WEBVTT - We Expect 3 Rate Hikes, Zentner Says 0:00:00.080 --> 0:00:12.960 Yeah, Welcome to the Bloomberg Surveillance Podcast. I'm m Keene 0:00:13.480 --> 0:00:17.560 Jay Leye. We bring you insight from the best in economics, finance, investment, 0:00:18.000 --> 0:00:23.520 and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud, 0:00:23.600 --> 0:00:33.360 Bloomberg dot Com, and of course, on the Bloomberg We begin, though, 0:00:33.640 --> 0:00:36.640 with the quarterly earning season with JP Morgan down in 0:00:36.680 --> 0:00:39.120 the pre market by about four tenths of one percent. 0:00:39.240 --> 0:00:41.240 I'm going to whip through some of the headline numbers. 0:00:41.320 --> 0:00:44.400 JP morgan fourth quarter adjusted revenue came at twenty five 0:00:44.440 --> 0:00:48.240 point four five billion dollars the estimate five point five one. 0:00:48.600 --> 0:00:51.080 The fourth quarter adjusted EPs came in at a dollar 0:00:51.159 --> 0:00:55.400 and seventies six cents fixed income trading revenue, well below 0:00:55.600 --> 0:00:59.000 analyst estimates. These results, of course, include a two point 0:00:59.040 --> 0:01:01.400 four billion dollar a charge as a result of a 0:01:01.480 --> 0:01:03.800 tax bill. And to get some guidance on where JP 0:01:03.920 --> 0:01:07.839 Morgan sees the effective tax rate for eighteen, they see 0:01:07.840 --> 0:01:11.160 it around nineteen percent. I'm very pleased to say I 0:01:11.160 --> 0:01:13.040 can bring in Bloomberg's day in Campbell now to get 0:01:13.120 --> 0:01:15.160 us up to speed on on what he sees in 0:01:15.200 --> 0:01:16.959 the numbers. We've been staying for a while day can 0:01:17.000 --> 0:01:20.920 we're expecting it to be a murky quarterly report from 0:01:20.959 --> 0:01:24.360 not just JPMorgan but across the street. Yes, that's that's 0:01:24.400 --> 0:01:27.480 for sure. This is no exception to get us started. 0:01:28.000 --> 0:01:31.600 One thing that I noticed in the result is expenses 0:01:31.600 --> 0:01:35.120 are higher than analysts expected. That's never a good sign, 0:01:35.280 --> 0:01:38.000 especially at this point in the h in the business 0:01:38.000 --> 0:01:41.000 cycle for these banks. They've been slashing expenses for for 0:01:41.200 --> 0:01:44.759 years and UH and to be surprising on the up 0:01:44.800 --> 0:01:47.280 side in a quarter like this, I think maybe one 0:01:47.319 --> 0:01:49.280 reason why they shares her down. I'm not sure how 0:01:49.360 --> 0:01:51.760 much guidance we can take from the interday move pre market. 0:01:51.800 --> 0:01:54.480 Because they had such a monster year last year they 0:01:54.480 --> 0:01:56.600 can going forward. I'm still sitting here wondering where the 0:01:56.600 --> 0:01:59.120 revenue comes from. Let's deal with the investment bank. First 0:01:59.400 --> 0:02:02.080 trading rem new has been rough for a while, Volatility 0:02:02.160 --> 0:02:04.360 is not in their client activity won't be what it 0:02:04.400 --> 0:02:06.360 otherwise would be. Are we going to see a change 0:02:06.360 --> 0:02:11.600 this year? That's the hope, certainly among Wall Street trading desks. UH, 0:02:11.840 --> 0:02:14.960 there is some reason for optimism. You you've got central 0:02:15.000 --> 0:02:18.760 banks UH, and monetary policy diverging around the world. There 0:02:18.840 --> 0:02:22.720 is some thought that that's gonna help bring volatility back 0:02:22.720 --> 0:02:26.520 into the markets and give some opportunities for both clients 0:02:26.600 --> 0:02:30.120 and UH and traders. But we've been we've talked about 0:02:30.160 --> 0:02:33.360 that in twenty seventeen and it didn't really uh come 0:02:33.360 --> 0:02:36.280 to fruition. So I think that's still a question mark 0:02:36.320 --> 0:02:39.200 for So we've got JP Morgan and typically a Bloomberg. 0:02:39.240 --> 0:02:41.359 We talk about the big investment bank, and we don't 0:02:41.400 --> 0:02:44.080 spend much time talking about Chase Chase of course, a 0:02:44.120 --> 0:02:47.519 massive retail arm. Can these guys continue to increase the 0:02:47.560 --> 0:02:51.720 NEN interest margin and continue to maintain such low deposit beta? 0:02:51.919 --> 0:02:53.880 And what I mean by cutting through the jargon, can 0:02:53.880 --> 0:02:56.240 they continue to ignore the rate rises that come from 0:02:56.280 --> 0:02:59.000 the Federal Reserve without passing them on to the deposit base. 0:02:59.440 --> 0:03:03.080 That is the big question. Uh. You know this is 0:03:04.080 --> 0:03:07.080 interest rates have never been at zero percent before, and 0:03:07.120 --> 0:03:09.680 so coming off of a floor like that, a lot 0:03:09.680 --> 0:03:12.959 of analysts have had a hard time modeling what deposit 0:03:13.040 --> 0:03:16.720 betas or how much banks will have to pay depositors. Uh. 0:03:16.919 --> 0:03:20.080 It's not like any other cycle. And so we have 0:03:20.120 --> 0:03:24.600 started seeing interest rates deposit rates tick tick up, and 0:03:24.680 --> 0:03:27.440 so there is some indication that maybe that will continue 0:03:27.639 --> 0:03:30.080 and make it a little bit harder for banks to 0:03:30.120 --> 0:03:32.919 expand their margin as much as they as they may like. 0:03:33.360 --> 0:03:36.440 But again we're coming off a very low base. Banks 0:03:36.480 --> 0:03:39.720 typically can move the and they position themselves. They can 0:03:39.760 --> 0:03:42.280 move the rate that they're getting on the loans uh 0:03:42.440 --> 0:03:45.520 more quickly than they than they typically do on the deposits. 0:03:45.560 --> 0:03:48.360 So that should allow them to expand that margin. Taking 0:03:48.440 --> 0:03:50.840 Campbell with us is he's gonna get ready for his 0:03:50.920 --> 0:03:53.800 reporting on this and to advance the story further. We 0:03:53.920 --> 0:03:57.200 like to do that with Bradyn's legendary at Sanford Bernstein. 0:03:57.320 --> 0:04:01.520 His black book was it required historical and present tense 0:04:01.560 --> 0:04:04.360 read for years by hold selling the banks, and he 0:04:04.400 --> 0:04:07.000 now has a shingle out at the New York University 0:04:07.080 --> 0:04:09.800 Stern School of Business where he crushes people with quality 0:04:09.880 --> 0:04:13.000 ces each and every quarter. Professor, it's wonderful day. Have 0:04:13.080 --> 0:04:16.520 you with us? I want to wax philosophical. Seeing a 0:04:16.560 --> 0:04:21.400 Bloomberg headline JP Morgan fixed income training revenue drops percent? 0:04:21.960 --> 0:04:26.320 Do we have an excess of banking in America? Are 0:04:26.360 --> 0:04:29.840 What we're really dealing with here is there's too much 0:04:30.160 --> 0:04:37.479 much iedness in banking. Um, well, that's a you could 0:04:37.520 --> 0:04:40.000 argue that on the retail side, which is if you 0:04:40.160 --> 0:04:43.360 if you think of the millennials, the millennials probably don't 0:04:43.480 --> 0:04:48.640 visit bank branches a lot branches. I think there's absolutely 0:04:48.720 --> 0:04:52.640 certain you're but the your lead in which is fixed income, 0:04:52.800 --> 0:04:55.479 fixed income, has already cut back. I mean what you're 0:04:55.800 --> 0:04:58.839 what you're seeing with fixed income is a recognition on 0:04:58.880 --> 0:05:01.479 the part of all the banks that there will be 0:05:01.520 --> 0:05:04.640 a fixed income market. Someone at some point is going 0:05:04.680 --> 0:05:08.000 to have to pay for liquidity um. At some point 0:05:08.080 --> 0:05:12.320 the Vulcar rules will will will loosen up a little 0:05:12.360 --> 0:05:14.680 bit so that you can make money from market making. 0:05:14.960 --> 0:05:18.480 But you know right now that is that is a hope. 0:05:19.160 --> 0:05:20.840 That's a hope. I love that. I hope you can 0:05:20.880 --> 0:05:24.320 say that. In academics they can hope. Professor Hin says 0:05:24.320 --> 0:05:27.080 that like three times in any given lecture that he 0:05:27.200 --> 0:05:30.120 just forget about the hope. Jamie Diamond, Brian moynihan, and arrest. 0:05:30.440 --> 0:05:33.640 They have to deal with this. Have they cut trading 0:05:33.760 --> 0:05:37.640 to the bone or is there more to come? I 0:05:37.640 --> 0:05:39.400 think there's a feeling out there that they have cut 0:05:39.440 --> 0:05:42.680 trading to the bone. Uh. One one thing we we 0:05:42.760 --> 0:05:46.080 haven't talked about is how you sort of uh, convinced 0:05:46.120 --> 0:05:48.360 some traders to leave the bank when you don't want 0:05:48.400 --> 0:05:50.480 to cut them necessarily. How do you do that, Chief 0:05:50.480 --> 0:05:56.880 financial officer hands Um, that's called a buyout, right something 0:05:57.040 --> 0:06:00.520 like that? You uh, you you start seeing that they're 0:06:00.560 --> 0:06:04.520 not invited to the to the best meetings, their clients 0:06:04.520 --> 0:06:07.159 are taken away from them, and then next thing that 0:06:07.160 --> 0:06:12.120 sounds like Bloomberg taking taken This is the kickoff to 0:06:12.160 --> 0:06:14.880 an earning season. Do you do you? Since you know 0:06:14.920 --> 0:06:18.240 within our team a similarity bank to bank in terms, 0:06:18.240 --> 0:06:20.240 I mean, John, what's it like in the United Kingdom? 0:06:20.440 --> 0:06:23.240 Is it trading? Trading that slow there as well? Training slow, 0:06:23.320 --> 0:06:25.240 training slow across the board. But I think client mix 0:06:25.279 --> 0:06:27.360 has been really important over the last couple of quarters, 0:06:27.400 --> 0:06:30.240 depending on the client mix. If you're really exposed the 0:06:30.240 --> 0:06:33.320 institutional clients the hedge funds, for instance, then the vix 0:06:33.680 --> 0:06:35.200 tells the story of what the quarta is going to 0:06:35.279 --> 0:06:37.520 be like. But if you've got a real good corporate 0:06:37.560 --> 0:06:41.000 client mixed, like say Bank America, fixed income trading holds 0:06:41.080 --> 0:06:43.599 up because you've been exposed to that big boom in 0:06:44.000 --> 0:06:46.039 corporate debt issuance that we've had over the last couple 0:06:46.040 --> 0:06:47.680 of years. Is that going to be important this time around? 0:06:47.720 --> 0:06:51.000 Day can as well that Yes, we think so. But 0:06:51.360 --> 0:06:53.880 JP Morgan is one of those banks that has that 0:06:53.960 --> 0:06:56.760 flow business, has a lot of corporate clients, and they 0:06:56.800 --> 0:07:00.520 turned in a disappointing fixed income quarter. So I sort 0:07:00.520 --> 0:07:02.839 of shudder to think of what people at Goldman are 0:07:02.920 --> 0:07:05.480 thinking on a daylight today. And we tite one set 0:07:05.480 --> 0:07:07.560 of earnings and we extrapolate it forward. We think about, 0:07:07.600 --> 0:07:11.040 what's JP Morgan gonna report now after Bank of America, say, 0:07:11.120 --> 0:07:13.320 and then next up Goldman Sex as well, what's the 0:07:13.320 --> 0:07:16.320 read for Bank b of A and Goldman SAX next week? Yeah, 0:07:16.360 --> 0:07:18.560 the read for b of A and City I would 0:07:18.600 --> 0:07:21.960 add to the equation which also have big corporate businesses 0:07:22.040 --> 0:07:25.720 like uh, like JP Morrigan is you know, it could 0:07:25.800 --> 0:07:29.280 be down thirty percent, maybe a little bit less. All 0:07:29.360 --> 0:07:32.680 three of them coming into the quarter said, uh, trading 0:07:32.800 --> 0:07:35.680 overall was going to be down about fifteen percent, So 0:07:35.720 --> 0:07:38.320 they were all in the in the range. Uh. For 0:07:38.360 --> 0:07:40.840 the Goldman Sacks and the Morgan Stanleys of the world, 0:07:40.840 --> 0:07:44.800 which have less of a corporate business, less flow trading, 0:07:45.160 --> 0:07:48.000 the story maybe even uglier this quarter. I mean, I 0:07:48.080 --> 0:07:50.040 think that's gonna be the read out of looking at 0:07:50.120 --> 0:07:52.400 JP Morgan. If they can't turn in a good quarter 0:07:52.520 --> 0:07:55.200 on fixed income trading, then then then how is Goldman 0:07:55.240 --> 0:07:57.480 going to do? Bread hands? I just got a first 0:07:57.520 --> 0:07:59.960 statistic here. The earnings have come out really nuge two 0:08:00.040 --> 0:08:02.520 day and JP Morgan they used they're best in class 0:08:02.560 --> 0:08:04.680 in terms of putting out earnings and it's been a 0:08:04.720 --> 0:08:08.520 struggle to get the data. Bright and seven r o E. 0:08:09.440 --> 0:08:14.080 I'm sorry. Managers have to stand up and do something right. Yes, 0:08:14.520 --> 0:08:20.480 um recognize is viewed as good. I mean that's the 0:08:20.520 --> 0:08:22.920 cost of capital of these banks. So, I mean what 0:08:23.000 --> 0:08:26.280 has happened is we've become used to the idea of 0:08:26.280 --> 0:08:30.080 of you know, below cost of capital performance. Jamie's got 0:08:30.120 --> 0:08:32.760 the best firm. Now this quarter, this quarter is going 0:08:32.840 --> 0:08:34.800 to be an unusual quarter, right because we've got all 0:08:34.800 --> 0:08:37.000 these tax rates to be a mess, Professor, isn't it 0:08:37.280 --> 0:08:41.320 That's an opportunity if you're the CFO, to throw everything 0:08:41.360 --> 0:08:44.560 you can into it because the analysts are going to 0:08:44.920 --> 0:08:47.000 are going to look at the quarter and say it's 0:08:47.000 --> 0:08:49.400 an aberration. I'm not going to worry about it, right, 0:08:49.559 --> 0:08:53.240 and so you throw X ray expenses, your rite things off, 0:08:53.520 --> 0:08:57.440 you let people go. This is any time you have 0:08:57.520 --> 0:09:00.520 an event like this, it's a it's an opertunity to 0:09:00.559 --> 0:09:03.479 take the wheelbarrel out. And John the Tier one Capital's 0:09:03.600 --> 0:09:07.560 ubs like, I mean twelve point one twelve point four 0:09:07.640 --> 0:09:10.640 percent common equity Tier one capital, Dacon, they're on the 0:09:10.800 --> 0:09:14.600 edge of credit suite and ubs in terms of financial integrity. 0:09:15.160 --> 0:09:17.960 They're hold They're holding a lot of capital. Yes, they 0:09:18.000 --> 0:09:21.120 would certainly for all of Jamie talks about his Fortress 0:09:21.120 --> 0:09:23.800 balance sheet, he would certainly like to hold last capital. Okay, 0:09:23.840 --> 0:09:25.439 this is making to Dick and Campbell. Get back to 0:09:25.480 --> 0:09:27.720 work at your real job. And Brad Hans, thank you 0:09:27.800 --> 0:09:29.640 so much for being with us today. Look for Dacon 0:09:29.679 --> 0:09:33.240 Campbell's work on Bloomberg News, further depth on JP Morgan 0:09:33.559 --> 0:09:51.319 and American banking. This is Bloomberg. We are more than 0:09:51.440 --> 0:09:55.240 close to a two percent two year yield. That means 0:09:55.280 --> 0:09:58.400 it's a good time to talk to Ellen Zentner Morgan Stanley. 0:09:59.040 --> 0:10:03.040 She over the year has been wonderful at parsing y 0:10:03.120 --> 0:10:05.959 equals C plus I plus G plus n X and 0:10:06.200 --> 0:10:09.480 really had great acclaim eighteen months and two years ago. 0:10:09.920 --> 0:10:11.960 I'm saying this is a Fed that would be forced 0:10:12.000 --> 0:10:14.800 to wait and wait and wait. Is a two percent 0:10:15.040 --> 0:10:17.800 yield on the two year a signal that we're going 0:10:17.880 --> 0:10:22.320 to have a significant set of rate increases this year? Well, 0:10:22.360 --> 0:10:26.679 I think that, Uh, you know, we expect three rate hikes, right, 0:10:26.720 --> 0:10:30.160 and if the tenure does not move much, or if 0:10:30.200 --> 0:10:32.719 it moves lower yields on the tenure, then you're going 0:10:32.760 --> 0:10:35.760 to have a very flat yield curve. And so the 0:10:35.760 --> 0:10:39.000 Fed is going to have a very difficult decision at 0:10:39.000 --> 0:10:42.000 that time, say in the third quarter of this year. Uh, 0:10:42.280 --> 0:10:45.079 do they push it further because financial conditions may still 0:10:45.120 --> 0:10:48.440 be easy to tell them they should go further, or 0:10:48.720 --> 0:10:53.079 do they take a flat yield curve as as as 0:10:53.120 --> 0:10:55.240 a sign that if you go further, you're gonna risk 0:10:55.280 --> 0:10:58.719 converting the yield curve. But what's missing is inflation. You're 0:10:58.760 --> 0:11:01.760 one of the great parsers of inflation. Do you just 0:11:02.080 --> 0:11:05.440 hope inflations out there? If your chairman, Powell, do you 0:11:05.520 --> 0:11:07.880 wish for it as across my fingers, hope to die? 0:11:09.120 --> 0:11:14.120 How do you do all this if there's no inflation? Well, so, 0:11:14.240 --> 0:11:17.360 hope is a big piece of it. Right. As a forecaster, 0:11:17.520 --> 0:11:20.080 you do your best forecasting where you think inflation will go, 0:11:20.720 --> 0:11:23.679 and developments in the economy and the way the data 0:11:23.760 --> 0:11:26.000 comes in will either give you more confidence about that 0:11:26.080 --> 0:11:30.080 assumption or less confidence about their assumption. And how confident 0:11:30.160 --> 0:11:33.480 you are in your inflation forecast that we will get 0:11:33.520 --> 0:11:36.920 to the two percent goal at some point over the 0:11:36.960 --> 0:11:41.640 medium term horizon will dictate what they do today. UH. 0:11:41.679 --> 0:11:44.640 And so basically the mount Hornback, our global head of 0:11:44.720 --> 0:11:47.920 right Strategy, sees the tenure yield on the tenure moving 0:11:47.920 --> 0:11:52.600 lower this year UH basically a completely flat yield curve 0:11:52.640 --> 0:11:55.640 in the third quarter and slightly inverted in the fourth quarter. 0:11:56.080 --> 0:11:59.679 Part of what's driving that estimate of his is the 0:11:59.720 --> 0:12:03.600 fact that we have such a tepid forecast for inflation. 0:12:04.000 --> 0:12:06.200 We're coming in lower than what the Fed expects, than 0:12:06.240 --> 0:12:08.960 what consensus expects in terms of the path we're looking for. 0:12:09.320 --> 0:12:11.719 And in his estimation, if the Fed continues to hike 0:12:11.840 --> 0:12:16.439 rates with inflation not materializing, right, you're going to continue 0:12:16.480 --> 0:12:18.840 to get a market that bets every hike is a mistake, 0:12:19.280 --> 0:12:21.280 and that recessions around the corner, and it's just going 0:12:21.320 --> 0:12:23.880 to be very difficult to see how the yield kurse 0:12:23.920 --> 0:12:25.720 deepens in that environment and Ellen, I'm going to have 0:12:25.760 --> 0:12:27.720 the privilege of speaking to Matt Hornback a little bit 0:12:27.800 --> 0:12:29.880 later on on Blood Black TV, So I'm looking forward 0:12:29.880 --> 0:12:32.640 to having this conversation with him. Was that a shameless 0:12:32.640 --> 0:12:37.320 plug before seventh for the company? We both and in 0:12:37.320 --> 0:12:40.040 my humble opinion, Matt Hornbuck is an excellent guest, so 0:12:40.040 --> 0:12:42.280 it ought to be a really good conversation. Thank you 0:12:42.400 --> 0:12:43.880 very much, Tom. Can you just let us have a 0:12:43.880 --> 0:12:46.720 conversation now? Thank you? Um CPI is going to come 0:12:46.720 --> 0:12:48.400 in a little bit later. It's not as if we 0:12:48.440 --> 0:12:50.560 don't have any inflation. It's going to be north at 0:12:50.600 --> 0:12:53.480 two per year on year you back out food and energy, 0:12:53.480 --> 0:12:55.880 it's going to be around one seventy there the estimates 0:12:55.920 --> 0:12:58.360 the previous number quite similar as well. Is it a 0:12:58.360 --> 0:13:00.880 bit disingenuous to say there is no inflation in the 0:13:00.920 --> 0:13:03.280 United States of America because we do see some, right, 0:13:03.320 --> 0:13:06.640 we do see inflation. That's price growth, and prices are growing, 0:13:06.679 --> 0:13:11.240 but they're just not growing uh quick as quickly as 0:13:11.240 --> 0:13:13.880 the FED would like them too. And there's not enough evidence, 0:13:13.960 --> 0:13:16.680 especially when you look at core PC. They're they're the 0:13:16.679 --> 0:13:19.240 measure they anchor their two percent goal around. There's just 0:13:19.280 --> 0:13:21.600 not enough evidence to him to them that there is 0:13:21.640 --> 0:13:25.840 a sustained pick up in inflation. But they believe that 0:13:25.880 --> 0:13:29.880 the recipe is there. Growth is coming in well above potential, 0:13:30.120 --> 0:13:32.640 the unemployment rate is low, much lower than where they 0:13:32.640 --> 0:13:36.160 think full employment is UH, and they're keeping financial conditions 0:13:36.280 --> 0:13:39.440 very easy to encourage those inflationary pressures to build. And 0:13:39.480 --> 0:13:42.719 that's why they have confidence that they will get two 0:13:42.720 --> 0:13:44.679 percent some time over the medium term. Now, notice I 0:13:44.760 --> 0:13:48.040 keep stressing the medium term for the Fed. They don't 0:13:48.080 --> 0:13:50.679 need to see two percent now or tomorrow in order 0:13:50.720 --> 0:13:52.680 to raise rates. They just need to be convinced that 0:13:52.720 --> 0:13:55.840 the right UH environment is there for it to get 0:13:55.880 --> 0:13:59.160 there over time. But the market is much too impatient 0:13:59.240 --> 0:14:01.640 for that, and you'll not convinced that they can get 0:14:01.679 --> 0:14:03.760 to that. No, we're not. We're not convinced. And I 0:14:03.840 --> 0:14:06.200 tell you what the We have been doing the traditional 0:14:06.280 --> 0:14:10.080 way of forecasting inflation for a long time. Inflation expectations 0:14:10.280 --> 0:14:14.000 lagged values of actual inflation, trade weighted dollar, all of 0:14:14.040 --> 0:14:16.840 the above. But we had not properly taken into account 0:14:16.840 --> 0:14:20.000 technological effects on inflation, and when we did, it just 0:14:20.040 --> 0:14:22.600 brings the path down that much lower. One minute, Morgan 0:14:22.680 --> 0:14:27.200 Stanley is a claim for parsing this strange thing. Productivity. 0:14:27.240 --> 0:14:30.520 What are you observing in the next one quarter, two quarters, 0:14:30.520 --> 0:14:33.480 three quarters? On productivity? What are you looking for? We've 0:14:33.480 --> 0:14:37.560 got a cyclical rise in in capex that has already 0:14:37.640 --> 0:14:40.520 led to higher rates of productivity, and so we're looking 0:14:40.560 --> 0:14:42.840 between one and one and a half percent one to 0:14:42.880 --> 0:14:45.520 one and a half percent sustained in productivity. And the 0:14:45.560 --> 0:14:47.640 story there is that you just take that in a vacuum. 0:14:47.680 --> 0:14:50.800 It looks pretty tepid, right, but compared to about flat 0:14:50.840 --> 0:14:53.320 for the last five to six years, I think that's 0:14:53.320 --> 0:14:55.400 as good as it gets. And that's a pretty good story. 0:14:55.480 --> 0:14:58.600 A cyclical pickup and productivity can stretch the cycle for longer. 0:14:59.000 --> 0:15:01.440 Ellen Saner, thank you so much. With Morgan Stanley on 0:15:01.600 --> 0:15:17.440 this important today. Lots of news, loan, some real shifts. Goland, okay, 0:15:17.480 --> 0:15:19.800 let's get focused. Bank of America two d and ten 0:15:19.800 --> 0:15:24.400 thousand employees, JP Morgan, Wells Fargo even more two d 0:15:24.520 --> 0:15:27.000 and sixty eight thousand in City Group. It's a tiny 0:15:27.040 --> 0:15:30.320 bank two hundred thousand as well. He's out of Kellogg 0:15:30.400 --> 0:15:34.240 at Northwestern a real NBA program. Neil dar joins us 0:15:34.240 --> 0:15:37.480 with p WC on financial services. What I love about 0:15:37.520 --> 0:15:40.520 Northwestern and the legacy of it. The MIC's over there, Neil, 0:15:40.520 --> 0:15:42.720 You've got to get close to the mic. What what 0:15:42.880 --> 0:15:46.440 I love about Northwestern is a core curricula. If you 0:15:46.440 --> 0:15:49.880 were to teach financial services right now within the core 0:15:49.960 --> 0:15:53.280 curriculate Northwestaurant, what would be your number one message to 0:15:53.320 --> 0:15:55.960 the best and brightest. There's a lot of change out there. 0:15:55.960 --> 0:15:57.440 There's a lot of change, and we have to look 0:15:57.440 --> 0:16:00.720 at things that are impacting the industry broadly. Uh coming 0:16:00.720 --> 0:16:02.920 at us in a lot of different directions. Technology is 0:16:03.000 --> 0:16:05.560 front center right. Did a panel of Davos three or 0:16:05.560 --> 0:16:08.640 four years ago? The Third world was way ahead of 0:16:08.720 --> 0:16:12.840 us and used to technology. What are the big countries America, 0:16:12.920 --> 0:16:15.680 United Kingdom, Germany, et cetera. What are they doing in 0:16:15.720 --> 0:16:19.200 the next twenty four months on technology? Well, technology, if 0:16:19.200 --> 0:16:21.040 you if you think about it. Over the last several years, 0:16:21.040 --> 0:16:24.280 there's been a lot of fintech activity where fintech has 0:16:24.320 --> 0:16:26.560 been doing a number of things that now the bigger 0:16:26.600 --> 0:16:32.400 companies are absorbing, either through acquisitions or actually just embracing it. 0:16:32.440 --> 0:16:36.640 Fintech at times can struggle to scale um so every 0:16:36.640 --> 0:16:39.200 element of a company, at least in financial services. What 0:16:39.240 --> 0:16:42.000 we see across the banks, the insurers and the asset 0:16:42.040 --> 0:16:46.240 managers are looking at front office, mid office and back 0:16:46.280 --> 0:16:50.200 office innervation. How technology can make things um more efficient 0:16:50.280 --> 0:16:53.840 firstly than secondly changing the customer experience. If I have 0:16:53.880 --> 0:16:57.800 a million employees at the top five or six banks total, 0:16:58.400 --> 0:17:01.080 how many of them are not going to be employed 0:17:01.520 --> 0:17:04.960 at those banks in twenty four months or far more importantly, 0:17:05.040 --> 0:17:07.800 five years. That's a great question. They've got a right 0:17:07.840 --> 0:17:11.440 size at some point. Well, it's a great question. I mean, 0:17:11.440 --> 0:17:13.639 what we're seeing right now is what the real impact 0:17:13.640 --> 0:17:15.720 of digital labor is going to be. And what I 0:17:15.720 --> 0:17:18.200 mean by digital labor is things you hear about things 0:17:18.280 --> 0:17:22.119 like robotic and artificial intelligence, where it's making things more efficient. 0:17:22.560 --> 0:17:25.639 We're working through right now the life cycle of how 0:17:25.760 --> 0:17:28.760 that type of technology is going to impact the day 0:17:28.760 --> 0:17:31.399 to day business, and then that'll get to if I 0:17:31.440 --> 0:17:34.400 walk home to the man's okay, this is six bedrooms, 0:17:34.440 --> 0:17:38.640 five fireplaces, three dogs, I go by eighteen banks, they're 0:17:38.640 --> 0:17:43.439 all empty. Forget about AI, forget about robots. The old 0:17:43.560 --> 0:17:48.119 model of banking that PwC advises them on every single 0:17:48.200 --> 0:17:52.440 day is a dinosaur. How many bodies will go out 0:17:52.560 --> 0:17:56.680 the door. Well, a percentage it is, it is changing dramatically. 0:17:56.840 --> 0:18:00.400 So your point around walking home and seeing the empty answers, 0:18:00.680 --> 0:18:04.680 we are seeing that customer experience dramatically change in relation 0:18:04.760 --> 0:18:07.880 to UH. There was a survey that that we did 0:18:08.359 --> 0:18:12.800 that shows fifty two percent fifty two percent of folks 0:18:12.840 --> 0:18:15.600 are actually looking at digital banking in relation to the 0:18:15.600 --> 0:18:17.399 way they do things on a day in and day 0:18:17.440 --> 0:18:21.800 out basis, transferring money, um, paying bills UM. So so 0:18:21.920 --> 0:18:23.520 you're point a spot on in relation of what is 0:18:23.560 --> 0:18:25.199 that going to mean in relation to them? When do 0:18:25.280 --> 0:18:27.560 I start seeing press conferences that aren't a lot of 0:18:27.560 --> 0:18:31.439 happy talk about tax bills and use of cash and 0:18:31.440 --> 0:18:35.119 are I'm sorry the models over? I mean, I get it, 0:18:35.119 --> 0:18:37.919 their control management is going to be doing gradually. I 0:18:37.960 --> 0:18:41.440 get that, But five years from now on a given 0:18:41.520 --> 0:18:45.679 million employees, it a huge part of American banking. I 0:18:45.720 --> 0:18:48.600 can't get a real answer on how many bodies on 0:18:48.600 --> 0:18:51.800 a percentage basis go out the door. Well, look, I 0:18:51.840 --> 0:18:55.280 think you're gonna have to see these business models evolve, 0:18:56.119 --> 0:18:59.320 and as these business models evolved, we will see natural 0:18:59.400 --> 0:19:01.480 knock on in act. So on the people's side of things, 0:19:01.560 --> 0:19:04.440 what we're seeing at a number of our clients, uh 0:19:04.640 --> 0:19:08.120 is folks actually embracing digital labor in relation to doing 0:19:08.119 --> 0:19:11.800 things differently and then using their folks to actually do 0:19:11.880 --> 0:19:15.240 things differently in relation to and UM analytics and and 0:19:15.280 --> 0:19:18.159 actually doing a deeper dive into various things. Will that 0:19:18.280 --> 0:19:23.959 last over time? We'll see what does it mean for mergers? 0:19:23.320 --> 0:19:26.679 It it it the regional banks. I mean, you know 0:19:26.720 --> 0:19:29.400 we're talking this morning. JP Morgan could barely move the needle. 0:19:29.440 --> 0:19:31.399 They're so big. I went over the scope and scale 0:19:31.840 --> 0:19:35.880 of trillion dollar numbers with JP Morgan. What does regionals 0:19:35.960 --> 0:19:40.919 do to compete with this new digital labor and new technology. Well, 0:19:40.920 --> 0:19:43.679 I think the regionals will continue to do consolidation. I 0:19:43.720 --> 0:19:47.200 think they'll continue to sort of grow in that aspect um. 0:19:47.280 --> 0:19:49.639 They're doing interesting things because of different size and scale. 0:19:49.640 --> 0:19:51.720 I think the global banks just have a different footprint 0:19:51.720 --> 0:19:54.560 and profile, so they'll probably get bigger on on on 0:19:54.600 --> 0:19:58.919 the global stage in certain extent. Neil Dart with US 0:19:58.920 --> 0:20:02.600 with p WCS had a financial services as well. Are 0:20:02.600 --> 0:20:07.280 the global American banks competitive? The global American banks are 0:20:07.320 --> 0:20:10.159 competitive in RELATIONSHIPAUS That's a message I get in London. 0:20:10.840 --> 0:20:13.639 They are the US banks are really competitive. They are compared. 0:20:13.680 --> 0:20:16.680 What is the distinction of a given American banker going 0:20:16.720 --> 0:20:20.359 into a median in Poland than somebody from the other 0:20:20.440 --> 0:20:24.520 platforms of France, Switzerland, United Kingdom. Well, it depends on 0:20:24.640 --> 0:20:27.280 in relation to what part of the bank you're talking about. 0:20:27.760 --> 0:20:30.879 Um but um but but yes, us banks are getting 0:20:31.000 --> 0:20:33.480 uh they are strong and they're getting stronger. Um. I 0:20:33.520 --> 0:20:38.160 think with a bit less regulation you'll see that these 0:20:38.160 --> 0:20:41.880 banks become even more competitive. Um so so so it's 0:20:42.000 --> 0:20:43.720 it's it's a good place to be right now. Now. 0:20:43.760 --> 0:20:45.960 These banks also are going through their own evolution in 0:20:46.000 --> 0:20:48.840 relation to sort of doing things more efficiently. Uh so, 0:20:49.040 --> 0:20:53.160 things around cost, in relationship, constantly making things more better 0:20:53.160 --> 0:20:55.720 in improving the experience, but also looking at how to 0:20:55.760 --> 0:20:58.440 do um cost in a more cost effective way. What 0:20:58.520 --> 0:21:00.720 do the banks do that are so are lost in 0:21:00.760 --> 0:21:03.520 the cracks. They're either big but they're not too big 0:21:03.640 --> 0:21:06.199 or there there there may be too big to be 0:21:06.240 --> 0:21:08.600 a regional they're these I don't want to mention names, 0:21:08.640 --> 0:21:12.280 but there's given banks worldwide where I can't figure out 0:21:12.280 --> 0:21:16.560 what the strategic mission is because they don't have scale. Well, 0:21:16.840 --> 0:21:21.440 certain banks playing in a very regional model UM and UM, 0:21:21.600 --> 0:21:24.080 they will have to figure out, UM, what is their 0:21:24.119 --> 0:21:26.840 next pass in relation to will they be able to 0:21:26.880 --> 0:21:30.520 invest the way the bigger banks will, Will they have 0:21:30.600 --> 0:21:33.920 the innovative culture? Uh that that a smaller fintech will 0:21:34.080 --> 0:21:37.879 in relation to disruption? UM. So you hit a good point, Uh, 0:21:37.920 --> 0:21:41.000 that those banks are constantly gonna have to go through 0:21:41.040 --> 0:21:43.600 their own self assessment in relation to do we do 0:21:43.680 --> 0:21:46.240 something dramatic from a strategy. Is that happening in America 0:21:46.240 --> 0:21:48.760 and midsize and regional banks right now that that naval 0:21:48.800 --> 0:21:53.240 gazing into the spring of this year. Well, uh, I 0:21:53.240 --> 0:21:56.240 mean we're talking about banks specific spankes specifically here. I 0:21:56.280 --> 0:21:59.080 think what we're seeing on the regional side of the 0:21:59.160 --> 0:22:02.359