00:00Richard we called you in to talk to talk about earnings and how the banks are doing financially. But just
00:04while you're here how unusual is it for the
00:08Federal Reserve chair and the Treasury secretary to call a meeting an unannounced meeting with the biggest Wall Street CEOs.
00:16Definitely not a regular event. But obviously it does happen. You know. And I think in this instance I think
00:23it probably speaks to the fact that you
00:25know AI is moving incredibly quickly and it obviously gives the banks a lot of opportunities around efficiency.
00:33But there are obviously threats that AI brings to bear to. I think what most banks will tell you is
00:38they're very good at protecting against what they know in
00:42cybersecurity. But it's very difficult to protect against what you don't know. So this type of public private partnership where
00:49you know the
00:50government shares information with the industry I think is incredibly important for the for the industry just
00:55to be aware of threats that are out there that perhaps they wouldn't have known if it was just up
01:00to them.
01:00So I think it speaks to the fact that this is obviously a key area of focus. But I think
01:05it also speaks to the fact that this is
01:06an area where there is a lot of cooperation between the administration and the government and the industry.
01:13If it this is an issue where if there hadn't been a meeting and there's a blow up later we
01:18would all be saying why didn't the
01:20Fed chair you know and the Treasury secretary call a meeting. So it does seem like good management.
01:25It does seem like good management even though Jamie Dimon isn't there. And you think maybe he should be there
01:30as the
01:31representative of the biggest bank. But but still beyond that I mean I'm really interested to hear what they say
01:36about
01:36AI on the earnings calls. But but just what are what do you want to hear from the banks as
01:41earning gets kicked off on Monday
01:43from Goldman Sachs. What are sort of like the top line items that you're like these are the outstanding pieces
01:48and I want to learn about how
01:49they stand. Look I think earnings is going to break down into two pieces. I mean the first is obviously
01:54the results themselves.
01:55And Matt I think as you said the results I think are going to be very good. You know the
01:59banks are going to see mid single
02:01digit net interest income growth. The reason is that loan growth is very robust. It's actually the highest level of
02:06loan growth that
02:07we've seen since 2022. Fee income is going to be very healthy especially on the capital market side. There's been
02:14a lot of deal
02:15activity but trading activity has clearly benefited from the volatility. The banks are showing very good cost discipline. We're expecting
02:24north of
02:25200 basis points of operating leverage. And I think on the credit side it's going to be pretty benign. Now
02:30the trouble is is this is all in the past.
02:32I mean all people care about is the forward. And there are several things that I think people are really
02:37going to be focused on.
02:38The first is since these banks last spoke a lot has changed. The two big changes are interest rate expectations.
02:45So when they last spoke
02:47the market was expecting two maybe even three rate cuts. We're now expecting potentially no rate cuts or maybe even
02:55a rate hike
02:55depending on what happens over the course of the year. That's good for the banks right. I mean it's good
03:00for the banks in one respect
03:01in the balance sheets are obviously positioned for higher rates. But the reason that interest rates are going up is
03:06not positive which is
03:07it's more concerns around inflation and potentially stagflation. You know and that could have an impact on things like loan
03:14growth and on
03:15deposit costs and deposit competition. So I do think you know analysts and investors are going to want to hear
03:21look how are you thinking about this very
03:23significant change in rate structures. And what does it mean for your outlook. You know given the very broad range
03:28of outcomes. I think that
03:30the second thing that people are going to want to hear is you know oil prices hundred bucks. What does
03:35that mean for consumer credit quality. It is clearly a concern in consumer
03:39finance less of a concern for the large banks. But I think there will be a lot of questions around.
03:45Look what does this mean as you think about both consumer spending trends.
03:49But also the risk that you're going to see a deterioration in asset quality from very very benign levels. Are
03:54you optimistic though
03:55Richard that you know Danny has a weekly deal show every Wednesday at noon for an hour. And she's been
04:02hearing that deals are still getting done. A record first quarter. Regardless of the war which is pretty great. Right.
04:09There's a war in the Middle East and they're still doing deals even there. And obviously the trading business must
04:16be on fire. Look I think there is a bifurcation on the deal side between financial sponsors and strategic activity.
04:25You know and what I'm expecting to hear is look financial sponsors to a degree are on pause. Bid offer
04:31spreads have obviously widened.
04:33Financing markets in certain areas are more difficult and more expensive. But you're right. I mean on the strategic side
04:40deals are still happening.
04:42And they are very large consequential deals that have very complex financing requirements. And obviously the big banks typically do
04:51very well in that type of deal environment.
04:53They typically punch above their weight from a market share perspective. On the trading side no question. Look this is
04:59going to be a very good quarter.
05:01We're expecting that trading revenues are going to be up double digit year on year. It's probably going to be
05:06a record trading quality trading quarter in terms of just dollars.
05:10But again I think the focus is going to be on the outlook. Have we moved from good volatility to
05:16bad volatility in certain markets.
05:18And I think the focus will be on rate markets in particular and commodity markets.
05:23You know and is there an expectation that you are going to see a fade in terms of trading revenues
05:27heading into the second half especially given the de-risking that we've seen in the hedge fund community.
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