00:00Chris, I mean, shares down somewhat sharply this morning. What did you make of the results from Goldman?
00:05Hey, good morning. Thanks for having me back. Results were good, right? The top line beat.
00:09Revenues were stronger. M&A was up sharply year on year. Trading results were a little mixed.
00:16And so with the stock at 15 times earnings and 2.7 times tangible book, it does come down to
00:21expectations.
00:22So I think some of the weakness this morning is related to the quarter and some of it is the
00:26macro.
00:27So we teased you would tell investors where to put their money. I mean, in banks.
00:32Chris, what are your best bets right now, even knowing that we still have a lot of earnings to come
00:39out?
00:40We still think the bigger banks are the place to be. We've been big on Citigroup.
00:45We like Citigroup not only for the quarter. We think the May 7 investor day is a really pivotal moment
00:50for the company's evolution.
00:52Right. We think this year the ROE of 10 to 11 percent is going to be achieved.
00:56And we think how they lay that out next month and that path towards the medium to longer term return
01:01on equity is going to be really important.
01:03And that stock trades a little over tangible book today and below forward tangible.
01:07So Citigroup is one of our top picks.
01:09I do just wonder, Chris, we're going to hear from David Solomon and the rest of Goldman Sachs in just
01:14over 10 minutes time when they have their earnings call.
01:16But from the commentary we got so far in the earnings release, Solomon said the geopolitical landscape remains very complex.
01:22So discipline risk management must remain core to how we operate.
01:26Some have tied this to a slightly decreased investment banking fee backlog.
01:32Chris, do you think that there's an expectation that after a banner Q1 for M&A, that that can't sustain
01:37itself given the volatility that has arrived and is likely to continue?
01:42Right. The commentary in the release was the backlogs down slightly from last quarter.
01:49Again, off a very, very strong number.
01:51But if you go back into the beginning of the year, as we've been talking about with investors, the M
01:55&A outlook for the financial sector, for the broader S&P, for the globe is very, very strong.
02:01There's been pent-up demand.
02:03We think, you know, volatility will, you know, lead to some timing discussions.
02:06But overall, expectations our investment banking is going to be having a very, very strong year.
02:10On credit, things still look pretty stable as well.
02:13Where would the stress show up first, I guess, if this macro backdrop starts to really deteriorate?
02:22I can't imagine that it's not bad already, but we still have a strong consumer.
02:26We still have strong CRE, strong corporate.
02:31Where do you see weakness coming if it gets worse?
02:34I would agree, Matt.
02:35The consumer is very, you know, bifurcated, but overall resilient.
02:39We look for unemployment being a really important gauge to dictate the outlook for credit.
02:45We expect overall broader credit quality, not just the largest banks, but for the 4,000 banks in the country.
02:51We think results of the next couple of weeks will be very good.
02:54We are watching private credit closely.
02:56We are watching the consumer closely.
02:58The conflict in Iran is certainly important.
03:02The duration of $100 oil is really important as you get into the summer.
03:05But the consumer and the economy has proved resilient over many episodes of volatility in the past few years.
03:11Private credit is part of the reason that some of the banking shares sold off only a few months ago
03:16or a month or so ago, Chris.
03:17If that does show up anywhere in banking results, where would that show up?
03:22Is it an asset management with less flows?
03:24Do you expect CEO commentary on it?
03:27What are the things you're looking out for?
03:30We're definitely looking for more disclosures, and the banks have given disclosures when appropriate.
03:35If you go back in time, commercial real estate, office, when that period of asset, those assets were under stress,
03:41the banks responded and gave good color.
03:43The industry got through that.
03:45You know, I think from private credit's perspective, it's obviously the direct credit cost, but also the source of growth.
03:51It's been a really important asset class of growth for the banks over the past several years.
03:55Could that slow as haircuts increase?
03:57Absolutely.
03:58So we're looking for a combination of growth and direct credit costs.
04:01All right, Chris.
04:02I just want to ask quickly about the multiples.
04:05I'm looking at 17 for Citi.
04:08I'm looking at, you know, much lower numbers for other banks.
04:12But you like Citi.
04:14Where do you see cheap, cheap shares to pick up here?
04:18So Citi, I think, is still a tangible book value story, right?
04:22The company's under-earning relative to its potential.
04:24It's delivering a 10 to 11 percent ROTCE, which therefore is they're just around their cost of capital.
04:30But if you fast forward over the next couple of years, that multiple should improve as the RWE goes into
04:35the low to mid-teens.
04:36Beyond Citi, big picture, we think the biggest banks over time should get the largest multiples.
04:43And that's the opposite of what happened at the start of my career when the largest banks traded at the
04:47cheapest multiples
04:48and the smaller banks traded at the higher multiples.
04:51We think the resiliency, the diversification of these large bank business models
04:56and the resiliency of the ROEs in the mid-to-upper teens, that is warranting of a higher multiple relative
05:02to history.
05:03Hey, Chris, if I can jump in literally 30 seconds here.
05:06But a viewer wants to know, what banks have the most exposure to private credit?
05:10Well, there's a direct correlation in size.
05:12So the largest banks have more private credit.
05:14The smaller banks, the community banks, you know, the majority of those 4,000 banks in the country do not
05:20have meaningful exposure.
05:21But I think it's important to disaggregate private credit.
05:25Private credit doesn't mean necessarily higher risk.
05:28There's a lot of assets in private credit, capital call lending, mortgage warehouse.
05:32These are historically zero or no-loss assets.
05:35But there are pieces of the private credit spectrum that warrant monitoring.
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