JPMorgan, Citigroup Kick Off Big Bank Earnings

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00:00What do we need to know about the numbers in J.P. Morgan's business? Because as Matt said,

00:03sometimes the headlines look darn good. And the quarter was darn good. It's just that I think

00:08there are some bullish investors out there that wanted more. And if you did, you know, so on today,

00:13they're underperforming. But if you looked at year to date, if you look at their valuation,

00:16if you look at their year to returns, I'm sorry, you look at their profitability, all very, very

00:22good, executing well, think that, you know, maybe some people just wanted some more there.

00:27Goldman Sachs, also strong quarter, they did miss on equities trading. So, you know,

00:33these numbers are hard to predict. But I think, you know, most people, including myself, you know,

00:38if you had seen sort of that, that upside would give you sort of further confidence in the momentum

00:44going into the next quarter. But the M&A advisory business, huge outperformance there. We think

00:50they probably outperformed most people in the quarter. They're the lead in that revenue.

00:53They announced this AI program. There's details, you know, we're gonna have to wait till January

00:58for details. But that signals that efficiency is going to get better. You know, contrast, you know,

01:05two companies that are really performing very well to two companies that are, I think, have a lot of

01:11runway ahead of them. And that's Wells Fargo and Citigroup. Can I just ask before we get to Sri,

01:15because I've already asked him like 10 times today, why do the analysts consistently underestimate

01:22what these banks are doing? And it can't just be to get on the good side of management, right?

01:28When I see this morning before any earnings came out, I saw stories about which bank was going to

01:34beat estimates. So when I see bank expected to top estimates, I wonder why analysts don't add more

01:41to the estimates. What is this game all about? Well, first of all, trading and when it's capital

01:46markets revenue, that really is the source of the upside. That is very tough. And banks are not

01:53going to guide you. Right. You know, they don't really have an incentive to guide you. Because by the

01:58way, like the last couple of days of the quarter could be horrible or you don't know what's going

02:03to happen. And so I think banks are going to tend to guide conservatively. Analysts are going to tend

02:08to be conservative, right? Because that, and by the way, like that just is not something that people

02:14bake into the run rate. So as I said, you know, we're positive about the momentum in trading,

02:20the asset levels, et cetera. But I think if you're, you know, forming estimates, you are going to tend

02:26to be conservative. And that's why you can get upside, especially if the strength comes at the end

02:32of the quarter. It's just hard for the estimates to catch up. Yeah, totally get it. All right. So we care

02:36about J.P. Morgan's results. We also obsess over everything that Jamie Dimon has to say.

02:42He never disappoints with something that is highly quotable. In this case,

02:45it was when he was talking about a cockroach. Check it out.

02:48You should assume that whenever something happens, we scour all process, all procedures,

02:53all underwriting, all everything. And, you know, we think we're okay and other stuff. But I, my,

03:00my antenna goes up with things like that happen. And I probably shouldn't say this,

03:04but when you see one cockroach, there are probably more, you know, and so we, we should,

03:09everyone should be forewarned on this one. All right. That, of course, was Jamie Dimon

03:13earlier today on JPM's early earnings call. Should we come on in on this? Because you're reporting on

03:19the quarter and, you know, most importantly, what Jamie Dimon has to say about the macro.

03:25So I, again, Jamie Dimon has been running the biggest U.S. bank, which is,

03:29which has a bigger market cap today than its three closest rivals combined. He's been doing that for

03:35nearly 20 years and he didn't get there and he didn't stay there just on the back of sitting on

03:39his laurels, right? He's paid to look around the corners and he's right to point out that the

03:44underlying numbers might be great. They might be marching toward another record revenue year.

03:49But when you see some of these problems, you initially try and dismiss some of them as

03:54idiosyncratic. But if enough of them start popping up, that becomes a concern.

03:57So that's why when Dimon says my antenna goes up, when things like that happen,

04:02we pay attention, especially because in the last few days, we've been seeing some action in

04:08certain corners of the credit market where it does appear that there is some fear seeping into

04:13the markets. Dimon specifically flicked at the publicly traded BDCs that hold a lot of these private

04:19credit investments. And if you look at the discount to the net asset value that they're going at,

04:24it makes you worry about what's happening with some of the other non-traded vehicles.

04:29Will there be mass redemptions and will there be domino effects off of that?

04:33And Dimon also points out that he feels like they're feeling very good about everything there.

04:38If you look at their numbers, you will not see any cause for stress, dismay, concern.

04:43But Dimon is right in saying eventually the cycle turns. And when it does, he thinks that I suspect

04:50when there's a downturn, his words, you will see higher than normal downturn type of credit losses

04:57in certain categories. And that's an important one to keep in mind, because what he's saying is

05:03your recovery rates might not be as great as you imagined. And that will impact the firms and

05:08that will impact the investors in those firms. I want to ask about Wells Fargo. I'm so thankful

05:14that Bloomberg Radio has such a great program. In the mornings, Nathan Hager and Karen Moscow were

05:20talking to you, Alison, before I even got to work yet. And I get here pretty early. And you were saying

05:25this is really going to be the news of the day. And it has been the outperformer of the day because...

05:30Can I just say finally? Well, because... It's been a long journey.

05:35So what's the story with Wells Fargo? They raised their return on tangible equity.

05:39Yep. So the key metric for banks, return on tangible common equity, valuations, you know,

05:46price to book is how a lot of investors value these banks. It's based on the return on capital.

05:53And, you know, Charlie Scharf had said years ago, we're going to put 15% out there as a target.

05:58We'll revisit it at some point. They're running at 15% year to date. They up that target to 17% to 18%.

06:06The asset cap is lifted. They showed a lot of progress that they've made, but they also showed

06:13some opportunity. And here's what I think is interesting. So one of the biggest areas of

06:18opportunity is the consumer unit. When we had Lori Beer from JP Morgan, the CIO of JP Morgan,

06:28talk about where she sees big opportunities. She actually talked about this out of JP Morgan's

06:32Investor Day. Also, the consumer unit. Also, like a lot of what she talked about in terms of how

06:39technology was going to aid the bank was productivity in the consumer unit. So we're hearing that from

06:46Wells Fargo. So that really gives me confidence that this is a number that they can shoot to.

06:52Citigroup, by the way, I think, you know, they're also kind of showing the path, right? So Citigroup

06:58talking about the fact that they are sort of two thirds the way there with their transformation.

07:02And we have Banamex coming, you know, it's pushed out a little bit. But I think showing you the path

07:10that, you know, could that be Citigroup? Again, talk about an even longer time, but could

07:15could could could Jane Frazier finally be the one to get it done?

07:18Yeah. And I will point out, like with Wells Fargo now up, what, 8.2 percent for the day,

07:22it's their best day since since election night, since Trump came back to power. This could be

07:27Wells Fargo's best day since then. So that is the power of putting a target out there. And I point

07:33that out again only because in a couple of weeks, you will have Bank of America with their investor

07:37day, their first investor day in 15 years. It has also been the worst performing big bank stock

07:43this year up only what 14 percent, 14 and change. It is important for Bank of America to approach

07:50that investor day with a mindset of providing targets, aspirational targets for the market.

07:57Instead of wanting to go out there, we're trying to explain to investors and analysts what it is that

08:02they do, because I think investors will tell you they have a good understanding what they want is

08:06better targets and what they want is them achieving those targets. Otherwise, the stock will continue to

08:11languish.

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