Speaker 1: Bloomberg Audio Studios, podcasts, radio news.
Speaker 2: Let's stick with earnings. Zion's reporting a beat on earnings
Speaker 2: with a NETT income of two hundred and twenty two
Speaker 2: million dollars despite a fifty million dollar loss from an
Speaker 2: alleged fraud. The former Barkley CEO Bob Diamond writes the following,
Speaker 2: The dislocation in regional banks stems from a few single
Speaker 2: bank specific issues, but doesn't change our view on the opportunity.
Speaker 2: We remain very bullish on regional bank consolidation. Bob. John
Speaker 2: just now for more pub Good morning.
Speaker 3: Morning, John.
Speaker 2: It's going to see it. So a few years ago
Speaker 2: we had some problems managing interest rate risk. Can we
Speaker 2: avoid it with credit risk in this segment now, I think.
Speaker 3: Broadly in regional banks, as you've just quoted me, we're
Speaker 3: very bolish. I think, you know, both the interest rate
Speaker 3: dislocation that started with SVB or was recognized with SVB
Speaker 3: and we were really a function of rates going from
Speaker 3: zero to five and a half percent is in the market.
Speaker 3: I think the you know, the regional bank area has
Speaker 3: some really strong banks and some that are not as
Speaker 3: well managed. So of course some have more exposure for example,
Speaker 3: to commercial real estate than others have. And if the
Speaker 3: commercial real estate is in Iowa, it might be different
Speaker 3: than if it's in la So we look at all
Speaker 3: of those things. But as a sector, this is a
Speaker 3: really really strong sector of the banks. There's four and
Speaker 3: a half thousand. It has the support of Secretary of
Speaker 3: the Treasury Vessent that consolidation is necessary. Makes the banks
Speaker 3: more competitive, it increases the roes, it makes them just better,
Speaker 3: better investments. And I think four and a half thousand
Speaker 3: banks the United States of America, it's just it's the
Speaker 3: wrong number. And so we see this going over the
Speaker 3: next two to three years to closer to one thousand
Speaker 3: or fifteen hundred. And we think, also, John, I think
Speaker 3: this is really important. The thesis here is one of
Speaker 3: consolidation and taking costs out. So many of these smaller
Speaker 3: community banks are just too small to seed. They're very
Speaker 3: good banks, but to get a positive ROE with technology costs,
Speaker 3: with regulatory relation costs, virtually all of these banks have
Speaker 3: the same technology platform. So you eliminate one technology platform.
Speaker 3: Many of them or all of them have regulatory relations staffs.
Speaker 3: You can eliminate one of those. You don't really need
Speaker 3: too So if you add the cost synergies, which we've
Speaker 3: proven in back testing really come out and are real,
Speaker 3: and you add the increase in ROE. Because when a
Speaker 3: bank buys another bank, there's purchasing accounting and you have
Speaker 3: to mark to market fully through the p and L
Speaker 3: the bank that you're acquiring, you're putting capital in. Automatically,
Speaker 3: the ROI goes up because the asset prices are different.
Speaker 3: So when we look at the cost savings, we look
Speaker 3: at the increase in ROE, we look at four and
Speaker 3: a half thousand banks, we look at too many or
Speaker 3: too small to succeed. This is probably the best investment
Speaker 3: we've seen where the downside is really really protect and
Speaker 3: there's good upside.
Speaker 2: It's happening, your full cost is happening. We've seen it
Speaker 2: with Fifth Third and Co America. You'll suggest in this
Speaker 2: More to Come you talked about how region specific some
Speaker 2: of these issues can be. It's there a common threat
Speaker 2: in the consolidation so far.
Speaker 3: I think what we have seen is where the synergies
Speaker 3: are most clear is in state and close to state.
Speaker 3: So when you have a really good front office, meaning
Speaker 3: you have a good business around deposits and loans and
Speaker 3: a similarity in terms of region where you're really adding
Speaker 3: clients and customers in taking out costs, those are the
Speaker 3: best opportunities, but not in terms of where in the US.
Speaker 3: It's more that in state and close to state is
Speaker 3: the preference.
Speaker 1: There's been this fear that some of the biggest banks
Speaker 1: have really taken the wealthiest and the highest credit ratings
Speaker 1: in terms of customer base, and then mid tier banks
Speaker 1: are stuck with everybody else, and that that's where the
Speaker 1: credit problems have really come. Has there been anything that
Speaker 1: you've seen that proves that to be true.
Speaker 3: No, We've seen idiosyncratic issues. We've seen certain banks that
Speaker 3: may have a specific name issue. But the truth is
Speaker 3: that you know, forty to fifty percent of lending to
Speaker 3: small businesses in the US come from the regional and
Speaker 3: community banks. They don't come from the big banks, many
Speaker 3: of the Big four, many of the larger regionals just
Speaker 3: don't have the cost structure or the attention to service
Speaker 3: smaller businesses. So we think the credit quality on balance
Speaker 3: and lending is very very good across regional and community
Speaker 3: banks if there's.
Speaker 1: No real weakness that they're seeing with respect to consumers
Speaker 1: or smaller businesses. Does it make sense and does it
Speaker 1: really help the case to have the Fed cutting rates
Speaker 1: at the same time that inflation is still a concern.
Speaker 3: I think the cutting rates. I mean, if you think
Speaker 3: of the go forward environment, so let's say a regional
Speaker 3: bank buys a community bank, you get the synergies, you
Speaker 3: have an ROWI and now you're focused on additional acquisition,
Speaker 3: and what's the go forward? The go forward is terrific.
Speaker 3: I mean, the Treasury, the FED, the SEC are encouraging consolidation.
Speaker 3: They're talking about simplifying capital rules, They're they're talking about,
Speaker 3: you know, endorsing these mergers and this consolidation. And then
Speaker 3: you have rates at four to four and a quarter
Speaker 3: percent likely coming down this month, potentially again in December.
Speaker 3: You have one hundred basis points between twos and tens.
Speaker 3: You can't make a better environment for banks going forward
Speaker 3: than this. So if you strengthen through consolidation, and then
Speaker 3: you look at the go forward obviously assuming that the
Speaker 3: economy stays stays stable and strong, it's a great environment
Speaker 3: for banks.
Speaker 1: But you're forecasting at least that forty five hundred number
Speaker 1: to be cut in half in the next three years.
Speaker 2: Is that right?
Speaker 3: More than that, more than that.
Speaker 1: How is that possible?
Speaker 3: I think one of the situations we faced prior to
Speaker 3: this administration is there wasn't quite the same support for
Speaker 3: approving mergers, was it. Elizabeth Warren and Bernie Sanders a
Speaker 3: little bit on the edge, Like, I'm very very surprised
Speaker 3: Anne Marie that Elizabeth Warren would come out and say
Speaker 3: we shouldn't approve consolidation in banks. And we're talking about
Speaker 3: putting additional capital and banks, making them stronger, making them
Speaker 3: better competitors with JPM Morgan in City, and yet she's
Speaker 3: against it. And that's the politics of being a liberal
Speaker 3: and saying no, no, no to anything that looks like
Speaker 3: it's positive for business and positive for profits. This administration
Speaker 3: has been very clear it's going to make the banks stronger,
Speaker 3: it's going to make them better competitors to the big banks.
Speaker 3: It's going to provide more lending. In a way, it's
Speaker 3: getting more it's kind of monetary easing, right, It's getting
Speaker 3: more money into the market for businesses that need to
Speaker 3: raise money, small businesses to expand their expand what they do.
Speaker 2: Well, if we've got thirty seconds left with you, which
Speaker 2: is not enough, I know, Oh come on, give me more.
Speaker 2: The meyoral race in New York City. Yes, the beating
Speaker 2: heart of capitalism and the socialist has ahead. What's your
Speaker 2: brief take of what's happening in this city?
Speaker 3: You know, I think the city is at the strongest
Speaker 3: it's been since pre COVID. You know, I live in Midtown.
Speaker 3: We have our office in Midtown. I walk to work
Speaker 3: in the morning for eleven blocks and I have never
Speaker 3: seen so many people on the streets every morning as
Speaker 3: we've seen in the last couple of months. The city
Speaker 3: was really hit by COVID. It was really, really tough.
Speaker 3: I think we all kind of, you know, struggled through,
Speaker 3: not quite able to admit this is really bad, and
Speaker 3: it's really good. The city's back, new restaurants, new clubs,
Speaker 3: people excited down in the village. My son and his
Speaker 3: family who live in London are moving to Brooklyn. They're
Speaker 3: really excited. I think the city has a lot of buzz.
Speaker 2: You mightswer that question without one. He's that twelve time
Speaker 2: with everyone