WEBVTT - Mike Mayo Talks Dimon's Succession Plan, Fraser's Success

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

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<v Speaker 2>Ken. What we're going to do is talk to Mike

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<v Speaker 2>Mayo here with Wells Fargo. Mike Mayo is absolutely legendary

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<v Speaker 2>in banking. He's one of the few people that Congress

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<v Speaker 2>called upon in the Great Financial Crisis to say what

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<v Speaker 2>in God's name is going on? And it has finally

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<v Speaker 2>paid off his optimism on large cat banks in Europe

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<v Speaker 2>and of course here in America, I have a charted

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<v Speaker 2>city group with a ten for one reverse split cratering

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<v Speaker 2>from you down and when and then it just forever

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

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<v Speaker 2>Mike Mayo. Why is banking finally getting a leg up?

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<v Speaker 1>Well, the times they are a change in and you're

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<v Speaker 1>sharing historic inflection in terms of the revenues, the earnings,

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<v Speaker 1>and especially fifteen years of regulation going from a headwind

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<v Speaker 1>to a tailwind. Now I'm not talking about going back

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<v Speaker 1>to two thousand and six, two thousand and seven before

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<v Speaker 1>the global financial crisis. I'm talking about preserving the safety

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<v Speaker 1>and soundness of the banks and eliminating a lot of

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<v Speaker 1>red tape, and that can help banks operate at a

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<v Speaker 1>lot of higher profit margins to help their stock raise.

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<v Speaker 2>Is it operational excellence or is it the gift of

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<v Speaker 2>the yield curve?

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<v Speaker 1>You know, it's really more just operational streamlining because regulation

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<v Speaker 1>has gotten so complex. Pull back that complexity and banks

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

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<v Speaker 1>financial repression. Zero interest rates were disturbing to banks profitability.

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<v Speaker 1>Now you're going back, just back to normal.

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<v Speaker 3>So talk to us about how you think the regulatory

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<v Speaker 3>framework may change and what it can do to returns

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<v Speaker 3>on equities.

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<v Speaker 1>For example, Well, I think the regulatory framework was vastly

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<v Speaker 1>improved after the global financial crisis. Banks doubled capital, they

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<v Speaker 1>double their liquidity, They de risked for their consumer customers.

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<v Speaker 1>Remember all those subprime loans. They derisk their commercial customers.

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<v Speaker 1>If anything, banks have been marginalized to the benefit of

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<v Speaker 1>the non bank. So a lot of the more risky

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<v Speaker 1>stuff is going outside the bank industry. So I would say,

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<v Speaker 1>great job regulators from the year you know, twenty ten

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<v Speaker 1>through it's called twenty fifteen. But the last decade you

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<v Speaker 1>had complexity. Pile on top of complexity, the living will,

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<v Speaker 1>the FED stress test. JP Morgan submits eighty thousand pages

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<v Speaker 1>for each and you know, I talked to the ex

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<v Speaker 1>vice chairman of the fdiic has said he didn't understand

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<v Speaker 1>it when he reviewed it, and nor did a lot

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<v Speaker 1>of the banks. So it's a lot of wasted money.

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<v Speaker 1>So I think you can save a lot of money

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<v Speaker 1>on expenses at the banks, at the regulatory agencies, and

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<v Speaker 1>I think some of that gets passed on to the customers.

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<v Speaker 1>And also banks deserve to have a level playing field

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<v Speaker 1>when it comes to how much capital they have, So

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<v Speaker 1>compute those capital ratios the same way you do for

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<v Speaker 1>everybody else, and the numbers go up by quite a bit.

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<v Speaker 1>So this could improve banking returns by two hundred basis

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

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<v Speaker 1>propel a bank stock rally over a few years.

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<v Speaker 3>So are there certain banks that are better positioned in

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<v Speaker 3>this type of environment or is this a blanket call

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<v Speaker 3>on us financials?

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<v Speaker 1>Well, a rising tide does lift all ships. JP Morgan

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<v Speaker 1>remains best in class Globile Bank. But my favorite, number one,

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<v Speaker 1>number two, and number three favorite is City Group. I

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<v Speaker 1>was on your show not to you know last year,

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<v Speaker 1>and it's moved, it's starting to move but it's still

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<v Speaker 1>that my dominant number one pick. It's a new era

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

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

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<v Speaker 2>folks with Mike Mayo. You're well as Fargo as we

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<v Speaker 2>go into the next half. For I got a chart normalized.

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<v Speaker 2>Back with the day Lehman collapse, I think I maybe

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<v Speaker 2>talked to you that day. Remember I got a JP

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<v Speaker 2>Morgan moonshot. When you say banks are going to do well,

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<v Speaker 2>are they catching up with JP Morgan or is it

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<v Speaker 2>all boats rising even for JP Morgan.

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<v Speaker 1>I'd say both. So I think the lesser bank will

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<v Speaker 1>narrow the gap with JP Morgan for sure. But at

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<v Speaker 1>the same time, JP Morgan should continue to image what

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<v Speaker 1>a bank generating over twenty percent returns on fifteen percent

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<v Speaker 1>capital with some best in class efficiency.

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<v Speaker 2>Mike Mayo with this, So I got JP Morgan, you

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<v Speaker 2>know clearly way ahead. Three hundred and seventeen thousand employees

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<v Speaker 2>is the working number we've got in the des screen.

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<v Speaker 2>You know, there's all this, you know the stuff Schinelli

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<v Speaker 2>basic talks about, all this, OMG, who's going to take

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<v Speaker 2>over for Jamie? Does that Germane to you is like,

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<v Speaker 2>is that part of your analysis of JP Morgan or

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<v Speaker 2>do you just ignore the people moving around and just

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<v Speaker 2>look at the financials the execution?

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<v Speaker 1>Well, I think good Jamie Diamond. I asked him this

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

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<v Speaker 1>And he didn't give much of an answer.

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<v Speaker 2>And he's still doing that for ten years.

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<v Speaker 1>Well, then I finally said, so are you going to

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<v Speaker 1>be around for a few more years? He said yes,

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<v Speaker 1>So I think when you have this many moving parts,

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

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<v Speaker 1>there's a deep bench at JP Morgan. It could be

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<v Speaker 1>a number of three or four different people. Marion Lake

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<v Speaker 1>certainly is the name that comes to the four investors knowers.

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<v Speaker 1>She telled a lot of positions. But if Jamie stays

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

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

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<v Speaker 1>I downgraded JP Morgan when they were spending all kinds

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<v Speaker 1>of money without telling us why they were spending and

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<v Speaker 1>everything else, and I upgraded it made it my number

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<v Speaker 1>one pick. After the failures from a couple of years ago.

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<v Speaker 1>But not one investor that I've spoken with, and I've

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<v Speaker 1>traveled a lot the last month, last two months, not

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

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<v Speaker 1>So people want Jamie Diamond to stay right now, and

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<v Speaker 1>so I think he should get that message and stay.

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

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

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<v Speaker 1>gonna benefit. Japen Morgan's gonna benefit. Why leave now? He's

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<v Speaker 1>been waiting for the to go to the ballgame your

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<v Speaker 1>whole professional career. You're finally getting there. You're not gonna

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<v Speaker 1>leave before the first home City.

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<v Speaker 3>I'm a former employee there at City, and when I

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<v Speaker 3>worked there, I felt like there's not a piece of

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

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<v Speaker 3>is it now your number one pick?

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

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<v Speaker 1>There was a dramatic shift last year that's underappreciated by

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<v Speaker 1>almost everybody. They went from five decades of this global

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<v Speaker 1>matrix management structure that nobody understood, and now they have

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<v Speaker 1>five lines of business. They have payments, banking, markets, wealth

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<v Speaker 1>and consumer. When they have a CEO in charge of each,

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<v Speaker 1>they have return targets for each, they have accountability for

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<v Speaker 1>each one of those five lines of business. That's what

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<v Speaker 1>you're playing for for the next five to ten years.

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<v Speaker 1>But at the same time, they're at that flection point

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<v Speaker 1>of the J curve. You invest money and your profits

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<v Speaker 1>go down. They're turning up on the other side of

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<v Speaker 1>that J curve where those investments start to pay off

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<v Speaker 1>and they start spending less. So you're gonna see twice

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<v Speaker 1>or maybe three times better efficiency improvement at City Group

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<v Speaker 1>and return improvement at City Group than the other banks.

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<v Speaker 1>And by the way, they're passing this magical line where

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<v Speaker 1>they have single digit returns to double digit returns. When

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<v Speaker 1>you do that, you go from value destruction to value creation.

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<v Speaker 1>That is the number one biggest driver of bank stock performance.

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<v Speaker 1>It's the number one big bank stock performer so far

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<v Speaker 1>this year. I think it'll be the top performer by

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<v Speaker 1>the end of the year.

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

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<v Speaker 2>He is, of course large cap bank research at Wells Fargo.

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<v Speaker 2>Fairly to say, legendary industry. Also very cut and chiseled yep.

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<v Speaker 2>You know, he's like, you know, he said to me, Tom,

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<v Speaker 2>you got to hit the weights again, Jim Tomlin. You

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<v Speaker 2>know he's like time getting the gym.

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

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<v Speaker 3>fascinating by this now it's all coming back to me.

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<v Speaker 3>I walked out the out of the door of City

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<v Speaker 3>after a few years, sold all my stock literally on

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<v Speaker 3>the day I walked out the door.

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<v Speaker 2>Very cool.

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<v Speaker 3>In January of two, two thousand. Jane Fraser, she's I

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<v Speaker 3>think she's got a pretty good message for the street.

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<v Speaker 3>How is she different from other CEOs at city who

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<v Speaker 3>have also promised change and to clean things up in

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<v Speaker 3>the streamline things.

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

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<v Speaker 1>the other CEOs. If he goes back, Tom Kane probably

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

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<v Speaker 2>Knew him personally. They used to talk farms in all

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<v Speaker 2>he worshiped Walter Wriston and then it ended.

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

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<v Speaker 1>pay us back. They did in nineteen eighty seven you

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<v Speaker 1>had big charges and then you had John Reid back

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<v Speaker 1>in the early nineties, he had the Saudi print, had

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<v Speaker 1>you pump it up with capital, and then you had

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<v Speaker 1>the whole Sandy Wild era one leader. And then you

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<v Speaker 1>had long term capital with the problems, and I called

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<v Speaker 1>that Noah's Ark because they brought two of everybody along

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<v Speaker 1>with the beat mergers with travelers. And then you had

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<v Speaker 1>Victim Pandit, which first you had Chuck Prince the lawyer,

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

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<v Speaker 1>and that that ended very stop, and then the music

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<v Speaker 1>stopped and basic they effectively failed and the government bailed

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<v Speaker 1>them out. And then you have Victim Pandit, which was

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<v Speaker 1>kind of there. And then you had this guy Mike Corbett,

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<v Speaker 1>who didn't change the strategy at all, and through it all,

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<v Speaker 1>I'd say city was very arrogant, very arrogant. Jane Fraser

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<v Speaker 1>gets there and says, you know what, we have a

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<v Speaker 1>lot of problems. We have a lot of things to fix.

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<v Speaker 1>The first step is to recognize that you have a problem.

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<v Speaker 1>And it's taken a little bit longer than some people

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<v Speaker 1>would have liked. I understand that, and the expensives are

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<v Speaker 1>a lot higher than they should have been. But recognizing

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<v Speaker 1>a problem then last year, everyone said City's going to

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<v Speaker 1>mess up up three concurrent initiatives. One is this org simplification.

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<v Speaker 1>They went from the five decades of matrix structure, five

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<v Speaker 1>lines of business. They eliminated five management layers. They told

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<v Speaker 1>all the employees you're going to have to manage more

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<v Speaker 1>people's It was gut wrenching, and they fired some people

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

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<v Speaker 1>you know, over a dozen consumer operations and a dozen

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<v Speaker 1>countries outside the US, and then they have this transformation

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

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<v Speaker 1>and everybody says city is going to implode. Well, guess what.

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<v Speaker 1>Last year City medics efficiency targets. They beat, their revenue

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<v Speaker 1>targets they met And so going through those major changes

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<v Speaker 1>and people saying, what's the proof, what's the evidence? Look

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<v Speaker 1>at the results last year and they're guidance three years

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

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<v Speaker 1>revenue is going higher and expenses going lower. So you're

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<v Speaker 1>at that huge inflection point now. So they're recognized and

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<v Speaker 1>they have a problem. They don't have that same degree

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<v Speaker 1>of arrogance. They have the ability, they have the capability

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

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<v Speaker 1>national corporation, you want to do payments or global investment banking,

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<v Speaker 1>you got it. Their top three and credit cards to

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<v Speaker 1>the franchise, a new strategy and Jane Frasier as the

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<v Speaker 1>ultimate architect of where city groups should be the next decade.

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<v Speaker 2>You are more qualified on this than anybody I know

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<v Speaker 2>on the sales side. You know the great group of

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<v Speaker 2>sales side analysts that are out there. Jamie Diamond this

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<v Speaker 2>weekend was a Talk of the Weekend with some tape

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<v Speaker 2>that was, you know, out of JP Morgan and that

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<v Speaker 2>Mike Mayo on Work from Home.

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<v Speaker 1>I loved the Jamie Diamond video and the audio that

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

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<v Speaker 2>Is I agree with that.

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<v Speaker 1>He just said he's going to say what he thinks,

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<v Speaker 1>and he says, if you don't like it, don't work

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<v Speaker 1>at JP Morgan. We want you to work at JP Morgan,

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<v Speaker 1>but if you you need to work in the office

0:11:54.559 --> 0:11:57.120
<v Speaker 1>so you can mentor people and everything else. And for

0:11:57.240 --> 0:12:00.560
<v Speaker 1>JP Morgan and Jamie Diamond, that works and that's their strategy.

0:12:00.600 --> 0:12:02.920
<v Speaker 2>Correct. When you saw when you were at credit Sweee.

0:12:03.360 --> 0:12:06.719
<v Speaker 2>You at mentors as you built your career. You went

0:12:06.800 --> 0:12:10.839
<v Speaker 2>from you know with the day you got candidate credit Sweez.

0:12:10.920 --> 0:12:12.280
<v Speaker 2>I think I spoke to you that day or the

0:12:12.360 --> 0:12:17.000
<v Speaker 2>day after. Whatever. The answer is, you need mentors, Mike

0:12:17.120 --> 0:12:20.000
<v Speaker 2>Mayo and work from home. Talk to the kids right now.

0:12:20.360 --> 0:12:23.360
<v Speaker 1>But I'd also say it's not one size fits all either. Okay.

0:12:23.440 --> 0:12:25.719
<v Speaker 1>So there's different departments at different.

0:12:25.480 --> 0:12:27.120
<v Speaker 2>Banks, different departments, but come on.

0:12:27.240 --> 0:12:30.679
<v Speaker 1>Differ different departments, different banks. I will say though Jamie

0:12:30.679 --> 0:12:34.120
<v Speaker 1>Diamond and JP Morgan, it's worked for them. They came

0:12:34.160 --> 0:12:37.560
<v Speaker 1>back early during the pandemic. Goldman Sachs. That was actually

0:12:37.600 --> 0:12:39.800
<v Speaker 1>my first meeting at Goldman Sachs. I wasn't going to

0:12:39.880 --> 0:12:41.520
<v Speaker 1>go in and my wife's a doctor, as you know,

0:12:41.600 --> 0:12:43.840
<v Speaker 1>and she says, no, you're going in to meet with

0:12:43.880 --> 0:12:47.840
<v Speaker 1>them in person, okay. And and I went to Goldman

0:12:47.960 --> 0:12:50.480
<v Speaker 1>Sachs and I'm telling you, they have this middle area

0:12:50.520 --> 0:12:53.320
<v Speaker 1>where you have to transfer to the upper floors, and

0:12:53.360 --> 0:12:55.360
<v Speaker 1>it was almost packed. And this was at a time

0:12:55.400 --> 0:12:57.480
<v Speaker 1>no one was going back to work. So the JP

0:12:57.640 --> 0:13:00.440
<v Speaker 1>Morgan and Goldman Sachs they had all their not all

0:13:00.640 --> 0:13:03.320
<v Speaker 1>they are so many employees back early and look at

0:13:03.360 --> 0:13:09.080
<v Speaker 1>the most successful. But it's not one size fits all.

0:13:09.240 --> 0:13:11.760
<v Speaker 1>So if if City Group decides they're going to allow

0:13:11.840 --> 0:13:14.560
<v Speaker 1>some people to work remotely, that might be a competitive

0:13:14.600 --> 0:13:18.520
<v Speaker 1>advantage in hiring certain people. So I saying I get it. Well,

0:13:18.760 --> 0:13:21.400
<v Speaker 1>just sometimes you can get great people if you make

0:13:21.440 --> 0:13:24.240
<v Speaker 1>some accommodation. So Jamie Diamond is not of that.

0:13:24.520 --> 0:13:26.040
<v Speaker 2>You know, we got Lisa Mateo.

0:13:26.120 --> 0:13:28.000
<v Speaker 3>I mean that's the way I actually Okay, you might

0:13:28.040 --> 0:13:31.520
<v Speaker 3>talk to us about Bank of America again, former employee,

0:13:31.559 --> 0:13:34.040
<v Speaker 3>thank you through Merrill Lynch, I've worked pretty much.

0:13:33.920 --> 0:13:34.880
<v Speaker 2>Every work to us.

0:13:34.920 --> 0:13:36.920
<v Speaker 3>Are the Bank of America story? Sometimes I g's lost

0:13:36.960 --> 0:13:39.520
<v Speaker 3>a little bit between the Jamie Diamond talk and maybe

0:13:39.520 --> 0:13:42.040
<v Speaker 3>the turnaround at City. What's what's the story at Bank

0:13:42.040 --> 0:13:42.520
<v Speaker 3>of America.

0:13:42.800 --> 0:13:46.440
<v Speaker 1>Look, we have three words that sum up the largest banks.

0:13:46.480 --> 0:13:49.920
<v Speaker 1>That is Goliath is winning. Okay, okay, scale is making

0:13:50.000 --> 0:13:53.320
<v Speaker 1>more difference in banking than ever before in the history.

0:13:53.360 --> 0:13:55.560
<v Speaker 3>Why don't you tell the European regulators that, I mean,

0:13:55.559 --> 0:13:56.520
<v Speaker 3>because we've they've.

0:13:56.320 --> 0:14:00.559
<v Speaker 1>Lost, They've lost, absolutely lost. The five biggest US capital

0:14:00.640 --> 0:14:08.280
<v Speaker 1>market players Bank America, JP Morgan, Golden Morgan, stan Goldman, Morgan, Stanley,

0:14:08.559 --> 0:14:13.800
<v Speaker 1>uh and uh Baba Yep. They've gained market sharing capital

0:14:13.840 --> 0:14:17.640
<v Speaker 1>markets since the global financial crisis, you know, in spades,

0:14:18.120 --> 0:14:20.920
<v Speaker 1>and I think they'll continue to do so. And you're

0:14:21.040 --> 0:14:24.200
<v Speaker 1>like talk about twice or three or JP Morgan four

0:14:24.240 --> 0:14:27.080
<v Speaker 1>times larger than the European bank peers. And by the way,

0:14:27.120 --> 0:14:30.440
<v Speaker 1>this whole idea that US banks should not merge, that's

0:14:30.520 --> 0:14:34.960
<v Speaker 1>like the Brian moynihan or Jamie Diamond Protection Act. Why

0:14:34.960 --> 0:14:37.360
<v Speaker 1>do you want to protect them? You should have more

0:14:37.600 --> 0:14:41.560
<v Speaker 1>large banks PNC. Bill Dempchek talks about wanting to have

0:14:41.640 --> 0:14:43.760
<v Speaker 1>another trillion dollar bank. He would like to be that,

0:14:44.320 --> 0:14:48.119
<v Speaker 1>but the unintended consequence of regulation. For the last time, thirty.

0:14:47.880 --> 0:14:50.000
<v Speaker 2>Seconds, Do you have a regional right now you would

0:14:50.040 --> 0:14:52.160
<v Speaker 2>own around that Mike Mayo theory? Do you have a

0:14:52.200 --> 0:14:55.840
<v Speaker 2>regional that could be mergeable with the people from Pittsburgh

0:14:55.880 --> 0:14:57.400
<v Speaker 2>with their beautiful baseball park.

0:14:58.040 --> 0:15:00.560
<v Speaker 1>Look, if you want to name it own, it's city group.

0:15:00.600 --> 0:15:02.280
<v Speaker 1>It's city group. It's city group. I don't want to

0:15:02.320 --> 0:15:09.080
<v Speaker 1>dilute that call. Let we're weaving all portfolio limits, okay,

0:15:10.600 --> 0:15:13.480
<v Speaker 1>but it's it's really city group. And then look and

0:15:13.600 --> 0:15:17.000
<v Speaker 1>JP Morgan Bank America. Those are the three goliath They benefit.

0:15:16.760 --> 0:15:18.160
<v Speaker 2>You're not took down.

0:15:17.920 --> 0:15:23.120
<v Speaker 1>And you know, look, P and C is a quality

0:15:23.160 --> 0:15:25.800
<v Speaker 1>bank in the national main street Bank. They're the thirty

0:15:25.880 --> 0:15:29.720
<v Speaker 1>largest cities. They have a ten year runway bill Demcheck

0:15:30.040 --> 0:15:33.880
<v Speaker 1>is an exceptional CEO, and they should have revenues growing

0:15:34.000 --> 0:15:37.320
<v Speaker 1>far past the expenses. And they'll benefit from the rising

0:15:37.360 --> 0:15:39.880
<v Speaker 1>tie of lists all ships. But again for me, it's

0:15:39.920 --> 0:15:43.640
<v Speaker 1>City Group, City Group, City Group as my primary recommendation.

0:15:44.240 --> 0:15:47.040
<v Speaker 2>Thank you so much. He's with Wells Fargo.

0:15:47.120 --> 0:15:47.480
<v Speaker 3>Folks,