00:00I think broadly, they're all going to be winners, right? The capital markets trade is alive and
00:05well. You're seeing healthy M&A activity. You're seeing announced pipelines up 60, 70 percent year
00:10on year. Trading volumes remain healthy. You're starting to see loan growth. So there's going to
00:16be a lot of really good fundamentals when we see reports next week. What are the, Chris,
00:22the standouts that you're looking for? I mean, we focus here, obviously, on M&A. We focus on
00:28trading. Obviously, these are the big TV themes. But when you dig into the numbers,
00:34when you look at the banks that you want to buy or own, what are you most interested in?
00:41Sure. We think the top line, the revenue, the revenue outlook is really important,
00:46right? We've seen a lot of expense talk from JP Morgan last month. That'll be a focus. But really,
00:52we want to see top line development. We're seeing it from the capital markets. The banks have guided.
00:56They've probably allowed some room for upside surprise from trading and banking. But we really
01:02want to see the net interest income growth. We think loan growth is on the precipice of improving.
01:06Fourth quarter H8 data by the Fed suggests an improvement. Margins are holding in. So we really
01:12want to see top line growth. But ultimately, operating leverage and good credit is also very
01:17important. Chris, one of the things that's also interested in your research, basically saying that
01:20you are cautious on the outlook for equity trading revenues, given after 2026 that was underscored by
01:27volatility and equity trading. What is your outlook for that part of these banks? And what does it mean
01:32for some of the businesses? Are any of them maybe not pivoted away enough from equities trading revenue
01:38when it comes to overall revenue in that department?
01:41Trading has been a source of strength for many years. We've seen periods of volatility in the first
01:47quarter of this year, good volatility ultimately. So we saw really strong results. Really, it's just
01:51about the rate of growth from here. We don't think there's a material decline in revenues, but the rate
01:56of growth for trading will likely slow. And proportionally, trading is a much bigger piece of the revenues
02:02than investment banking. So there's a little bit of a handoff in the revenue outlook there.
02:06Is there any concern about cockroaches, Chris?
02:09You know, what's interesting, Matt, since we last talked, there's really very little interactions with
02:14clients on credit. And so you could view that two ways. Number one, the economy is resilient,
02:19the consumer is strong, or we've been lulled into a sense of complacency. I think we're vigilant.
02:25You know, credit expectations last quarter were the number one thing we talked about. We saw the three
02:30high-profile bankruptcies that plagued the industry. I would say what's happened is that narrative has
02:35died down. And I think importantly, the banks have passed the test so far, right? The earnings,
02:40borrowers, the outlook is very strong. And so they're able to absorb these bumps if and when
02:46they come. Hey, Chris, just quickly here, because I also saw you've been writing about some of the
02:50smaller banks, and that you've estimated that 30 to 40 percent of banks under $100 billion in assets
02:56have at least 200 basis points of excess capital, yet the consensus for payout expectations
03:02haven't changed. Should they change? Should we expect more payouts coming from these smaller banks?
03:07We should. Thanks for bringing that up. What's been interesting is the capital build for the
03:12industry has been pretty robust, right? We haven't seen a lot of loan growth. But when the banks are
03:18making 13, 14 percent on equity, they're able to accumulate capital at a fairly rapid rate. So
03:24the concerns on capital that were 2023, 2024 early, those have abated. And so we see capital levels
03:31continuing to rise. And what that does is it gives you a lot of flexibility. You can grow your company,
03:36you can pay a competitive dividend. You're seeing the large banks pay out a lot in buybacks. But for
03:42the smaller banks in particular, we think there's two avenues. We want to see stronger loan growth.
03:46We're going to see murders and acquisitions pick up. And you're starting to see select buybacks. So
03:50it's a broad range of capital deployment. That flexibility is really important.
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