WEBVTT - Surveillance: JPM, Goldman Kick Off Earnings 0:00:05.120 --> 0:00:09.200 Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane along 0:00:09.240 --> 0:00:13.200 with Jonathan Ferrell and Lisa Brownwitz Jailey. We bring you 0:00:13.280 --> 0:00:18.600 insight from the best and economics, finance, investment, and international relations. 0:00:18.960 --> 0:00:23.840 Find Bloomberg Surveillance on Apple Podcast, Suncloud, Bloomberg dot com, 0:00:23.920 --> 0:00:31.159 and of course on the Bloomberg terminal. Gerard cassidy with 0:00:31.240 --> 0:00:34.479 us with OURBC Capital Markets. Gerard, I've got a fiction 0:00:34.640 --> 0:00:38.440 five year dividend growth coming off the trauma of fourteen percent. 0:00:38.520 --> 0:00:41.839 Forget about that statistic. What's the model dividend growth that 0:00:41.920 --> 0:00:46.000 JP Morgan can deliver? I think, Tom, when you take 0:00:46.040 --> 0:00:48.519 a look at the excess capital that these banks have, 0:00:48.680 --> 0:00:53.479 including JP Morgan Chase, in their core revenue and earnings growth, 0:00:53.520 --> 0:00:57.360 that divotting growth should be considered into the high single digits. 0:00:57.520 --> 0:01:01.560 I think that's reasonable anywhere from six to These are 0:01:01.600 --> 0:01:04.880 not double digit, you know, dividend growers. Now, there are 0:01:05.000 --> 0:01:07.000 periods like the one we just came out of where 0:01:07.040 --> 0:01:10.080 some banks increased dividends by double digit rates. But you 0:01:10.160 --> 0:01:14.240 must remember last year dividends were frozen because of the pandemic, 0:01:14.440 --> 0:01:16.560 and there was a catchup. I think in the recent 0:01:16.600 --> 0:01:20.120 announcement about dividend increases. So when you overlay share buy 0:01:20.160 --> 0:01:22.600 back on that, are you starting January one with a 0:01:22.680 --> 0:01:26.200 JP Morgan cash on cash return above eight percent? Dare 0:01:26.319 --> 0:01:29.000 dare I get out to eleven and a double digit 0:01:29.280 --> 0:01:33.680 share by back dividend combination? I think time you can 0:01:33.720 --> 0:01:37.440 see that the combination of the share repurchases in the 0:01:37.480 --> 0:01:42.280 dividends could easily exceed earnings Donchester JP Morgan, but for 0:01:42.319 --> 0:01:45.560 the industry as they again have this excess capital, So 0:01:45.600 --> 0:01:48.920 that would suggest, yes, we could see those types of 0:01:49.000 --> 0:01:52.080 numbers that you mentioned from JP Morgan as well as 0:01:52.080 --> 0:01:54.880 some of the other banks in the large bank universe. 0:01:55.160 --> 0:01:57.200 There is a high bar, and they met that high 0:01:57.200 --> 0:02:00.760 bar in almost everything, with the exception being fixed income, 0:02:00.960 --> 0:02:03.680 commodities and currencies treading, And yet the shares are lower 0:02:03.680 --> 0:02:07.200 and pre market trading. What's your response to that, especially 0:02:07.280 --> 0:02:09.840 given that the only other disappointment that I'm seeing right 0:02:09.840 --> 0:02:13.960 now is that interest income. It's gonna be interesting because 0:02:14.000 --> 0:02:17.280 the total revenue revenue number, as you guys have identified, 0:02:17.360 --> 0:02:20.440 was a little better than expected, and that's important. Um. 0:02:20.520 --> 0:02:24.239 The other factor, though, is the supplementary leverage ratio fell 0:02:24.360 --> 0:02:27.800 to five point four percent from the prior quarters five 0:02:27.800 --> 0:02:33.240 point six. Now by regulation they cannot breach five. Internally, 0:02:33.280 --> 0:02:36.080 they have a five and a quarter percent internal model 0:02:36.160 --> 0:02:38.519 that says they can't go below that. So the deposit 0:02:38.560 --> 0:02:42.239 growth you saw, once again, very significant deposit growth because 0:02:42.280 --> 0:02:46.000 of the monetary policy this country is pursuing with quantity 0:02:46.080 --> 0:02:49.400 and easing, and it's forcing these wholesale banks balance sheets 0:02:49.440 --> 0:02:52.960 to basically busted the seams. So I think maybe there's 0:02:53.000 --> 0:02:56.400 a little concern here that this leverage ratio is getting 0:02:56.440 --> 0:02:59.600 Parisley close to their required minimum that they have set, 0:02:59.680 --> 0:03:01.600 which is five and a quarter percent. And now one 0:03:01.639 --> 0:03:03.480 morning slightly this we've got to ask the question LinkSA, 0:03:03.520 --> 0:03:05.799 but we aren't down one point to seven per cent 0:03:05.880 --> 0:03:11.040 after a look at the numbers themselves fram this appropriately, 0:03:11.320 --> 0:03:14.360 I understand that. Still, when you see beats pretty much 0:03:14.360 --> 0:03:17.480 across the board, it's such huge numbers. It is interesting 0:03:17.600 --> 0:03:20.560 that the knee jerk responses, that's all you got for me, 0:03:20.600 --> 0:03:22.440 and you have to wonder what people are looking at 0:03:22.480 --> 0:03:24.680 to see that, especially given the fact that there have 0:03:24.800 --> 0:03:26.679 been losses to some of the big banks over the 0:03:26.720 --> 0:03:29.119 past few weeks, which are just a final question. JP 0:03:29.240 --> 0:03:31.200 Morgan at the Gate first. Now we're gonna have the 0:03:31.200 --> 0:03:33.440 compare and contrast in the next couple of days. What 0:03:33.480 --> 0:03:35.720 are you looking for based on what you've seen already 0:03:35.720 --> 0:03:39.200 this morning. I think what we're gonna see, John, is 0:03:39.240 --> 0:03:43.880 that their fixed number was It was slightly blow expectations, 0:03:43.920 --> 0:03:45.800 but it was still a very good number. So I 0:03:45.840 --> 0:03:48.000 think we have to keep an eye on the other banks. 0:03:48.200 --> 0:03:50.960 Big fig trading, but equity trading, as you put it out, John, 0:03:51.240 --> 0:03:54.320 was better than expected. So I think from Goldman and Morgan, 0:03:54.400 --> 0:03:58.600 Stanley City Bank America we should expect equity trading numbers 0:03:58.600 --> 0:04:01.640 maybe to come in better and sleep. The investment banking number, 0:04:01.680 --> 0:04:04.360 as you identified, was also better than expected, so I 0:04:04.400 --> 0:04:06.680 think the others are going to have similar numbers. And 0:04:06.760 --> 0:04:08.800 as I think we least have pointed out, um, they 0:04:08.840 --> 0:04:11.880 are taking market share from their European competitors, and I 0:04:11.880 --> 0:04:14.120 think that we're showing up again in the numbers we've 0:04:14.160 --> 0:04:16.280 seen so far this morning. The JP Morgan setting the 0:04:16.320 --> 0:04:18.200 bar for government sacks will hear from them in a 0:04:18.240 --> 0:04:20.840 round about thirty minutes time. Gerard. I appreciate your time 0:04:20.839 --> 0:04:22.760 today this especially it's nice to work through the numbers 0:04:22.760 --> 0:04:25.040 in real time with you general cassidy there of OURBC 0:04:25.240 --> 0:04:33.280 capital markets. The economy is much more open than it was. 0:04:33.400 --> 0:04:35.640 Why is there such a rapid increase and why are 0:04:35.680 --> 0:04:38.479 not people investing that elsewhere? Let's ask that question to 0:04:38.480 --> 0:04:41.159 our Stagia amorro So and a new CE capital network. 0:04:41.200 --> 0:04:43.440 The chief investment strategist joins us right now on the stage, 0:04:43.440 --> 0:04:45.760 you're gonna catch up. Let's go there. To Lisa's point, 0:04:46.040 --> 0:04:48.800 we're all projecting this big boom in growth this year, 0:04:48.800 --> 0:04:50.640 and that's largely developed through the first half of what 0:04:50.680 --> 0:04:53.520 the consumers do with their cash has been slightly confusing. 0:04:53.560 --> 0:04:57.360 What's you'll read on things? Yeah, I think the consumers 0:04:57.640 --> 0:05:00.400 have been venturing out into the real economy and they 0:05:00.480 --> 0:05:03.720 have been gradually putting that cash to work. I mean, 0:05:03.760 --> 0:05:05.640 I definitely think we see that in some of the 0:05:05.680 --> 0:05:09.279 reopening categories. For example, we see hotels that are pretty 0:05:09.320 --> 0:05:13.000 much back. We see restaurants, we see the travel services 0:05:13.000 --> 0:05:15.440 that are pretty much back. The consumers have also been 0:05:15.440 --> 0:05:18.480 switching from the durable goods to the services, and so 0:05:18.560 --> 0:05:21.920 that's what we're seeing now. But to Lesa's point is 0:05:21.960 --> 0:05:24.560 to come back to the banking sector, I think some 0:05:24.760 --> 0:05:27.040 of the strength and the consumer that we're seeing and 0:05:27.160 --> 0:05:30.160 the credit card spending data that's going to start to 0:05:30.200 --> 0:05:33.279 shift to the business sector. Part of the really weak 0:05:33.320 --> 0:05:36.000 spot in loan growth for the banks is actually the 0:05:36.040 --> 0:05:40.000 commercial and industrial loan growth is just not been there. 0:05:40.160 --> 0:05:42.840 But as the economy comes back online, as the CEO 0:05:43.000 --> 0:05:46.640 cefos are increasingly comfortable with where things are, they're going 0:05:46.720 --> 0:05:49.280 to start to boost their capex plans and that's gonna 0:05:49.360 --> 0:05:51.880 need to require some loans in financing. So I think 0:05:51.960 --> 0:05:54.480 that's what we're likely to see for the banking sector 0:05:54.560 --> 0:05:58.320 over the next few quarters. Um I think JP Morgan 0:05:58.600 --> 0:06:00.760 is a sign of kind of things to come for 0:06:00.800 --> 0:06:04.720 the banking sector. Broadly. This is a solid result, but 0:06:04.800 --> 0:06:09.880 nobody is surprised. Everybody is already expecting a hun increase 0:06:10.560 --> 0:06:13.760 in this quarter's earnings year over years, so nobody is surprised. 0:06:14.320 --> 0:06:17.080 I still think though there's more cattalysts to come for 0:06:17.120 --> 0:06:19.000 the banking sector, and the stage are a little bit off. 0:06:19.040 --> 0:06:23.040 You're remitted I capital, but you've got fabulous experience, maybe 0:06:23.080 --> 0:06:25.640 like no one I know on the street of moving 0:06:25.680 --> 0:06:29.520 from stodgy old bank to massive fintech advance like it 0:06:29.960 --> 0:06:33.640 I capital. Do these big banks just have the high 0:06:33.680 --> 0:06:38.320 ground because they're so large and they're so technologically advantaged 0:06:38.440 --> 0:06:42.719 over all the other banks. Well, so given the balance 0:06:42.760 --> 0:06:45.480 she's and given the tech budgets for some of these banks, 0:06:45.800 --> 0:06:49.200 absolutely they do have the advantage and putting them money 0:06:49.240 --> 0:06:52.599 to work and accelerating UH the innovation. So the question 0:06:52.680 --> 0:06:55.640 is how much is the pace of this innovation accelerates 0:06:55.680 --> 0:06:58.360 and are they nimble enough? Are they quick enough? So 0:06:58.720 --> 0:07:01.840 while I like the banking sector, the reason why fin 0:07:01.920 --> 0:07:06.360 techs are so attractive to us is because the big 0:07:06.360 --> 0:07:09.320 banks are not seeing a little growth. These smaller banks 0:07:09.360 --> 0:07:14.120 are seeing rapid UH market share acquisition. And you know, 0:07:14.320 --> 0:07:16.760 you look at neo banking, for example, digital banks with 0:07:16.800 --> 0:07:20.240 no physical branches. The revenues of that sector today probably 0:07:20.280 --> 0:07:24.360 twenty billion dollars. In five years time, that twenty billion 0:07:24.400 --> 0:07:27.520 goes most likely to four hundred billion dollars. So this 0:07:27.600 --> 0:07:31.720 is a significant growth and I think the fin techs 0:07:31.720 --> 0:07:34.440 can definitely capture that opportunities that in a more pure 0:07:34.480 --> 0:07:39.239 way than a traditional bank sector can. Anastasia, are there 0:07:39.280 --> 0:07:43.240 any real data points within these earnings that matter right now? 0:07:43.480 --> 0:07:46.600 Given the fact that so much of people's view on 0:07:46.760 --> 0:07:50.040 banks really just hinges on what will happen later on 0:07:50.160 --> 0:07:54.400 perhaps Q four. Yeah. I would say there's two things 0:07:54.440 --> 0:07:58.080 to note about bank results today. First of all, where's 0:07:58.120 --> 0:08:00.840 the strength, where's the bright spot in these result it's 0:08:00.840 --> 0:08:05.320 actually investment banking, advisory fees, advisory revenues. If you look 0:08:05.320 --> 0:08:08.120 at the strength and the equity capital markets is just stunning. 0:08:08.400 --> 0:08:11.480 For example, M and A had a banner quarter. Uh, 0:08:11.640 --> 0:08:15.280 the volumes are up about I p o s have 0:08:15.400 --> 0:08:17.960 had a banner quarter in a banner year. They're up 0:08:18.000 --> 0:08:21.040 close to two in terms of volumes. So the investment 0:08:21.040 --> 0:08:24.080 banks are absolutely reaping the benefits. I think that's going 0:08:24.120 --> 0:08:27.000 to continue for some time, for a number of quarters 0:08:27.040 --> 0:08:29.800 because if you think about the preconditions that have been 0:08:29.840 --> 0:08:33.000 put in place to support this market, yeat zero rates, 0:08:33.200 --> 0:08:37.760 which lurwered investors into areas of higher growth and innovation economy. 0:08:38.040 --> 0:08:40.160 That's not going to change. Look at the fund flows 0:08:40.160 --> 0:08:44.760 they're going into, thematic funds, thematic ETFs, anything from robotics 0:08:44.840 --> 0:08:48.320 to space tourism to a gene therapy. That's not going 0:08:48.400 --> 0:08:51.839 to change. So as a result, the public markets are 0:08:51.840 --> 0:08:55.440 offering premium valuations for some of these high tech, high 0:08:55.480 --> 0:08:58.920 growth stocks and who's reaping the benefits of those higher 0:08:59.000 --> 0:09:02.439 valuations are rid at companies. They're tapping this I p 0:09:02.559 --> 0:09:05.560 O window. They're going public, and as a result, they're 0:09:05.559 --> 0:09:08.680 probably getting evaluation that's three and a half times more 0:09:08.760 --> 0:09:11.800 the last private round after the first day of trading. 0:09:12.320 --> 0:09:15.560 So the private equity investors are reading reaping the benefits, 0:09:15.559 --> 0:09:17.800 but also the banks, of course are reaping the benefit 0:09:17.840 --> 0:09:20.480 through those advisory revenues. So I think that's going to 0:09:20.559 --> 0:09:24.320 be an area of strength force time time to come now, Lisa. 0:09:24.600 --> 0:09:27.199 The other point of this is a lot of optionality. 0:09:27.440 --> 0:09:29.280 As you say, we don't know what's going to happen 0:09:29.400 --> 0:09:31.559 in the future, but we can tell what's priced in 0:09:32.160 --> 0:09:35.320 and we can guess where that may go. Loan growth 0:09:35.600 --> 0:09:40.080 is flat today, that's likely to inflate, inflect higher interest 0:09:40.160 --> 0:09:43.480 rates or zero Today the markets are pricing in a 0:09:43.679 --> 0:09:48.520 rate hike and a half through What if we get 0:09:48.520 --> 0:09:51.360 there a little faster, what if we increase it a 0:09:51.400 --> 0:09:54.520 little bit more. That's optionality that's embedded in the banking 0:09:54.559 --> 0:09:57.800 sector right now. And then there's capital returns. There's excess 0:09:57.840 --> 0:10:02.120 capital that these banks have to return, so share reports, dividends, 0:10:02.160 --> 0:10:04.240 all of that is very favorable for the sector and 0:10:04.320 --> 0:10:06.480 a state you always gotta catch up. Thank you, busy 0:10:06.520 --> 0:10:08.600 morning for us, for you too, and stay amos that 0:10:08.880 --> 0:10:17.959 of on Capital Network, The chief investment strategist Stephen Biggart 0:10:18.000 --> 0:10:22.280 joins US now with Argus Director of Financial Institutions Research. Stephen, 0:10:22.360 --> 0:10:24.559 let me ask you the question, as Shannali Basik was 0:10:24.640 --> 0:10:27.640 adamant not to answer it here. How do these book 0:10:27.760 --> 0:10:31.960 value dynamics move. Does the giant and wonderful JP Morgan 0:10:32.440 --> 0:10:35.880 come in relative to the other banks? Do they advance 0:10:36.000 --> 0:10:41.280 their book value ratio versus JP Morgan? I think they do. 0:10:41.440 --> 0:10:44.320 I mean this is an environment where um, you know, 0:10:44.400 --> 0:10:49.240 the the banks that have the best opportunity for for 0:10:49.679 --> 0:10:53.880 longer term growth, more diversification, U steady or earning stream 0:10:53.960 --> 0:10:55.960 I think are the ones that that get you know, 0:10:56.040 --> 0:10:58.400 will continue to get the premium in terms of price 0:10:58.480 --> 0:11:01.520 the book. So you know JPM as a company that's 0:11:01.520 --> 0:11:06.640 it's extraordinarily well diversified. Uh, they do benefit when capital 0:11:06.640 --> 0:11:09.320 markets are strong as they are currently and frankly if 0:11:09.360 --> 0:11:12.200 they have been the last four quarters, but of course 0:11:12.240 --> 0:11:15.280 it's been Goldman Saxes. Uh, you know, a cup of 0:11:15.280 --> 0:11:17.880 tea In terms of the you know, the last four quarters, 0:11:17.880 --> 0:11:21.440 so we've had great M and A, we've had solid 0:11:21.440 --> 0:11:24.240 investment banking, you know, trading results. Of course, they're starting 0:11:24.320 --> 0:11:27.000 to uh you know, pull back a little bit from 0:11:27.040 --> 0:11:30.760 I would you know, call just unsustainably high levels over 0:11:30.800 --> 0:11:34.600 the past few quarters. Do they amend or do they 0:11:34.600 --> 0:11:40.400 have a plan to diminish these sterling balance sheet ratios 0:11:40.480 --> 0:11:42.720 or do they just let it right out? Do they 0:11:42.760 --> 0:11:48.199 manage them lower or not? Well, I think they've tried, 0:11:48.280 --> 0:11:50.480 of course, And uh, if you're talking about in terms 0:11:50.559 --> 0:11:55.360 of more sustainable capital returns, I think they'd very much 0:11:55.360 --> 0:11:58.280 like to do that, but still a precarious time for 0:11:58.320 --> 0:12:02.040 the economy. I think we uh you know, they'll probably 0:12:02.360 --> 0:12:05.560 uh you know, keep those a bit a bit longer. Uh. 0:12:05.600 --> 0:12:08.200 You know, they do have much more flexibility now in 0:12:08.320 --> 0:12:12.320 terms of capital returns than they did um prior. Uh 0:12:12.360 --> 0:12:14.920 so you know, the FED has been less of a 0:12:14.960 --> 0:12:18.640 babysitter in terms of U you know, the actual uh 0:12:18.720 --> 0:12:22.600 dividend and shareholder uh share buy back. So you know 0:12:22.640 --> 0:12:25.800 they've got that flexibility now to uh to you know, 0:12:25.840 --> 0:12:28.040 sort of give and take between the two. I think 0:12:28.040 --> 0:12:30.080 that gives them a lot more flexibility, and I think 0:12:30.080 --> 0:12:33.360 they're you know, writing out this uh, this economic recovery 0:12:33.800 --> 0:12:35.880 and uh and seeing what they can do, you know, 0:12:35.920 --> 0:12:37.880 sustainably for the long term. And tell me you asked 0:12:37.920 --> 0:12:40.360 the questions. So let's just look at the performance so 0:12:40.440 --> 0:12:44.160 far year today. There's twenty percentage points of out performance 0:12:44.160 --> 0:12:48.880 on Goldman versus JP Morgan so far year today on 0:12:48.920 --> 0:12:52.600 Goldman Tom JP Morgan. Look, JP Morgan's had a great 0:12:52.640 --> 0:12:55.560 year so far, just Goldman SAX has had a fantastic 0:12:55.679 --> 0:12:58.720 year so far. Well, there's just two different platforms. John 0:12:58.760 --> 0:13:01.880 jan Hatzi is coming out of GDP estimates within the report, 0:13:01.920 --> 0:13:04.840 I believe, and what's important to me John is Sinali 0:13:04.880 --> 0:13:07.600 Basik mentioned you go back to two thousand nineteen for 0:13:07.640 --> 0:13:10.800 a pre pandemic compare. If you take two years of 0:13:10.840 --> 0:13:14.679 their estimated GDP growth, you end up with eleven point 0:13:14.720 --> 0:13:18.160 five percent growth twenty four months, which is five point 0:13:18.240 --> 0:13:22.240 seven five percent per year run rate. In America's in 0:13:22.280 --> 0:13:24.560 the vicinity of two to three percent. Well, let's look 0:13:24.600 --> 0:13:27.200 at the forecast in the release this morning, Tom GDP 0:13:27.360 --> 0:13:30.200 growth in twenty one expected at six point eight percent. 0:13:30.440 --> 0:13:32.360 In the U s U S GDP growth in twenty 0:13:32.400 --> 0:13:35.160 two four point seven percent, So you look at six 0:13:35.160 --> 0:13:37.840 point eight percent this year, four point seven percent next year. 0:13:38.040 --> 0:13:41.400 And Steven Bigger asked you the question that great GDP figures, 0:13:41.720 --> 0:13:44.360 is that something that some of these banks can actually leverage, 0:13:44.400 --> 0:13:47.400 because so far it hasn't translated into the long growth 0:13:47.440 --> 0:13:50.679 that the banks of JP, Morgan investors in those names 0:13:50.679 --> 0:13:53.120 were hoping for. Do you start to see that happen 0:13:53.120 --> 0:13:56.560 in Q four and beyond, Well, I think it's a 0:13:56.600 --> 0:13:59.800 second half help for the banks. Long growth as a 0:14:00.000 --> 0:14:02.760 started to resume at this point. I mean that that's 0:14:02.760 --> 0:14:06.199 going to be the you know, the most likely beneficiary 0:14:06.559 --> 0:14:09.040 for banks, just to get the loan balances to expand 0:14:09.080 --> 0:14:11.840 a little bit where they've just been, uh, you know, 0:14:12.320 --> 0:14:14.320 sort of held back. And we think there's a number 0:14:14.360 --> 0:14:17.600 of reasons for that. You know, confidence previously had not 0:14:17.720 --> 0:14:20.160 been where it needed to be. Had tons of government 0:14:20.160 --> 0:14:23.840 stimulus in the form of enhanced unemployment benefits or you know, 0:14:23.880 --> 0:14:27.120 the outright checks to individuals, so so Americans are were 0:14:27.160 --> 0:14:29.960 flush with cash they didn't need to borrow, but that 0:14:30.000 --> 0:14:33.520 wears off, you know, the enhanced unemployment benefits in September, 0:14:34.120 --> 0:14:36.960 the stimulus checks are are are gone now, so I 0:14:37.280 --> 0:14:40.480 think we've seen some improvement in credit card lending. We've 0:14:40.480 --> 0:14:43.440 seen some improvement in the auto ending, uh you know, 0:14:43.520 --> 0:14:47.440 home equity as well. So I think they do begin 0:14:47.480 --> 0:14:49.200 to benefit in the back half from a from a 0:14:49.240 --> 0:14:52.920 bit stronger loan growth environment. Of course, yields have have 0:14:53.080 --> 0:14:57.120 been a headwind here with with the tenure pulling back 0:14:57.160 --> 0:15:00.880 as it has. We think that's more technical and short 0:15:01.000 --> 0:15:03.480 term and we'll get you know, a little bit uh 0:15:03.680 --> 0:15:07.040 stuper yield curvis the balance of the years goes by. 0:15:07.080 --> 0:15:10.200 So I think the lending business outlook is is a 0:15:10.200 --> 0:15:12.280 bit improved here than it than it was even a 0:15:12.320 --> 0:15:14.640 quarter or ago. Stephen, let's go there. I often ask 0:15:14.680 --> 0:15:16.040 the question, you want to see a data point in 0:15:16.040 --> 0:15:18.480 earnings release, what does it change? Is there anything in 0:15:18.520 --> 0:15:20.720 these releases this morning that will change anything for a 0:15:20.760 --> 0:15:22.920 bank built or a bank bear for that matter, Do 0:15:22.960 --> 0:15:27.800 we resolve anything with this week's earnings. Well, it's a 0:15:27.840 --> 0:15:31.640 great question. Uh, you know, it's not a you know, 0:15:31.680 --> 0:15:34.040 a single quart or just not a terrific bank make 0:15:34.200 --> 0:15:37.000 or or a terrific you know, industry or rebound. So 0:15:37.520 --> 0:15:39.720 I think the you know, we've had such a great 0:15:39.760 --> 0:15:42.960 rebound in financial stocks generally that you know, there could 0:15:43.000 --> 0:15:44.840 be a pause here as as we kind of get 0:15:44.840 --> 0:15:48.160 an evaluation moving into the second half. Of course, the 0:15:48.240 --> 0:15:50.760 comments on the quarterly calls here are going to be 0:15:50.760 --> 0:15:55.600 pretty important, particularly as as it comes again to long growth. Um. 0:15:55.640 --> 0:15:58.960 You know, the in my view, the case or bank 0:15:59.040 --> 0:16:01.040 stocks is really a fold that we that we do 0:16:01.120 --> 0:16:04.640 get that loan growth resurgence, that we have a bit 0:16:04.680 --> 0:16:08.280 steeper yield curve that these uh you know, the credit 0:16:08.400 --> 0:16:12.040 quality remains stellar, not to the point of having a 0:16:12.360 --> 0:16:15.920 massive reserve releases as as we're now seeing from we 0:16:15.960 --> 0:16:18.440 saw at least from JP Morgan, and then the much 0:16:18.480 --> 0:16:22.160 better capital returns which are uh you know demonstrated after 0:16:22.160 --> 0:16:25.000 a moratorium last year due to the pandemic, we're you know, 0:16:25.080 --> 0:16:29.000 we're seeing some nice return of capital now. So I 0:16:29.040 --> 0:16:30.760 think there is you know, it could be a pause 0:16:30.800 --> 0:16:32.560 here as as we as we look out in the 0:16:32.640 --> 0:16:35.600 second half and that's the next year. But look, I 0:16:35.640 --> 0:16:39.000 think everybody is expecting rates to move but higher. That's 0:16:39.000 --> 0:16:43.040 going to be benefits special for banks. Um. Yeah, of 0:16:43.040 --> 0:16:45.160 course if we get that, if we get that rebound 0:16:45.320 --> 0:16:47.240 and loan growth, that's going to be critical as well, 0:16:47.280 --> 0:16:48.840 and a lot of people seem to believe that there 0:16:48.880 --> 0:16:51.800 will be that growth at rebound in loan growth, and 0:16:51.920 --> 0:16:55.200 yet we're still seeing deposits growth so much. We're not 0:16:55.320 --> 0:16:58.520 seeing consumers spend that incredible amount of dry powder that 0:16:58.560 --> 0:17:02.040 people are expecting them to spend. Isn't that concerning loans? 0:17:02.200 --> 0:17:05.280 Loan growth will pick up, but when matters? And if 0:17:05.280 --> 0:17:07.840 it doesn't pick up until next year, won't that be 0:17:07.920 --> 0:17:12.400 a bit of a bear case? Well or a pause case? 0:17:12.480 --> 0:17:14.800 As I mentioned, I think I don't think it's a 0:17:14.840 --> 0:17:17.119 reason to sell banks when you have sort of this 0:17:17.240 --> 0:17:20.639 this flatish loan growth environment. Uh. So, you know, it is, 0:17:21.880 --> 0:17:25.320 as you said, a little a little troubling that that 0:17:25.320 --> 0:17:28.520 that consumers can you know, do continue to uh, you know, 0:17:28.600 --> 0:17:31.159 save at the rates that they have. Uh and and 0:17:31.200 --> 0:17:33.400 banks are flush with deposits. You know, that's a double 0:17:33.440 --> 0:17:36.919 edged sword. Obviously that it's a great funding source, but 0:17:37.080 --> 0:17:38.879 you know, funding is not It's not the problem for 0:17:38.920 --> 0:17:41.480 banks right now. It's it's trying to get more more 0:17:41.480 --> 0:17:44.000 borrowers out there. And I think that's that's going to 0:17:44.080 --> 0:17:45.960 have to come with an improving economy. I don't think 0:17:45.960 --> 0:17:49.040 you can grow the economy too at the extent that 0:17:49.080 --> 0:17:52.480 we're expecting without some some benefit from that return of 0:17:52.840 --> 0:17:55.439 long growth. Hey, Stephen, gotta leave it that. Stephen Bigger, 0:17:55.480 --> 0:18:04.960 August Financial Institutions Research Director. Let's bring in Hugh Johnston, 0:18:05.040 --> 0:18:08.960 PepsiCo Vice Chairman and CEO. Hugh, great morning to have 0:18:09.080 --> 0:18:11.760 you on. An hour ago, we had a really hot 0:18:11.800 --> 0:18:14.119 CPI for in America. A lot of that is traced 0:18:14.119 --> 0:18:16.440 back to the reopening theme that we can get into 0:18:16.480 --> 0:18:18.679 in just a moment. But from your perspective as a 0:18:18.720 --> 0:18:21.159 company leader corporately to an America and beyond, how do 0:18:21.240 --> 0:18:24.560 you navigate this increase in prices we're experiencing state side 0:18:24.600 --> 0:18:27.480 over the last few months. Yeah, absolutely, good morning and 0:18:27.600 --> 0:18:30.760 nice to be with you all. Obviously, our company is 0:18:30.800 --> 0:18:33.040 performing very well right now, and and a part of 0:18:33.080 --> 0:18:37.280 that is navigating some of the challenges from a cost perspective. 0:18:37.600 --> 0:18:39.320 That the biggest thing we can do in order to 0:18:39.359 --> 0:18:42.239 manage that candidly is we invest in our brands, and 0:18:42.320 --> 0:18:45.160 we invest in innovation, and by virtue of doing those things, 0:18:45.560 --> 0:18:48.080 we create products that consumers are willing to pay more 0:18:48.160 --> 0:18:51.320 for and that allows us to take price increases that 0:18:51.320 --> 0:18:54.720 that help us offset that inflation. So it's something that 0:18:54.720 --> 0:18:57.160 that obviously all big companies are dealing with right now, 0:18:57.200 --> 0:18:59.840 and frankly, I think we're very well positioned to deal 0:18:59.840 --> 0:19:01.920 with it. It's interesting when I have policymakers on the 0:19:01.920 --> 0:19:04.680 show to you, When I have central bankers, Federal Reserve officials, 0:19:04.920 --> 0:19:07.240 they take this line that a lot of this is transitory. 0:19:07.240 --> 0:19:09.120 The bond investors do the same thing. When I talk 0:19:09.160 --> 0:19:12.399 to corporate leaders, I send something a little bit different. 0:19:12.400 --> 0:19:14.639 How much daylight you sent this between you and the 0:19:14.680 --> 0:19:18.600 policymakers making the calls down in Washington. Well, we're always 0:19:18.600 --> 0:19:21.320 a little bit conservative on this front, right so I'm 0:19:21.359 --> 0:19:23.840 not going to assume it's gonna be transitory. I'm going 0:19:23.880 --> 0:19:26.480 to assume it's probably gonna be around for a little while, 0:19:26.960 --> 0:19:29.359 and then we'll build our plans around that. If we 0:19:29.400 --> 0:19:33.119 happen to get surprised with inflation lowering itself more quickly, 0:19:33.320 --> 0:19:35.920 that's great, we'll we'll we'll adjust to that. But right now, 0:19:35.920 --> 0:19:37.879 I'm assuming it's going to be with us through the 0:19:37.880 --> 0:19:39.960 better part of next year. We've had some talk about 0:19:39.960 --> 0:19:43.240 sharpening cost management initiatives. You does that mean cost cuts 0:19:43.359 --> 0:19:45.000 or can you pass on a lot of this to 0:19:45.080 --> 0:19:48.400 the end consumer? It's gonna be both. I mean, as 0:19:48.440 --> 0:19:51.320 a company, we have a history of driving costs down. 0:19:52.119 --> 0:19:55.160 We we announced this morning we're extending our productivity program 0:19:55.160 --> 0:19:58.639 through a north of a billion dollars a year, and 0:19:58.640 --> 0:20:00.919 we've been taking out a billion hollars a year plus 0:20:00.960 --> 0:20:03.919 since two thousand and twelve. So we're always looking to 0:20:04.000 --> 0:20:07.000 run the company as efficiently as we possibly can because 0:20:07.280 --> 0:20:10.920 we don't want to waste dollars in any direction. That said, 0:20:11.040 --> 0:20:13.920 when when input cost increase, we're also going to take 0:20:13.960 --> 0:20:16.199 some pricing. We do it every year, and we'll do 0:20:16.240 --> 0:20:17.960 it again as as we get to the fall of 0:20:18.000 --> 0:20:20.320 this year. Here, my colleague Kelly Lines went through the 0:20:20.320 --> 0:20:22.240 revenue mix and the company at the moment where you're 0:20:22.240 --> 0:20:24.600 seeing growth and where we're seeing a bit of contraction 0:20:24.640 --> 0:20:26.679 as well as we see the increased mobility in a 0:20:26.680 --> 0:20:29.440 place like North America here in the United States. How 0:20:29.520 --> 0:20:32.560 is that increased mobility translating and into the change in 0:20:32.560 --> 0:20:36.359 the revenue mix of a Pepskuchi. Yeah, it clearly is 0:20:36.400 --> 0:20:38.680 moving more towards what we refer to as the out 0:20:38.720 --> 0:20:41.600 of home channels, So whether it's the food service of 0:20:41.680 --> 0:20:45.359 restaurants and the like, and also convenience stories. Mobility clearly 0:20:45.440 --> 0:20:48.880 drives those channels. At the same time, what we refer 0:20:48.960 --> 0:20:51.680 to as the take home channels are actually still growing 0:20:51.760 --> 0:20:55.320 as well. Uh, so we're seeing good benefit across the board. 0:20:55.600 --> 0:20:58.160 The reason for that primarily is we made a decision 0:20:58.280 --> 0:21:00.879 last year that despite the pandemic, we were going to 0:21:00.960 --> 0:21:03.359 continue to invest in growth capacity. We were going to 0:21:03.400 --> 0:21:06.040 continue to invest in our brands. And as a result, 0:21:06.080 --> 0:21:08.760 now as consumers have come back where they're ready to 0:21:08.800 --> 0:21:11.560 capture that business and we're gaining market share as a result. 0:21:11.680 --> 0:21:13.440 You and I talked about how sticky some of his 0:21:13.560 --> 0:21:16.959 consumer behavior might be shortly after the pandemic and then 0:21:16.960 --> 0:21:20.000 lockdown when reopens. You you finally got it is sticky, 0:21:20.000 --> 0:21:21.840 you finally got consumed as a snap him back to 0:21:22.320 --> 0:21:25.560