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Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom keene Jailey.

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Speaker 1: We bring you insight from the best in economics, finance, investment,

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Speaker 1: and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud,

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Speaker 1: Bloomberg dot Com, and of course on the Bloomberg Ken

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Speaker 1: Leon a c fr A joins us. Now, Ken Leon,

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Speaker 1: what does Jamie Diamond need from President Biden? He needs

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Speaker 1: really to really set the tone for confidence for the

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Speaker 1: country and to make sure that we're going back to

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Speaker 1: a period of normalcy. As it relates to help people

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Speaker 1: think and live. As it relates to the economy, the

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Speaker 1: stimulus is coming. That's going to help the consumer and

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Speaker 1: small business probably will see that benefit by the second

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Speaker 1: quarter UM. And again this rear mirror of COVID nineteen,

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Speaker 1: we did see a reserve release of two point nine

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Speaker 1: billion after building up to thirty three point eight billion.

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Speaker 1: That tells me that other than distressed industries and energy

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Speaker 1: were in leisure, the economy has strong footing for twenty one.

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Speaker 1: Banks are going to benefit from that. When Ms Bazik

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Speaker 1: walked into the studio kenn Ley On, the first thing

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Speaker 1: out of her mouth was give us scope and scale

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Speaker 1: on that startling tangible number. That's enormous and it really

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Speaker 1: speaks to um the build up of capital, for one thing,

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Speaker 1: and the opportunity of return of capital with buyback and

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Speaker 1: dividends to shareholders. And banks are total return investments. So

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Speaker 1: with yield and cash flow and that type of return UM,

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Speaker 1: it's obviously going to you know, flow to investors. Can

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Speaker 1: they sustain that, It's questionable, and certainly you want to

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Speaker 1: be above certain regulated capital ratios, which they are, but

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Speaker 1: certainly there's a chance to both invest in the business

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Speaker 1: and to return capital the shareholders. That's a positive story

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Speaker 1: for this year. We did not have that last year.

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Speaker 1: So just to refresh where we're at right now, JPMorgan

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Speaker 1: shares a little change ahead of the open. They just

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Speaker 1: reported earnings that blue way expectations with adjusted revenue in

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Speaker 1: the fourth quarter, just to give you some size of

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Speaker 1: scope here of thirty point two billion dollars versus he

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Speaker 1: estimated a point seven billion dollars. There is a question

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Speaker 1: of how long the trading boom can last ken especially

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Speaker 1: as we see volatility dampened by fiscal and monetary policies.

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Speaker 1: Do you sense and they are the expectations that the

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Speaker 1: debt trading and the equity chading revenues and beats will

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Speaker 1: continue for we're in the risk on environment, which means

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Speaker 1: that for both corporate issuers equity and debt, and also

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Speaker 1: for investors it will continue certainly for the first half

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Speaker 1: of this year. Earlier Alison mentioned about a more normal

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Speaker 1: second half, but we are seeing acceleration in main street banking.

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Speaker 1: Non interest revenue in the fourth quarter was up nearly

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Speaker 1: two billion, even though net interesting come with lower rates

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Speaker 1: was down nine million. You continue that trend, we can

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Speaker 1: keep capital markets kind of flat from a high level

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Speaker 1: um and certainly the equity market does not reward bank

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Speaker 1: stocks just for having the capital markets firing on all cylinders.

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Speaker 1: So I think it's really going to be back to

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Speaker 1: traditional lending and how they're contending with getting the wallet

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Speaker 1: chair from the consumer and business with fintech coming into

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Speaker 1: the market. When you talk about traditional lending, can I'm

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Speaker 1: looking at the fourth quarter provisions for credit losses that

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Speaker 1: actually were more than expected at one point eight nine

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Speaker 1: billion versus the estimated one point three nine billion. Is

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Speaker 1: there anything we can take away from this in terms

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Speaker 1: of what they are seeing on the ground with consumers

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Speaker 1: in the fourth quarter as the coronavirus pandemic continue to worsen.

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Speaker 1: The only thing that I think still remains in the

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Speaker 1: shadows is, you know, the related to mortgage payments and

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Speaker 1: whether collections have improved or there's been either with state regulation,

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Speaker 1: UM forgiveness in terms of payments for a period of time.

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Speaker 1: But when you go through the provisions and allowance for

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Speaker 1: loan losses, UM, you know it's not alarming at all.

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Speaker 1: And uh again, I'm actually seeing UM in the fourth quarter,

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Speaker 1: UM somewhat of an improvement, you know with home lending.

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Speaker 1: Home lending has been great, but also for new mortgage origination. UM.

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Speaker 1: I don't see any risks with Carter Auto. And then

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Speaker 1: it really gets back to the consumer with that narrative

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Speaker 1: of can they meet their monthly payments? Uh. I again

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Speaker 1: see this more as a rear mirror issue unless there's

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Speaker 1: going to be some surprise where both the economy and

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Speaker 1: the consumer moved to a weaker position earlier this year.

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Speaker 1: And I don't say that can hugely valuable kenth Leon

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Speaker 1: where US was cfr A just greatly appreciated this morning.

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Speaker 1: And again more bank earnings to come, not only here

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Speaker 1: but in Europe as well. We have been getting a

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Speaker 1: consensus on Wall Street the banks are the place to be.

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Speaker 1: Daniel Morris, BNP part about asset management, senior investment strategist

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Speaker 1: joining us now based on what we're seeing, Daniel, do

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Speaker 1: you see that that reflationary trade, that idea of banks

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Speaker 1: being a sweet spot in one is still the right

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Speaker 1: call um? We we do think so if we look

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Speaker 1: at forward rates, assuming forward levels for fortenuer treasuries and

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Speaker 1: markets looking for about one point three over the next year.

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Speaker 1: So the important thing is is that's an upward trend.

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Speaker 1: Another key driver for value our performance has been what's

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Speaker 1: happening with commodity prices, oil in particular, and there's probably

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Speaker 1: still some upside there um. So it's something that we're watching.

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Speaker 1: It's not going to be a multi year trend in

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Speaker 1: the same way that you had growth out performing value

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Speaker 1: for years and years, but now we think at least

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Speaker 1: the momentum is still on the value side. Daniel, Thank

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Speaker 1: you so much for joining today. In the middle of

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Speaker 1: bank earnings. I know it's inappropriate for a gentleman from

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Speaker 1: a French bank to talk about American banking, so we'll

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Speaker 1: leave that to Hinale here she massages city group earnings.

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Speaker 1: Daniel Morris, how have you adjusted your view off of

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Speaker 1: democratic president, a Democratic House, and a Democratic Senate. Well,

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Speaker 1: it's it's a bit of plus and minus. On one hand,

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Speaker 1: Certainly everyone is ratchet up their expectations for physical stimulus,

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Speaker 1: and that's certainly what we're seeing, broadly speaking reflected in

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Speaker 1: treasury yields. It will be a question of how much

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Speaker 1: UH President elect Biden is actually able to obtain relative

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Speaker 1: to his initial proposal, but nonetheless it should be more

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Speaker 1: then we thought would have been the case a month

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Speaker 1: or so ago. At the same time, the market is

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Speaker 1: pretty enthused about that. So actually we've reduced our allocation

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Speaker 1: UH for equities from an overweight to neutral, just perhaps

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Speaker 1: waiting for a better entry point. We all know there's

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Speaker 1: always going to be something upsetting that happens. At some

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Speaker 1: point we'll have a pullback in the markets, and we

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Speaker 1: think that's going to be the better time to go back,

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Speaker 1: likely to an overweight position. Well, you know, it's like tina.

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Speaker 1: I don't know how you spell tina in French, but

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Speaker 1: we'll go with it. I mean, you need to pull back.

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Speaker 1: When you get a pullback, people are massaging this outpast

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Speaker 1: fourth of July. Daniel, that's a holiday in America. They're

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Speaker 1: going out to July and into the summer. Do you

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Speaker 1: know when that pullbacks can occur? Well, the most likely trigger,

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Speaker 1: at least of the of the risk that we're cognizant of,

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Speaker 1: clearly it's going to be something around the pandemic. And

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Speaker 1: unfortunately we have plenty of distressing news there. So at

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Speaker 1: some point, if it accumulates sufficiently to the point where

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Speaker 1: people start to rethink their forecast, either for earnings or

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Speaker 1: for GDP, that could be something that would likely cause

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Speaker 1: things to turn around, at least briefly. Daniel Moore is

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Speaker 1: too short of visit. We'll do this again. But we've

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Speaker 1: got some interesting bank developments here for Global Wall Street.

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Speaker 1: Mr Morris would the MP perry, but a busy, busy day.

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Speaker 1: Not only are we getting the retail sales that came

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Speaker 1: in highly disappointing, but banks have been reporting earnings. JP

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Speaker 1: Morgan the leader when it comes to a top line

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Speaker 1: earnings per share growth as well as the trading revenues.

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Speaker 1: And yet there shares down one point four percent ahead

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Speaker 1: of the open. Wells Fargo shares tumbling after disappointing. Alison

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Speaker 1: Williams tracking at all Blueberg Intelligence, senior banking analyst, and Allison,

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Speaker 1: as you peruse all of the reports, what stands out

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Speaker 1: to you? So before the reports we said we'd be

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Speaker 1: looking for three key things trading and capital markets for momentum,

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Speaker 1: interest income troughing, UH provisions peaking. So I think we

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Speaker 1: got evidence again about that, oddly, but some differences across

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Speaker 1: the piers. I think the one key story that's developing

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Speaker 1: across not just banks but financial services, as we saw

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Speaker 1: black Rock yesterday, is higher spending. So JP Morgan had

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Speaker 1: increased their estimates for investment spending at a December conference,

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Speaker 1: they raise that again. They also do expect higher net

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Speaker 1: interest income, so there's some offset there. Wells Fargo, everybody's

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Speaker 1: been um watching the cost number. That's the big opportunity

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Speaker 1: over the next several years. Their guidance for costs is

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Speaker 1: higher than consensus expected, while as their net interest income

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Speaker 1: expectation is lower, So that's the negative um but again

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Speaker 1: spending more on investments. UH City Group. We haven't seen

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Speaker 1: the net interest income guidance, but their trading revenue did

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Speaker 1: come in a little bit light fick worse that's their

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Speaker 1: bigger business equities better UM. But again they're spending on

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Speaker 1: costs not just for investments, but related to some of

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Speaker 1: their regulatory issues. And black Rock I referenced earlier stellar quarter. Yes,

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Speaker 1: today great new business record assets, UM. But the fact

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Speaker 1: that they said that they're going to be spending more

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Speaker 1: on investments across a lot of different items UM, I

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Speaker 1: think was a negative takeaway for investors. Allison, do we

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Speaker 1: have too many big banks? Well, it feels it might

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Speaker 1: feel like that on a day like today, but actually

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Speaker 1: the US banking system is still rather fragmented. So we

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Speaker 1: do have these big banks, but we still have a

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Speaker 1: number of smaller banks, and we do think that UM

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Speaker 1: consolidation will be a continuing trend. I think it's it's

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Speaker 1: interesting when you look across the banking system. If if

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Speaker 1: we looked past, you know, multiple decades in the nineties,

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Speaker 1: we saw tons of mergers, but we saw bank branches

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Speaker 1: still growing, and that happened basically up until the crisis.

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Speaker 1: Since then, over the past decade or so, we start

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Speaker 1: to see those branches come in and that's really the

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Speaker 1: digital story. UM. You know, we we all talk about

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Speaker 1: a lot of the acceleration and the digital story that

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Speaker 1: we've seen during the pandemic, will that lead to a

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Speaker 1: lesser branches? So again, supply not it's just about the

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Speaker 1: number of banks, but about the number of actual branches.

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Speaker 1: I mentioned this with this Bessic earlier, the idea the

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Speaker 1: Bank of America was flat on their back and moining,

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Speaker 1: and clearly his turn Bank of America around. What does

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Speaker 1: James Fraser need to do to do a mooint ahead? Well,

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Speaker 1: the number one I think issue with City over the

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Speaker 1: past decade and perhaps even the past two decades is

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Speaker 1: operating leverage. And you know that's really been UM the

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Speaker 1: focus of investors and I think where the disappointments have been.

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Speaker 1: And again, if you take a very long term view

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Speaker 1: in terms of how City Group was created, you know

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Speaker 1: it was a lot of different entities brought together UM

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Speaker 1: after the financial crisis, UH corebat did. UM make efforts

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Speaker 1: to simplify, but it still is such a more complex

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Speaker 1: organization just in terms of UM the broad footprints. So

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Speaker 1: they definitely slimmed down their businesses. UM. They divested the

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Speaker 1: retail brokerage to Morgan Stanley, which has actually been a

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Speaker 1: win for them. They've cut geographies, they've gotten simpler. So

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Speaker 1: I think Jane really just needs to um continue that

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Speaker 1: journey in terms of more simplification and then just really

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Speaker 1: getting the cost structure right. And I think that the

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Speaker 1: regulators have sort of indicated that that's their frustration UM

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Speaker 1: with a group just in terms of um, you know,

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Speaker 1: the risk management and getting that sort of overview together

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Speaker 1: Elison Williams and celebrating a new Bloomberg function m O

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Speaker 1: d L. I really want to bring into your attention

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Speaker 1: for those of you that are global Wall Street pros

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Speaker 1: like JP Morgan, JPM Equity, m O d L is

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Speaker 1: a whole new financial analysis with the leadership of Alison Williams.

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Speaker 1: You're gonna finish strong to sell. This is what our

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Speaker 1: Control Room does well, team surveillance, wiring us up with

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Speaker 1: Mr Rdholt. We're gonna do that right now. Of course

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Speaker 1: it's wonderful podcast, longer conversations, harder conversations, masters in business,

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Speaker 1: and of course occasionally buying stock. Barry, we got eight

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Speaker 1: ways to go here. I want to get through this

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Speaker 1: quickly because I think I've got to go to Europe.

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Speaker 1: In a couple of minutes of Control Room will tell

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Speaker 1: me Berry a firm thirty forty one, opens at ninety,

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Speaker 1: gets up to one thirty seven, comes down the specs

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Speaker 1: and all that. How do you frame to your clients

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Speaker 1: the what I'm gonna call Internet mania wrapped around tech.

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Speaker 1: Is it a manufactured hype or is it real? So

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Speaker 1: there's a spectrum, there's a continuum. You know. The Bitcoin

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Speaker 1: is really the poster child for just pure speculation. UM

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Speaker 1: Tesla has some real great fundamental underlying technologies, but a

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Speaker 1: lot of speculation in that, and then you work your

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Speaker 1: way down, uh the speculative ladder. The problem with SPACs

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Speaker 1: is that they follow Sturgeons law, which is everything is crap.

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Speaker 1: So if you can get into UM Martin Franklin spack,

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Speaker 1: or if you can get into UM A bill Acman spack,

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Speaker 1: you the odds are tilted slightly in your favor. But

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Speaker 1: look at how many SPACs came out last year and

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Speaker 1: how poorly they performed. You have to really be very selective.

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Speaker 1: Are they by prospectives? Is this the fleecing of retail

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Speaker 1: because they're not codified off of security Zack thirty three

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Speaker 1: and thirty four. Well, it's a great back door around that. UM,

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Speaker 1: we'll give us your money for a venture Uh to

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Speaker 1: be determined later. Reminds a little bit of the Great

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Speaker 1: South Sea bubble. Uh. And that's why you have to

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Speaker 1: go to people with a track record who have done

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Speaker 1: this before. Hey, um, Social Capital that's done a number

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Speaker 1: of home runs. You have to say, they seem to

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Speaker 1: be really good at identifying things with with hidden value.

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Speaker 1: On the other hand, who were there, like two hundred

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Speaker 1: spacks last year? Uh? You know when everybody the genius

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Speaker 1: of any of these new or or revamped asset classes

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Speaker 1: is they identify a market inefficiency and the first few

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Speaker 1: get to a profit from that, they find alpha. But

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Speaker 1: when everybody else piles into the space, Hey, that inefficiency

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Speaker 1: gets arbitraged away and there's no more upside left. So

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Speaker 1: it's like the old days when someone would find a

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Speaker 1: little bit of gold and that stream. It was great

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Speaker 1: for the first two panners. By the hundredth guy that

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Speaker 1: shows up, it ain't nothing but pebbles and and fish poop.

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Speaker 1: That is not how you make money in the markets. Consistently,

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Speaker 1: very good, very We've got to leave it there with

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Speaker 1: breaking news, very rittle, too short of visit. Look for

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Speaker 1: his podcast out on Bloomberg. It is exceptionally strong Thanks

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Speaker 1: for listening to the Bloomberg Surveillance podcast. Subscribe and listen

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Speaker 1: to interviews on Apple Podcasts, SoundCloud, or whichever podcast platform

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Speaker 1: you prefer. I'm on Twitter at Tom Keene before the podcast.

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Speaker 1: You can always catch us worldwide. I'm Bloomberg Radio