaker 1: it when he reviewed it, and nor did a lot
Speaker 1: of the banks. So it's a lot of wasted money.
Speaker 1: So I think you can save a lot of money
Speaker 1: on expenses at the banks, at the regulatory agencies, and
Speaker 1: I think some of that gets passed on to the customers.
Speaker 1: And also banks deserve to have a level playing field
Speaker 1: when it comes to how much capital they have, So
Speaker 1: compute those capital ratios the same way you do for
Speaker 1: everybody else, and the numbers go up by quite a bit.
Speaker 1: So this could improve banking returns by two hundred basis
Speaker 1: points over a few years. That's significant, and that can
Speaker 1: propel a bank stock rally over a few years.
Speaker 3: So are there certain banks that are better positioned in
Speaker 3: this type of environment or is this a blanket call
Speaker 3: on us financials?
Speaker 1: Well, a rising tide does lift all ships. JP Morgan
Speaker 1: remains best in class Globile Bank. But my favorite, number one,
Speaker 1: number two, and number three favorite is City Group. I
Speaker 1: was on your show not to you know last year,
Speaker 1: and it's moved, it's starting to move but it's still
Speaker 1: that my dominant number one pick. It's a new era
Speaker 1: 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're well as Fargo as we
Speaker 2: go into the next half. For I got a chart normalized.
Speaker 2: Back with the day Lehman collapse, I think I maybe
Speaker 2: talked to you that day. Remember I got a JP
Speaker 2: Morgan moonshot. When you say banks are going to do well,
Speaker 2: are they catching up with JP Morgan or is it
Speaker 2: all boats rising even for JP Morgan.
Speaker 1: I'd say both. So I think the lesser bank will
Speaker 1: narrow the gap with JP Morgan for sure. But at
Speaker 1: the same time, JP Morgan should continue to image what
Speaker 1: a bank generating over twenty percent returns on fifteen percent
Speaker 1: 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 des screen.
Speaker 2: You know, there's all this, you know the stuff Schinelli
Speaker 2: basic 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 the execution?
Speaker 1: Well, I think good Jamie Diamond. I asked him this
Speaker 1: question at last earning cast, said Jamie, who's your successor?
Speaker 1: And he didn't give much of an answer.
Speaker 2: And he's still doing that for ten years.
Speaker 1: Well, then I finally said, so are you going to
Speaker 1: be around for a few more years? He said yes,
Speaker 1: So I think when you have this many moving parts,
Speaker 1: Jamie's not going anywhere in the immediate term. Having said that,
Speaker 1: there's a deep bench at JP Morgan. It could be
Speaker 1: a number of three or four different people. Marion Lake
Speaker 1: certainly is the name that comes to the four investors knowers.
Speaker 1: She telled a lot of positions. But if Jamie stays
Speaker 1: on for several years, it's you. We'll see what happens.
Speaker 1: I'll say this, Yeah, I'm not. A couple of years ago,
Speaker 1: I downgraded JP Morgan when they were spending all kinds
Speaker 1: of money without telling us why they were spending and
Speaker 1: everything else, and I upgraded it made it my number
Speaker 1: one pick. After the failures from a couple of years ago.
Speaker 1: But not one investor that I've spoken with, and I've
Speaker 1: traveled a lot the last month, last two months, not
Speaker 1: one investor that I've spoken with wants Jamie Diamond to leave.
Speaker 1: So people want Jamie Diamond to stay right now, and
Speaker 1: so I think he should get that message and stay.
Speaker 1: And look, he'd been playing for this moment. I caught reregulation,
Speaker 1: not deregulation, reregulation, making more common sense regulation. And he's
Speaker 1: gonna benefit. Japen Morgan's gonna benefit. Why leave now? He's
Speaker 1: been waiting for the to go to the ballgame your
Speaker 1: whole professional career. You're finally getting there. You're not gonna
Speaker 1: leave before the first home City.
Speaker 3: I'm a former employee there at City, and when I
Speaker 3: worked there, I felt like there's not a piece of
Speaker 3: business we couldn't win. What happened to City? And why
Speaker 3: is it now your number one pick?
Speaker 1: Well, look what's compared to the time you work there.
Speaker 1: There was a dramatic shift last year that's underappreciated by
Speaker 1: almost everybody. They went from five decades of this global
Speaker 1: matrix management structure that nobody understood, and now they have
Speaker 1: five lines of business. They have payments, banking, markets, wealth
Speaker 1: and consumer. When they have a CEO in charge of each,
Speaker 1: they have return targets for each, they have accountability for
Speaker 1: each one of those five lines of business. That's what
Speaker 1: you're playing for for the next five to ten years.
Speaker 1: But at the same time, they're at that flection point
Speaker 1: of the J curve. You invest money and your profits
Speaker 1: go down. They're turning up on the other side of
Speaker 1: that J curve where those investments start to pay off
Speaker 1: and they start spending less. So you're gonna see twice
Speaker 1: or maybe three times better efficiency improvement at City Group
Speaker 1: and return improvement at City Group than the other banks.
Speaker 1: And by the way, they're passing this magical line where
Speaker 1: they have single digit returns to double digit returns. When
Speaker 1: you do that, you go from value destruction to value creation.
Speaker 1: That is the number one biggest driver of bank stock performance.
Speaker 1: It's the number one big bank stock performer so far
Speaker 1: this year. I think it'll be the top performer by
Speaker 1: the end of the year.
Speaker 2: Michael Meyo with us there on 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 industry. 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, Jim Tomlin. You
Speaker 2: know he's like time getting the gym.
Speaker 3: Thank you, Mike Maya on your City group pick. I'm
Speaker 3: fascinating by this now it's all coming back to me.
Speaker 3: I walked out the out of the door of City
Speaker 3: after a few years, sold all my stock literally on
Speaker 3: the day I walked out the door.
Speaker 2: Very cool.
Speaker 3: In January of two, two thousand. Jane Fraser, she's I
Speaker 3: think she's got a pretty good message for the street.
Speaker 3: How is she different from other CEOs at city who
Speaker 3: have also promised change and to clean things up in
Speaker 3: the streamline things.
Speaker 1: Oh boy, you're triggering me right now. I think of
Speaker 1: the other CEOs. If he goes back, Tom Kane probably
Speaker 1: remembers Walter Wriston, right, countries don't go pro My father.
Speaker 2: Knew him personally. They used to talk farms in all
Speaker 2: he worshiped Walter Wriston and then it ended.
Speaker 1: Yeah, lending, let's lend. You know, Latin American countries will
Speaker 1: pay us back. They did in nineteen eighty seven you
Speaker 1: had big charges and then you had John Reid back
Speaker 1: in the early nineties, he had the Saudi print, had
Speaker 1: you pump it up with capital, and then you had
Speaker 1: the whole Sandy Wild era one leader. And then you
Speaker 1: had long term capital with the problems, and I called
Speaker 1: that Noah's Ark because they brought two of everybody along
Speaker 1: with the beat mergers with travelers. And then you had
Speaker 1: Victim Pandit, which first you had Chuck Prince the lawyer,
Speaker 1: and that remember he's gonna keep dancing till the music stops,
Speaker 1: and that that ended very stop, and then the music
Speaker 1: stopped and basic they effectively failed and the government bailed
Speaker 1: them out. And then you have Victim Pandit, which was
Speaker 1: kind of there. And then you had this guy Mike Corbett,
Speaker 1: who didn't change the strategy at all, and through it all,
Speaker 1: I'd say city was very arrogant, very arrogant. Jane Fraser
Speaker 1: gets there and says, you know what, we have a
Speaker 1: lot of problems. We have a lot of things to fix.
Speaker 1: The first step is to recognize that you have a problem.
Speaker 1: And it's taken a little bit longer than some people
Speaker 1: would have liked. I understand that, and the expensives are
Speaker 1: a lot higher than they should have been. But recognizing
Speaker 1: a problem then last year, everyone said City's going to
Speaker 1: mess up up three concurrent initiatives. One is this org simplification.
Speaker 1: They went from the five decades of matrix structure, five
Speaker 1: lines of business. They eliminated five management layers. They told
Speaker 1: all the employees you're going to have to manage more
Speaker 1: people's It was gut wrenching, and they fired some people
Speaker 1: and that's always tough. And then you have there divesting,
Speaker 1: you know, over a dozen consumer operations and a dozen
Speaker 1: countries outside the US, and then they have this transformation
Speaker 1: in the back office. They're doing this all at once,
Speaker 1: and everybody says city is going to implode. Well, guess what.
Speaker 1: Last year City medics efficiency targets. They beat, their revenue
Speaker 1: targets they met And so going through those major changes
Speaker 1: and people saying, what's the proof, what's the evidence? Look
Speaker 1: at the results last year and they're guidance three years
Speaker 1: in a row. They're now guiding if you believe them,
Speaker 1: revenue is going higher and expenses going lower. So you're
Speaker 1: at that huge inflection point now. So they're recognized and
Speaker 1: they have a problem. They don't have that same degree
Speaker 1: of arrogance. They have the ability, they have the capability
Speaker 1: They're in one hundred countries. So if you're global, multi
Speaker 1: national corporation, you want to do payments or global investment banking,
Speaker 1: you got it. Their top three and credit cards to
Speaker 1: the franchise, a new strategy and Jane Frasier as the
Speaker 1: ultimate architect of where city groups should be the next decade.
Speaker 2: You are more qualified on this than anybody I know
Speaker 2: on the sales side. You know the great group of
Speaker 2: sales side analysts that are out there. Jamie Diamond this
Speaker 2: weekend was a Talk of the Weekend with some tape
Speaker 2: that was, you know, out of JP Morgan and that
Speaker 2: Mike Mayo on Work from Home.
Speaker 1: I loved the Jamie Diamond video and the audio that
Speaker 1: got leaped out to the press, and that's vintage Jamie Diamond.
Speaker 2: Is I agree with that.
Speaker 1: He just said he's going to say what he thinks,
Speaker 1: and he says, if you don't like it, don't work
Speaker 1: at JP Morgan. We want you to work at JP Morgan,
Speaker 1: but if you you need to work in the office
Speaker 1: so you can mentor people and everything else. And for
Speaker 1: JP Morgan and Jamie Diamond, that works and that's their strategy.
Speaker 2: Correct. When you saw when you were at credit Sweee.
Speaker 2: You at mentors as you built your career. You went
Speaker 2: from you know with 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 and work from home. Talk to the kids right now.
Speaker 1: But I'd also say it's not one size fits all either. Okay.
Speaker 1: So there's different departments at different.
Speaker 2: Banks, different departments, but come on.
Speaker 1: Differ different departments, different banks. I will say though Jamie
Speaker 1: Diamond and JP Morgan, it's worked for them. They came
Speaker 1: back early during the pandemic. Goldman Sachs. That was actually
Speaker 1: my first meeting at Goldman Sachs. I wasn't going to
Speaker 1: go in and my wife's a doctor, as you know,
Speaker 1: and she says, no, you're going in to meet with
Speaker 1: them in person, okay. And and I went to Goldman
Speaker 1: Sachs and I'm telling you, they have this middle area
Speaker 1: where you have to transfer to the upper floors, and
Speaker 1: it was almost packed. And this was at a time
Speaker 1: no one was going back to work. So the JP
Speaker 1: Morgan and Goldman Sachs they had all their not all
Speaker 1: they are so many employees back early and look at
Speaker 1: the most successful. But it's not one size fits all.
Speaker 1: So if if City Group decides they're going to allow
Speaker 1: some people to work remotely, that might be a competitive
Speaker 1: advantage in hiring certain people. So I saying I get it. Well,
Speaker 1: just sometimes you can get great people if you make
Speaker 1: some accommodation. So Jamie Diamond is not of that.
Speaker 2: You know, we got Lisa Mateo.
Speaker 3: I mean that's the way I actually Okay, you might
Speaker 3: talk to us about Bank of America again, former employee,
Speaker 3: thank you through Merrill Lynch, I've worked pretty much.
Speaker 2: Every work to us.
Speaker 3: Are the Bank of America story? Sometimes I g's lost
Speaker 3: a little bit between the Jamie Diamond talk and maybe
Speaker 3: the turnaround at City. What's what's the story at Bank
Speaker 3: of America.
Speaker 1: Look, we have three words that sum up the largest banks.
Speaker 1: That is Goliath is winning. Okay, okay, scale is making
Speaker 1: more difference in banking than ever before in the history.
Speaker 3: Why don't you tell the European regulators that, I mean,
Speaker 3: because we've they've.
Speaker 1: Lost, They've lost, absolutely lost. The five biggest US capital
Speaker 1: market players Bank America, JP Morgan, Golden Morgan, stan Goldman, Morgan, Stanley,
Speaker 1: uh and uh Baba Yep. They've gained market sharing capital
Speaker 1: markets since the global financial crisis, you know, in spades,
Speaker 1: and I think they'll continue to do so. And you're
Speaker 1: like talk about twice or three or JP Morgan four
Speaker 1: times larger than the European bank peers. And by the way,
Speaker 1: this whole idea that US banks should not merge, that's
Speaker 1: like the Brian moynihan or Jamie Diamond Protection Act. Why
Speaker 1: do you want to protect them? You should have more
Speaker 1: large banks PNC. Bill Dempchek talks about wanting to have
Speaker 1: another trillion dollar bank. He would like to be that,
Speaker 1: but the unintended consequence of regulation. For the last time, thirty.
Speaker 2: Seconds, Do you have a regional right now you would
Speaker 2: own around that Mike Mayo theory? Do you have a
Speaker 2: regional that could be mergeable with the people from Pittsburgh
Speaker 2: with their beautiful baseball park.
Speaker 1: Look, if you want to name it own, it's city group.
Speaker 1: It's city group. It's city group. I don't want to
Speaker 1: dilute that call. Let we're weaving all portfolio limits, okay,
Speaker 1: but it's it's really city group. And then look and
Speaker 1: JP Morgan Bank America. Those are the three goliath They benefit.
Speaker 2: You're not took down.
Speaker 1: And you know, look, P and C is a quality
Speaker 1: bank in the national main street Bank. They're the thirty
Speaker 1: largest cities. They have a ten year runway bill Demcheck
Speaker 1: is an exceptional CEO, and they should have revenues growing
Speaker 1: far past the expenses. And they'll benefit from the rising
Speaker 1: tie of lists all ships. But again for me, it's
Speaker 1: City Group, City Group, City Group as my primary recommendation.
Speaker 2: Thank you so much. He's with Wells Fargo.
Speaker 3: Folks,