1
00:00:00,080 --> 00:00:02,960
Speaker 1: Stolkes trying to get record highs as rate cut optimism

2
00:00:03,240 --> 00:00:06,440
Speaker 1: is still growing. But Bob Diamond, CEO of Atlast Merchants Capital,

3
00:00:06,440 --> 00:00:09,120
Speaker 1: warning the following the Fed is likely to proceed with caution.

4
00:00:09,520 --> 00:00:11,879
Speaker 1: A rate cut or even two this year could occur,

5
00:00:12,039 --> 00:00:14,600
Speaker 1: but the economy is likely to continue to demonstrate that

6
00:00:14,640 --> 00:00:17,919
Speaker 1: it can handle the current level of interest rates. Bob Diamond,

7
00:00:18,000 --> 00:00:19,720
Speaker 1: I'm pleased to say it joins us now and joined

8
00:00:19,760 --> 00:00:22,080
Speaker 1: us for the hour. But good morning to you, Rian, Jonathan.

9
00:00:22,160 --> 00:00:24,040
Speaker 1: Let's get into the data. It's fantastic to see use

10
00:00:24,280 --> 00:00:27,639
Speaker 1: retail sales with solid jobless claims were low. Optimism is

11
00:00:27,640 --> 00:00:30,280
Speaker 1: picking up. What evidence is that that we are quote

12
00:00:30,320 --> 00:00:32,159
Speaker 1: sufficiently restrictive at the FED?

13
00:00:33,520 --> 00:00:37,440
Speaker 2: So you know, I think consensus, Jonathan, in my mind

14
00:00:37,560 --> 00:00:38,959
Speaker 2: is about one percent.

15
00:00:38,600 --> 00:00:39,400
Speaker 3: Growth this year.

16
00:00:39,960 --> 00:00:41,880
Speaker 2: The FED is a little higher, kind of one and

17
00:00:41,920 --> 00:00:42,960
Speaker 2: a half percent growth.

18
00:00:44,120 --> 00:00:45,959
Speaker 3: I think it might be a little bit higher than that.

19
00:00:46,600 --> 00:00:48,280
Speaker 2: And as I look out at the year, if the

20
00:00:48,360 --> 00:00:52,600
Speaker 2: FED were to be aggressive in rate cuts first quarter

21
00:00:52,760 --> 00:00:56,360
Speaker 2: or second quarter, I think they run the risk of

22
00:00:56,680 --> 00:00:59,320
Speaker 2: the economy accelerating.

23
00:00:58,600 --> 00:01:01,120
Speaker 3: A bit and therefore in accelerating a bit.

24
00:01:01,720 --> 00:01:03,560
Speaker 2: And that's just a position that the FED is not

25
00:01:03,600 --> 00:01:07,120
Speaker 2: going to put themselves in So my sense is that

26
00:01:07,200 --> 00:01:11,000
Speaker 2: the right way to look at this rather than the markets,

27
00:01:11,120 --> 00:01:13,120
Speaker 2: or if you look at the FED fund futures, they

28
00:01:13,200 --> 00:01:15,480
Speaker 2: look at one hundred and fifty basis points this year,

29
00:01:15,520 --> 00:01:19,240
Speaker 2: and it's kind of front ended my senses, maybe one

30
00:01:19,319 --> 00:01:22,959
Speaker 2: or two twenty five basis point cuts second half, maybe

31
00:01:23,040 --> 00:01:25,240
Speaker 2: closer to the end of the year. And I just

32
00:01:25,280 --> 00:01:27,560
Speaker 2: believe the Fed, for very good reason, is going to

33
00:01:27,600 --> 00:01:32,080
Speaker 2: remain cautious. They they pretty much played a blinder since

34
00:01:32,120 --> 00:01:36,800
Speaker 2: they recognize that inflation was spiraling frankly out of control

35
00:01:36,920 --> 00:01:37,800
Speaker 2: not that long ago.

36
00:01:38,080 --> 00:01:39,160
Speaker 3: We're in a very good.

37
00:01:39,000 --> 00:01:41,400
Speaker 2: Position now, and I think for the Fed to act

38
00:01:41,720 --> 00:01:44,600
Speaker 2: too quickly we put them in a difficult position. So

39
00:01:45,240 --> 00:01:47,640
Speaker 2: our senses, the markets are well ahead of themselves in

40
00:01:47,720 --> 00:01:48,639
Speaker 2: terms of right cuts.

41
00:01:49,360 --> 00:01:50,560
Speaker 3: You know, maybe second.

42
00:01:50,240 --> 00:01:53,440
Speaker 4: Half when you say markets, bond markets are stock markets,

43
00:01:53,480 --> 00:01:55,520
Speaker 4: because what I find interesting is how many people are

44
00:01:55,520 --> 00:01:57,880
Speaker 4: saying this is a bond market problem. It's not a

45
00:01:57,880 --> 00:02:00,640
Speaker 4: stock market problem, because if the economy is better and good,

46
00:02:00,960 --> 00:02:02,800
Speaker 4: that's going to be positive for risk assets.

47
00:02:03,040 --> 00:02:06,920
Speaker 2: Yeah, and I think Lisa, it raises another issue, which

48
00:02:07,000 --> 00:02:11,200
Speaker 2: is we were for so long at zero interest rates

49
00:02:11,280 --> 00:02:13,840
Speaker 2: or one percent interest rates. I mean, we all remember

50
00:02:14,200 --> 00:02:17,960
Speaker 2: here world before two thousand and eight. From two thousand

51
00:02:17,960 --> 00:02:21,160
Speaker 2: and eight until very recently, FED funds averaged about one

52
00:02:21,240 --> 00:02:26,360
Speaker 2: percent before that. For decades and decades and decades, FED

53
00:02:26,400 --> 00:02:28,120
Speaker 2: funds averaged around four percent.

54
00:02:28,160 --> 00:02:30,520
Speaker 3: Are a little above four percent. So where we are.

55
00:02:30,320 --> 00:02:33,880
Speaker 2: Today is not abnormal, and our sense is that the

56
00:02:33,960 --> 00:02:38,840
Speaker 2: economy has adjusted reasonably well. We see that in you know,

57
00:02:38,919 --> 00:02:41,240
Speaker 2: kind of the calmness and the bond markets, the calmness

58
00:02:41,280 --> 00:02:45,480
Speaker 2: and the equity markets. So there's not a panic here

59
00:02:45,560 --> 00:02:47,200
Speaker 2: by the FED to lower interest rates.

60
00:02:47,400 --> 00:02:49,919
Speaker 4: You were at Barclays leading the charge there for quite

61
00:02:49,960 --> 00:02:52,519
Speaker 4: a while, Credit SUAE First Boston. You've been in the

62
00:02:52,560 --> 00:02:54,600
Speaker 4: banking business for a long time. There's a lot of

63
00:02:54,639 --> 00:02:56,720
Speaker 4: angst about what the future of the banking industry is

64
00:02:56,760 --> 00:02:59,160
Speaker 4: going to hold at a time where yes, interest rates

65
00:02:59,200 --> 00:03:02,000
Speaker 4: are higher, but also there's a whole host of regulation

66
00:03:02,280 --> 00:03:04,320
Speaker 4: that's crimping the lending activities of a lot of these banks.

67
00:03:04,360 --> 00:03:06,919
Speaker 4: You've referred to them as utilities. So where's the opportunity

68
00:03:07,320 --> 00:03:09,920
Speaker 4: at a time where it seems like lending could be

69
00:03:09,960 --> 00:03:12,120
Speaker 4: profitable if there weren't so many constraints.

70
00:03:12,720 --> 00:03:14,000
Speaker 3: So I think we're seeing.

71
00:03:15,240 --> 00:03:17,800
Speaker 2: Point one would be if you look at the US banks,

72
00:03:18,120 --> 00:03:21,720
Speaker 2: and if you look at what we typically report as earnings,

73
00:03:21,760 --> 00:03:24,800
Speaker 2: we tend to report the big banks and the big four,

74
00:03:24,919 --> 00:03:27,760
Speaker 2: the big six in the US continue to get larger,

75
00:03:28,440 --> 00:03:31,480
Speaker 2: more concentrated than they were prior to two thousand and eight,

76
00:03:31,520 --> 00:03:36,080
Speaker 2: and I think that concentration does weigh on me a bit.

77
00:03:37,400 --> 00:03:41,040
Speaker 2: Do we really think that fewer banks, larger banks, more

78
00:03:41,080 --> 00:03:44,960
Speaker 2: concentrated banks is better for the US economy. I really

79
00:03:44,960 --> 00:03:47,640
Speaker 2: don't think so. I think one of the things that's

80
00:03:47,640 --> 00:03:50,480
Speaker 2: been the lifeblood of our economy, and the reason that

81
00:03:50,520 --> 00:03:55,200
Speaker 2: the US reacts so quickly to negative news and negative periods,

82
00:03:55,440 --> 00:03:59,960
Speaker 2: particularly relative to Europe and other sectors around the world,

83
00:04:00,280 --> 00:04:04,000
Speaker 2: is because of the diversification of the financial services industry.

84
00:04:04,080 --> 00:04:07,840
Speaker 2: So I do worry about that, and I think earnings

85
00:04:07,840 --> 00:04:11,680
Speaker 2: have been good. But the larger interconnected banks are becoming

86
00:04:11,800 --> 00:04:15,160
Speaker 2: much more like utilities, and so the push back on

87
00:04:15,320 --> 00:04:19,359
Speaker 2: higher capital levels I actually think is going to be

88
00:04:19,440 --> 00:04:23,440
Speaker 2: ineffective for just that reason, because the banks are becoming

89
00:04:23,480 --> 00:04:27,040
Speaker 2: more concentrated and they are becoming becoming larger.

90
00:04:27,279 --> 00:04:29,000
Speaker 4: So what do you think of this impact of these

91
00:04:29,040 --> 00:04:31,679
Speaker 4: new capital requirements? If you like the US regional banks,

92
00:04:32,080 --> 00:04:33,960
Speaker 4: they potentially face even a tougher road ahead.

93
00:04:34,760 --> 00:04:37,039
Speaker 2: Well, I think I think a lot of that capital

94
00:04:37,120 --> 00:04:40,359
Speaker 2: is for the larger interconnected banks what people used to

95
00:04:40,400 --> 00:04:43,320
Speaker 2: refer to is too big to fail, and I think

96
00:04:43,720 --> 00:04:47,000
Speaker 2: I think that's where the biggest impact will be. And

97
00:04:47,040 --> 00:04:49,560
Speaker 2: I can kind of understand both sides of that argument,

98
00:04:49,560 --> 00:04:52,000
Speaker 2: Anne Marie. On the one hand, you know, the banks

99
00:04:52,000 --> 00:04:55,839
Speaker 2: are saying higher capital levels while we're safe right now,

100
00:04:55,880 --> 00:04:59,279
Speaker 2: which they are, is going to lower roe and reduce lending,

101
00:04:59,320 --> 00:05:01,640
Speaker 2: which is true. On the other hand, if you're a

102
00:05:01,680 --> 00:05:05,880
Speaker 2: regulator and you're worried about ever being in a position

103
00:05:05,960 --> 00:05:08,839
Speaker 2: where there's systemic risk, are too big to fail? Even

104
00:05:08,880 --> 00:05:12,159
Speaker 2: though the banks are doing great and they are safe today,

105
00:05:13,160 --> 00:05:16,080
Speaker 2: the risk if there was a failure of systemic risk

106
00:05:16,200 --> 00:05:19,479
Speaker 2: is greater. In my view, and this does fit my book.

107
00:05:19,920 --> 00:05:22,279
Speaker 2: We really love to invest in the regional banks, and

108
00:05:22,320 --> 00:05:25,080
Speaker 2: we're looking at it, so I want to claim that

109
00:05:24,760 --> 00:05:28,840
Speaker 2: that's kind of our bias. But there's four thousand or

110
00:05:28,880 --> 00:05:34,560
Speaker 2: so regional specialist banks today. There's no country that has

111
00:05:34,800 --> 00:05:37,520
Speaker 2: that kind of a financial services industry.

112
00:05:37,080 --> 00:05:38,080
Speaker 3: And that kind of a reach.

113
00:05:38,560 --> 00:05:42,400
Speaker 2: The benefit that those banks have for small, family owned businesses,

114
00:05:42,440 --> 00:05:47,039
Speaker 2: which again the lifeblood of the US economy is really important.

115
00:05:47,120 --> 00:05:50,320
Speaker 2: There will be consolidation, and I do think that those

116
00:05:50,320 --> 00:05:53,919
Speaker 2: banks are reacting well to higher interest rates now versus

117
00:05:54,920 --> 00:05:59,440
Speaker 2: the immediate impact of higher interest rates. So we think

118
00:05:59,480 --> 00:06:02,240
Speaker 2: there's going to be terrific opportunities in regional banks. We

119
00:06:02,360 --> 00:06:05,280
Speaker 2: love that as a space to invest in, but most importantly,

120
00:06:05,640 --> 00:06:09,760
Speaker 2: we think it's incredibly important that we provide opportunities for

121
00:06:09,839 --> 00:06:13,200
Speaker 2: those institutions to continue to grow and serve small and

122
00:06:13,279 --> 00:06:14,600
Speaker 2: medium enterprise businesses.

123
00:06:14,760 --> 00:06:16,680
Speaker 1: Based on that sense, you think we're through the storm

124
00:06:16,920 --> 00:06:17,920
Speaker 1: of lost spring.

125
00:06:18,440 --> 00:06:20,440
Speaker 2: In terms of regional banks, Yeah, for sure.

126
00:06:20,680 --> 00:06:22,680
Speaker 3: I think. I think there are a couple of things, Jonathan.

127
00:06:22,760 --> 00:06:28,480
Speaker 2: I think every bank, large, small, medium had to adjust

128
00:06:28,520 --> 00:06:32,080
Speaker 2: their portfolio to higher rates. When rates go from one

129
00:06:32,120 --> 00:06:35,480
Speaker 2: percent to five percent, it's going to impact. You can't

130
00:06:35,480 --> 00:06:37,800
Speaker 2: have a positive impact of that, you have to weather it,

131
00:06:38,240 --> 00:06:41,280
Speaker 2: and I think that's been managed pretty well. I think

132
00:06:41,320 --> 00:06:43,200
Speaker 2: the second thing is there's been a lot of worry

133
00:06:43,240 --> 00:06:46,280
Speaker 2: about the loan portfolios, particularly commercial real estate, and I

134
00:06:46,320 --> 00:06:48,560
Speaker 2: think we're beginning to recognize that for many of these

135
00:06:48,640 --> 00:06:54,640
Speaker 2: regional and you know, more specialist banks, their focus on

136
00:06:54,680 --> 00:06:57,560
Speaker 2: commercial real estate is more in small cities around the

137
00:06:57,560 --> 00:07:00,279
Speaker 2: country as opposed to New York or LA. So I

138
00:07:00,320 --> 00:07:04,720
Speaker 2: think the markets are getting more comfortable that the crisis

139
00:07:04,800 --> 00:07:07,640
Speaker 2: is behind us. But I do think that there's an

140
00:07:07,640 --> 00:07:12,920
Speaker 2: opportunity for consolidation. The impact of regulatory capital, the impact

141
00:07:12,920 --> 00:07:18,560
Speaker 2: of regulatory intrusion post SVB is increasing costs. I think

142
00:07:18,600 --> 00:07:21,800
Speaker 2: the higher interest rates for a while increased costs. So

143
00:07:21,840 --> 00:07:25,120
Speaker 2: some of the very very small regional and specialist banks,

144
00:07:25,520 --> 00:07:28,480
Speaker 2: although very very sound, are going to really struggle to

145
00:07:28,480 --> 00:07:31,080
Speaker 2: get the ROE to appropriate levels. So we'll see some

146
00:07:31,120 --> 00:07:32,000
Speaker 2: consolidation there.

147
00:07:32,040 --> 00:07:36,480
Speaker 1: Just quickly language matters investing versus bank. Would you be

148
00:07:36,480 --> 00:07:39,640
Speaker 1: interested in taking over a regional bank in the United

149
00:07:39,640 --> 00:07:42,280
Speaker 1: States of America as an investor?

150
00:07:42,400 --> 00:07:47,000
Speaker 2: What I love that as opposed to an operator. You know,

151
00:07:47,360 --> 00:07:50,600
Speaker 2: we do think of ourselves not just as investors, but

152
00:07:50,720 --> 00:07:54,880
Speaker 2: as operators. And so if we make a significant investor

153
00:07:54,920 --> 00:07:58,080
Speaker 2: in an institution, a regional bank or Padmore Gordon, as

154
00:07:58,120 --> 00:08:02,040
Speaker 2: you and I have talked about in the UK, staying

155
00:08:02,320 --> 00:08:06,160
Speaker 2: as as non executive, staying as investors, we can still

156
00:08:06,200 --> 00:08:08,880
Speaker 2: have a pretty positive impact on the growth. And that's

157
00:08:08,920 --> 00:08:10,320
Speaker 2: that's how I look at it. What I love to

158
00:08:10,320 --> 00:08:13,000
Speaker 2: get really really involved with a couple of regional banks.

159
00:08:13,040 --> 00:08:15,760
Speaker 1: Absolutely absolutely where would they be if you wanted to

160
00:08:15,800 --> 00:08:16,160
Speaker 1: find one.

161
00:08:16,240 --> 00:08:18,480
Speaker 3: I can't say that I'm trying to get to it, Bob.

162
00:08:18,520 --> 00:08:20,960
Speaker 1: We're trying to sea this, sease this out in this program.

163
00:08:21,520 --> 00:08:23,760
Speaker 3: Very good question though, Bob Timond