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00:00Joining us now are Bloomberg Intelligence Senior Analyst for U.S. Banks, Herman Chan, and the editor of Investopedia, Caleb
00:06Silver.
00:06All right.
00:07Mike Mayo, known weightlifter, hobbyist.
00:09So the fact that he's skipping the gym indicates how big this is.
00:14Herman is the second swole list on Wall Street.
00:17I'll take that. Yes, please. Thank you very much.
00:20This just devolves so quickly.
00:21I'm going to Barry's after this.
00:22I'm going to take a nap. All right.
00:25But you go work out.
00:26Do we always get these all at once?
00:29And I was reading some analysis from Bloomberg, which I do now, a breed bank analysis, saying that it's expected
00:35to be good but not amazing.
00:37Why is that?
00:38Right. So banks typically try to stagger their earnings.
00:40But for some reason, this earnings calendar, there's five in one day.
00:44And Bank of America and J.P. Morgan have competing earnings call times at the same time on Tuesday.
00:50So, yeah, it's great for us bank analysts trying to listen to two earnings calls at the same time.
00:55But we're expecting really strong results overall for the banking sector this quarter.
01:00The banks have really shrugged off some of these geoeconomic issues and the case-shaped economy that we continue to
01:06hear about.
01:06But there's really strong earnings power, both on the trading side, the investment banking side, and on the lending side.
01:13Your typical bread-and-butter commercial lending is really strong.
01:16So about 20% year-over-year growth.
01:18So, yeah, we're looking for really good results overall.
01:22Okay.
01:22Let me ask you just about the role that SpaceX is going to play in all of this.
01:26So for so many weeks, we were focused on SpaceX's debut on Wall Street.
01:30We know that Goldman and Morgan were kind of running that IPO.
01:32But I don't think that there was a major firm on Wall Street that wasn't involved somehow.
01:36Is that going to be manifest in these results as we see them?
01:39Yeah, everyone has a piece of it.
01:40And that's just some of the activity that went on that's going to help their bottom lines.
01:44The M&A activity, just the trading activity, which has been pretty robust among institutions, that's going to be good
01:50for banks, too.
01:51I think what we want to hear is how healthy is the consumer?
01:53Bank of America, the city will give us a pretty good window on that, Wells, as well.
01:57But also the net interest margins.
01:59We know where interest rates are.
02:00We know where they're probably going to be for the next few months.
02:02What does that mean for bank profitability?
02:04And overall, what is the health of businesses and borrowers?
02:07Herman, what are some of the concerns folks have with these larger banks?
02:12I was reading this morning that investors want assurances they can kind of keep this momentum going in light of
02:16AI valuations, higher gas prices.
02:19And also, we had this big kerfuffle about private credit.
02:22Did that not turn – are we not worried about that anymore?
02:24I spent so much time learning about private credit.
02:27Was that all for naught?
02:29It's something that's still lingering on the sidelines.
02:32So it's something that – it's a big growth driver.
02:35I mentioned the commercial lending growth.
02:37The private credit side of things is driving a lot of that.
02:40But that being said, banks gave really heavy assurances in the prior earnings season that they're very comfortable with their
02:49exposure to private credits.
02:51They've underwritten it very conservatively.
02:54And it would take a lot of decline in the overall market.
02:58And you would be more concerned about the overall economy rather than their private credit exposure.
03:03So we have that going on.
03:05The other risk that we're looking at is really on the deposit side.
03:08Given the fact that there's expected so much robust lending, that deposit competition has really intensified.
03:14So their funding costs would presumably increase given the fact that we're not really expecting any more interest rate cuts
03:23over the back half of this year.
03:26That really contrasts the expectation heading into 2026 where there was two rate cuts baked in.
03:32So there's an evolving interest rate backdrop that could affect banks' managers' margins going forward.
03:37We want to get into Netflix, but before we do that, I have a question for each of you.
03:41I'd love for each of you to answer.
03:42And that is we get to hear from these bank executives over a speakerphone on Tuesday and Wednesday, yes, with
03:48Morgan.
03:48But, Caleb, what do you take away from that?
03:50I mean, what are you listening for when you hear these executives talk?
03:53Do you appreciate kind of their vantage, their perspective on geopolitics broadly?
03:57Do you want to hear more granular information about the banks?
03:59What do you want to hear from these executives on Tuesday?
04:01Yeah, some CEOs are more candid than others.
04:04Jamie Dimon among them.
04:05Notoriously candid.
04:06And he will tell you exactly what he thinks and exactly how the bank sees things.
04:09I heard him at the Reagan Economic Forum a few weeks ago, super candid, but also saying America needs to
04:15be strong defensively.
04:16We also need to make sure we are taking care of our people.
04:19So he cares about both of those things.
04:21There's also rumblings about the succession plan at J.P. Morgan.
04:25I don't think we're going to hear anything about that this week.
04:27He's still got some time in the seat.
04:28So he's a little bit more candid.
04:30But, again, we want to know how strong are their customers, how robust is the lending going to be,
04:35as Herman mentioned, but also how strong is the U.S. economy, especially when it comes to consumers and their
04:40spending.
04:41Herman, how about you?
04:41What are you listening for?
04:42Yeah, so that's right.
04:44Jamie Dimon's always been sort of the spokesperson for the industry.
04:47We'd love to hear more about the evolving backdrop, given the fact that we still have geopolitical tensions,
04:53where the economy is going forward, and then the succession issue.
04:58Mary Ann Lake recently stepped away from the bank, and there's two new co-presidents.
05:04And then, really, the eyes are on Troy Vorbaugh, who is going to lead the consumer operations going forward.
05:11Is he viewed as the heir apparent in Jamie Dimon's minds?
05:15I'm sure a lot of analysts will probe that thought.
05:18Just to interject quickly here, I mean, this is like the longest-running parlor game on Wall Street right now.
05:21When is Jamie Dimon going to step down?
05:23Does this latest move give you any indication of how much closer we are to that point?
05:27I mean, he is often asked about this Jamie Dimon, and he is very quick to demure and say how
05:31much he loves his job.
05:32Right.
05:32I would assume that we'll have more of that same refrain, where he's going to say he's in there for
05:38the next foreseeable future.
05:40That being said, succession planning is something that the board and the bank takes very seriously,
05:45and I think the two co-presidents really speaks to that.
05:49All right, Caleb, I do want to get to Netflix.
05:50Yes, let's get to Netflix.
05:50It's usually the start of tech earnings seasons.
05:53How is Netflix doing?
05:54Because as a consumer, I feel like they're having a bit of an identity crisis, right?
05:57When I think of, like, really prestige streaming, I don't think of them.
06:00When I think of, like, the CSI audience that my parents watch, I don't really think of them either.
06:05I don't really know what their brand is, and I wonder if that's part of the problem,
06:09is they're struggling to maintain consumers, to stop churn, and to come out where investors want them to be.
06:14Yeah, things have been anything but chill with Netflix and its investors.
06:17Well done.
06:18The stock is down 20% year to date, down 40% over the past year.
06:22Not magnificent by any means anymore, but it is changing the way it runs its programming.
06:27It's got some challenges in that it's got competition, but it also now has introduced that advertising platform.
06:33How much is that growing?
06:34They're expecting some $3 billion from that.
06:36That costs about, I think, $8 or $9 if you want the ad tier program.
06:40They're able to raise prices.
06:41They have that pricing elasticity.
06:43They're able to raise prices pretty much $1 every year and not much churn, probably the lowest among the streamers.
06:48And now they're introducing a lot of short-form programming.
06:51They're no longer really just a streamer.
06:52They are a global media platform, and they're trying to compete with YouTube.
06:56But do you feel like they have enough of a strategy, or do you feel like they're just throwing things
07:00at the wall at this point?
07:01Well, over the last couple of weeks, we've learned more about that strategy.
07:04They've started short-form programming.
07:07They started a bunch of deals with very popular podcasters.
07:10The Bill Simmons Ringer universe is in there as well.
07:14Hot Ones is there as well.
07:16They signed some chefs to do some short-form content.
07:18So they want to make sure they are not losing viewers who want that shorter-form snackable content,
07:23and they're still building their library.
07:25They have a big slate coming out, including Narnia, coming out later this year, and a bunch of other big
07:29-ticket movies.
07:30So they're trying to be everything, spending a lot of money doing it.
07:33I want to ask you about their strategy toward acquisitions.
07:35So it wasn't long ago they were making a go for Warner Brothers Discovery.
07:38Of course, that fell apart.
07:40We now see the spin-off of NBCUniversal and Comcast.
07:43I mean, they didn't make a play for Roku.
07:45I mean, how do you see their interest in expanding the business through mergers and acquisitions, if at all?
07:50I mean, once that deal fell through, I think there was some relief among shareholders, among many shareholders.
07:55What did it say to you about their kind of longer-term trajectory?
07:57Well, the good news is that Netflix executives give long video interviews every earnings report.
08:02So I listened to it again last night from the last quarter.
08:05They said it didn't work out, but they learned a lot about M&A and how disciplined they want to
08:09be
08:09and what matters to them when it comes to making big investments.
08:12They have a lot of cash on hand right now, and they need to do something beyond adding these creatives
08:17and adding this short-form programming.
08:18I wouldn't be surprised to see an acquisition in the second half of this year or early next year
08:23because investors want to see really what's next beyond short YouTube clips
08:27and adding podcasting to the platform.
08:29Herman, to bring it back where we started, when we get these earnings reports, we usually get a macro look.
08:35When you go through them, when we get big bank day and none of us are working out and we're
08:39all on these calls,
08:40and by we I definitely mean you guys, what are you going to be looking for?
08:43Anything specific that we should be watching for that I can steal later in the weekend to make it sound
08:47like I'm smart?
08:48Right. So a lot of it's going to be what they say about the economy, right?
08:53Heading into this quarter, there's a lot of enthusiasm into the earnings,
08:57but one of the pieces of that enthusiasm is that the credit quality performance of the banks will be very
09:03stable.
09:03So how that really shapes up going forward, a lot of the analysts will probe about that
09:08given the fact that there is still a lot of risk.
09:11Energy prices are still high.
09:13You've had companies talk about consumers pulling back in certain areas of discretionary spending
09:18because of the high energy prices.
09:20How does that flow through into the banks in terms of customers and consumers
09:24paying back their credit cards and their mortgage?
09:26So we'll be looking forward to that.
09:27Last question to you, Herman, picking up on what Caleb was saying a moment ago.
09:30We were talking about prospect for mergers and acquisitions.
09:33We've had the SpaceX IPO.
09:35SK Hynex had its listing on NASDAQ on Friday.
09:40Both of those are seen as kind of litmuses for how the market would be for offerings.
09:44Right.
09:45What's your sense of the verdict on that?
09:47I mean, there are a lot of companies here waiting in the pipeline.
09:49Yeah, I think that's one of the areas of enthusiasm for the banks in particular,
09:53where banks are playing the AI and infrastructure side of things through their equity offerings,
10:01through their capital markets, businesses, and debt underwriting, and bonds, and securizations,
10:07CMBSO.
10:08These data center financing that needs to happen, and the CapEx that needs to be spent to build
10:13out the data centers.
10:14The banks are playing that by helping these companies with raising money.
10:19So the AI theme is a big part of the capital market story, and we'd expect more commentary
10:24on that in the second quarter as well.
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