Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom keene Jailey.
Speaker 1: We bring you insight from the best in economics, finance, investment,
Speaker 1: and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud,
Speaker 1: Bloomberg dot Com, and of course on the Bloomberg Ken
Speaker 1: Leon a c fr A joins us. Now, Ken Leon,
Speaker 1: what does Jamie Diamond need from President Biden? He needs
Speaker 1: really to really set the tone for confidence for the
Speaker 1: country and to make sure that we're going back to
Speaker 1: a period of normalcy. As it relates to help people
Speaker 1: think and live. As it relates to the economy, the
Speaker 1: stimulus is coming. That's going to help the consumer and
Speaker 1: small business probably will see that benefit by the second
Speaker 1: quarter UM. And again this rear mirror of COVID nineteen,
Speaker 1: we did see a reserve release of two point nine
Speaker 1: billion after building up to thirty three point eight billion.
Speaker 1: That tells me that other than distressed industries and energy
Speaker 1: were in leisure, the economy has strong footing for twenty one.
Speaker 1: Banks are going to benefit from that. When Ms Bazik
Speaker 1: walked into the studio kenn Ley On, the first thing
Speaker 1: out of her mouth was give us scope and scale
Speaker 1: on that startling tangible number. That's enormous and it really
Speaker 1: speaks to um the build up of capital, for one thing,
Speaker 1: and the opportunity of return of capital with buyback and
Speaker 1: dividends to shareholders. And banks are total return investments. So
Speaker 1: with yield and cash flow and that type of return UM,
Speaker 1: it's obviously going to you know, flow to investors. Can
Speaker 1: they sustain that, It's questionable, and certainly you want to
Speaker 1: be above certain regulated capital ratios, which they are, but
Speaker 1: certainly there's a chance to both invest in the business
Speaker 1: and to return capital the shareholders. That's a positive story
Speaker 1: for this year. We did not have that last year.
Speaker 1: So just to refresh where we're at right now, JPMorgan
Speaker 1: shares a little change ahead of the open. They just
Speaker 1: reported earnings that blue way expectations with adjusted revenue in
Speaker 1: the fourth quarter, just to give you some size of
Speaker 1: scope here of thirty point two billion dollars versus he
Speaker 1: estimated a point seven billion dollars. There is a question
Speaker 1: of how long the trading boom can last ken especially
Speaker 1: as we see volatility dampened by fiscal and monetary policies.
Speaker 1: Do you sense and they are the expectations that the
Speaker 1: debt trading and the equity chading revenues and beats will
Speaker 1: continue for we're in the risk on environment, which means
Speaker 1: that for both corporate issuers equity and debt, and also
Speaker 1: for investors it will continue certainly for the first half
Speaker 1: of this year. Earlier Alison mentioned about a more normal
Speaker 1: second half, but we are seeing acceleration in main street banking.
Speaker 1: Non interest revenue in the fourth quarter was up nearly
Speaker 1: two billion, even though net interesting come with lower rates
Speaker 1: was down nine million. You continue that trend, we can
Speaker 1: keep capital markets kind of flat from a high level
Speaker 1: um and certainly the equity market does not reward bank
Speaker 1: stocks just for having the capital markets firing on all cylinders.
Speaker 1: So I think it's really going to be back to
Speaker 1: traditional lending and how they're contending with getting the wallet
Speaker 1: chair from the consumer and business with fintech coming into
Speaker 1: the market. When you talk about traditional lending, can I'm
Speaker 1: looking at the fourth quarter provisions for credit losses that
Speaker 1: actually were more than expected at one point eight nine
Speaker 1: billion versus the estimated one point three nine billion. Is
Speaker 1: there anything we can take away from this in terms
Speaker 1: of what they are seeing on the ground with consumers
Speaker 1: in the fourth quarter as the coronavirus pandemic continue to worsen.
Speaker 1: The only thing that I think still remains in the
Speaker 1: shadows is, you know, the related to mortgage payments and
Speaker 1: whether collections have improved or there's been either with state regulation,
Speaker 1: UM forgiveness in terms of payments for a period of time.
Speaker 1: But when you go through the provisions and allowance for
Speaker 1: loan losses, UM, you know it's not alarming at all.
Speaker 1: And uh again, I'm actually seeing UM in the fourth quarter,
Speaker 1: UM somewhat of an improvement, you know with home lending.
Speaker 1: Home lending has been great, but also for new mortgage origination. UM.
Speaker 1: I don't see any risks with Carter Auto. And then
Speaker 1: it really gets back to the consumer with that narrative
Speaker 1: of can they meet their monthly payments? Uh. I again
Speaker 1: see this more as a rear mirror issue unless there's
Speaker 1: going to be some surprise where both the economy and
Speaker 1: the consumer moved to a weaker position earlier this year.
Speaker 1: And I don't say that can hugely valuable kenth Leon
Speaker 1: where US was cfr A just greatly appreciated this morning.
Speaker 1: And again more bank earnings to come, not only here
Speaker 1: but in Europe as well. We have been getting a
Speaker 1: consensus on Wall Street the banks are the place to be.
Speaker 1: Daniel Morris, BNP part about asset management, senior investment strategist
Speaker 1: joining us now based on what we're seeing, Daniel, do
Speaker 1: you see that that reflationary trade, that idea of banks
Speaker 1: being a sweet spot in one is still the right
Speaker 1: call um? We we do think so if we look
Speaker 1: at forward rates, assuming forward levels for fortenuer treasuries and
Speaker 1: markets looking for about one point three over the next year.
Speaker 1: So the important thing is is that's an upward trend.
Speaker 1: Another key driver for value our performance has been what's
Speaker 1: happening with commodity prices, oil in particular, and there's probably
Speaker 1: still some upside there um. So it's something that we're watching.
Speaker 1: It's not going to be a multi year trend in
Speaker 1: the same way that you had growth out performing value
Speaker 1: for years and years, but now we think at least
Speaker 1: the momentum is still on the value side. Daniel, Thank
Speaker 1: you so much for joining today. In the middle of
Speaker 1: bank earnings. I know it's inappropriate for a gentleman from
Speaker 1: a French bank to talk about American banking, so we'll
Speaker 1: leave that to Hinale here she massages city group earnings.
Speaker 1: Daniel Morris, how have you adjusted your view off of
Speaker 1: democratic president, a Democratic House, and a Democratic Senate. Well,
Speaker 1: it's it's a bit of plus and minus. On one hand,
Speaker 1: Certainly everyone is ratchet up their expectations for physical stimulus,
Speaker 1: and that's certainly what we're seeing, broadly speaking reflected in
Speaker 1: treasury yields. It will be a question of how much
Speaker 1: UH President elect Biden is actually able to obtain relative
Speaker 1: to his initial proposal, but nonetheless it should be more
Speaker 1: then we thought would have been the case a month
Speaker 1: or so ago. At the same time, the market is
Speaker 1: pretty enthused about that. So actually we've reduced our allocation
Speaker 1: UH for equities from an overweight to neutral, just perhaps
Speaker 1: waiting for a better entry point. We all know there's
Speaker 1: always going to be something upsetting that happens. At some
Speaker 1: point we'll have a pullback in the markets, and we
Speaker 1: think that's going to be the better time to go back,
Speaker 1: likely to an overweight position. Well, you know, it's like tina.
Speaker 1: I don't know how you spell tina in French, but
Speaker 1: we'll go with it. I mean, you need to pull back.
Speaker 1: When you get a pullback, people are massaging this outpast
Speaker 1: fourth of July. Daniel, that's a holiday in America. They're
Speaker 1: going out to July and into the summer. Do you
Speaker 1: know when that pullbacks can occur? Well, the most likely trigger,
Speaker 1: at least of the of the risk that we're cognizant of,
Speaker 1: clearly it's going to be something around the pandemic. And
Speaker 1: unfortunately we have plenty of distressing news there. So at
Speaker 1: some point, if it accumulates sufficiently to the point where
Speaker 1: people start to rethink their forecast, either for earnings or
Speaker 1: for GDP, that could be something that would likely cause
Speaker 1: things to turn around, at least briefly. Daniel Moore is
Speaker 1: too short of visit. We'll do this again. But we've
Speaker 1: got some interesting bank developments here for Global Wall Street.
Speaker 1: Mr Morris would the MP perry, but a busy, busy day.
Speaker 1: Not only are we getting the retail sales that came
Speaker 1: in highly disappointing, but banks have been reporting earnings. JP
Speaker 1: Morgan the leader when it comes to a top line
Speaker 1: earnings per share growth as well as the trading revenues.
Speaker 1: And yet there shares down one point four percent ahead
Speaker 1: of the open. Wells Fargo shares tumbling after disappointing. Alison
Speaker 1: Williams tracking at all Blueberg Intelligence, senior banking analyst, and Allison,
Speaker 1: as you peruse all of the reports, what stands out
Speaker 1: to you? So before the reports we said we'd be
Speaker 1: looking for three key things trading and capital markets for momentum,
Speaker 1: interest income troughing, UH provisions peaking. So I think we
Speaker 1: got evidence again about that, oddly, but some differences across
Speaker 1: the piers. I think the one key story that's developing
Speaker 1: across not just banks but financial services, as we saw
Speaker 1: black Rock yesterday, is higher spending. So JP Morgan had
Speaker 1: increased their estimates for investment spending at a December conference,
Speaker 1: they raise that again. They also do expect higher net
Speaker 1: interest income, so there's some offset there. Wells Fargo, everybody's
Speaker 1: been um watching the cost number. That's the big opportunity
Speaker 1: over the next several years. Their guidance for costs is
Speaker 1: higher than consensus expected, while as their net interest income
Speaker 1: expectation is lower, So that's the negative um but again
Speaker 1: spending more on investments. UH City Group. We haven't seen
Speaker 1: the net interest income guidance, but their trading revenue did
Speaker 1: come in a little bit light fick worse that's their
Speaker 1: bigger business equities better UM. But again they're spending on
Speaker 1: costs not just for investments, but related to some of
Speaker 1: their regulatory issues. And black Rock I referenced earlier stellar quarter. Yes,
Speaker 1: today great new business record assets, UM. But the fact
Speaker 1: that they said that they're going to be spending more
Speaker 1: on investments across a lot of different items UM, I
Speaker 1: think was a negative takeaway for investors. Allison, do we
Speaker 1: have too many big banks? Well, it feels it might
Speaker 1: feel like that on a day like today, but actually
Speaker 1: the US banking system is still rather fragmented. So we
Speaker 1: do have these big banks, but we still have a
Speaker 1: number of smaller banks, and we do think that UM
Speaker 1: consolidation will be a continuing trend. I think it's it's
Speaker 1: interesting when you look across the banking system. If if
Speaker 1: we looked past, you know, multiple decades in the nineties,
Speaker 1: we saw tons of mergers, but we saw bank branches
Speaker 1: still growing, and that happened basically up until the crisis.
Speaker 1: Since then, over the past decade or so, we start
Speaker 1: to see those branches come in and that's really the
Speaker 1: digital story. UM. You know, we we all talk about
Speaker 1: a lot of the acceleration and the digital story that
Speaker 1: we've seen during the pandemic, will that lead to a
Speaker 1: lesser branches? So again, supply not it's just about the
Speaker 1: number of banks, but about the number of actual branches.
Speaker 1: I mentioned this with this Bessic earlier, the idea the
Speaker 1: Bank of America was flat on their back and moining,
Speaker 1: and clearly his turn Bank of America around. What does
Speaker 1: James Fraser need to do to do a mooint ahead? Well,
Speaker 1: the number one I think issue with City over the
Speaker 1: past decade and perhaps even the past two decades is
Speaker 1: operating leverage. And you know that's really been UM the
Speaker 1: focus of investors and I think where the disappointments have been.
Speaker 1: And again, if you take a very long term view
Speaker 1: in terms of how City Group was created, you know
Speaker 1: it was a lot of different entities brought together UM
Speaker 1: after the financial crisis, UH corebat did. UM make efforts
Speaker 1: to simplify, but it still is such a more complex
Speaker 1: organization just in terms of UM the broad footprints. So
Speaker 1: they definitely slimmed down their businesses. UM. They divested the
Speaker 1: retail brokerage to Morgan Stanley, which has actually been a
Speaker 1: win for them. They've cut geographies, they've gotten simpler. So
Speaker 1: I think Jane really just needs to um continue that
Speaker 1: journey in terms of more simplification and then just really
Speaker 1: getting the cost structure right. And I think that the
Speaker 1: regulators have sort of indicated that that's their frustration UM
Speaker 1: with a group just in terms of um, you know,
Speaker 1: the risk management and getting that sort of overview together
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Speaker 1: it's wonderful podcast, longer conversations, harder conversations, masters in business,
Speaker 1: and of course occasionally buying stock. Barry, we got eight
Speaker 1: ways to go here. I want to get through this
Speaker 1: quickly because I think I've got to go to Europe.
Speaker 1: In a couple of minutes of Control Room will tell
Speaker 1: me Berry a firm thirty forty one, opens at ninety,
Speaker 1: gets up to one thirty seven, comes down the specs
Speaker 1: and all that. How do you frame to your clients
Speaker 1: the what I'm gonna call Internet mania wrapped around tech.
Speaker 1: Is it a manufactured hype or is it real? So
Speaker 1: there's a spectrum, there's a continuum. You know. The Bitcoin
Speaker 1: is really the poster child for just pure speculation. UM
Speaker 1: Tesla has some real great fundamental underlying technologies, but a
Speaker 1: lot of speculation in that, and then you work your
Speaker 1: way down, uh the speculative ladder. The problem with SPACs
Speaker 1: is that they follow Sturgeons law, which is everything is crap.
Speaker 1: So if you can get into UM Martin Franklin spack,
Speaker 1: or if you can get into UM A bill Acman spack,
Speaker 1: you the odds are tilted slightly in your favor. But
Speaker 1: look at how many SPACs came out last year and
Speaker 1: how poorly they performed. You have to really be very selective.
Speaker 1: Are they by prospectives? Is this the fleecing of retail
Speaker 1: because they're not codified off of security Zack thirty three
Speaker 1: and thirty four. Well, it's a great back door around that. UM,
Speaker 1: we'll give us your money for a venture Uh to
Speaker 1: be determined later. Reminds a little bit of the Great
Speaker 1: South Sea bubble. Uh. And that's why you have to
Speaker 1: go to people with a track record who have done
Speaker 1: this before. Hey, um, Social Capital that's done a number
Speaker 1: of home runs. You have to say, they seem to
Speaker 1: be really good at identifying things with with hidden value.
Speaker 1: On the other hand, who were there, like two hundred
Speaker 1: spacks last year? Uh? You know when everybody the genius
Speaker 1: of any of these new or or revamped asset classes
Speaker 1: is they identify a market inefficiency and the first few
Speaker 1: get to a profit from that, they find alpha. But
Speaker 1: when everybody else piles into the space, Hey, that inefficiency
Speaker 1: gets arbitraged away and there's no more upside left. So
Speaker 1: it's like the old days when someone would find a
Speaker 1: little bit of gold and that stream. It was great
Speaker 1: for the first two panners. By the hundredth guy that
Speaker 1: shows up, it ain't nothing but pebbles and and fish poop.
Speaker 1: That is not how you make money in the markets. Consistently,
Speaker 1: very good, very We've got to leave it there with
Speaker 1: breaking news, very rittle, too short of visit. Look for
Speaker 1: his podcast out on Bloomberg. It is exceptionally strong Thanks
Speaker 1: for listening to the Bloomberg Surveillance podcast. Subscribe and listen
Speaker 1: to interviews on Apple Podcasts, SoundCloud, or whichever podcast platform
Speaker 1: you prefer. I'm on Twitter at Tom Keene before the podcast.
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