00:00I think there's two real themes. Number one is the worst kept secret capital markets are going
00:04to blow out quarters. We're going to have investment banking up 25% year on year. We're
00:07going to have trading results up 15%. They've all guided. They're all going to beat expectations.
00:12The question there is sustainability. How do we put that into the back half of the year into 27?
00:16That's point one. Point two is higher for longer, how these banks are going to manage,
00:21in particular, the deposits, the deposit growth and deposit funding. So that has the outlook for
00:27the impact on non-interest margins in the back half of the year. And that really, I think,
00:31has set the stage for what's happened year to date with the banks. The smaller banks have
00:35outperformed a little bit. They've all outperformed the S&P, but the outlook for non-interest income
00:39is a big one. Are they making loans? How's loan origination look when I look at the Wells Fargo,
00:45the B of A's and that type of thing? They are. Wells has had a really, once the asset cap
00:49came
00:49off, they really went into growth mode. So that's for sure happening. More broadly, you look at the
00:54Fed's H8 data. You're seeing mid to upper single digit loan growth. And so we're getting the growth.
00:59The question is, can you fund it in a profitable manner? So the answer to that, I guess with rates
01:05higher, how are they doing that? It's very competitive. And so I think you're paying up
01:09for deposits. You're hearing it from companies like Fifth Third talking about the Midwest being
01:14very competitive. You've heard others talk about the Southeast, given the demographics being very
01:19competitive. You can raise deposits. The question is, how much do you have to pay for them?
01:22Is the merger roll-up still? Transactions, combinations, fewer banks? Is that still in
01:29place? It absolutely is. I would say the first half of the year has been a little slower.
01:34Last year's most acquisitive companies are in digest mode. They're integrating.
01:39But as a firm this morning- Oh, come on. Stop. I know this dance cold.
01:43It's a boom market so we can delay merging, right? I think that's fair. I think right now it's really
01:49good. The banks are making a lot of money. If you're thinking about selling your company, why do
01:52you sell when things are great? I think the key question for the back half of the year is net
01:57interest margin into 27 as you're doing your budget. If it becomes more difficult, margins are at 15-year
02:03highs. If it becomes more difficult, then I think those conversations restart. The regulatory environment,
02:08give us a sense of the lay of land. How much has it changed under this administration?
02:13It's changed in a tremendous way. Number one, to Tom's question, mergers. They're getting approved
02:19and cleared in three to four months. They're not going 12 months. So certainty, you keep your
02:24employees retained. That's a huge factor. The capital rules, Basel III, CCAR, stress testing,
02:30we're getting to finality, right? We're not getting everything we want, but we're getting a lot of what
02:35we want. And I think what's interesting is that the capital return discussion is broad. It's not just
02:40buybacks. It's organic growth, your question. It's dividends. It's M&A. So the banks have this
02:46optionality that they haven't had in prior cycles. Is the risk still out there? And I'm just picking
02:50on this bank, folks, because it's a name that pops into my puny head on a summer Monday,
02:55the Zions Bank Corp and all the other, I mean, is that just like history now, the weaker troubled banks?
03:02It is. I mean, banks, balance sheets, you look at capital ratios. Capital ratios are at two
03:06decade highs, right? We've picked up the pieces. 2023, as uncertain as it was and as volatile as
03:12was, we had three or four bank failures out of 4,000. So the industries withstood that very,
03:18very well. I got important questions for you, but let me get this one more in. Is Citigroup,
03:22do you lump them into the same conversation with the other major banks? I mean, is Citigroup,
03:29we all do this because of history, Sandy Well and all that. John Reed, I mentioned earlier today,
03:34but is the fact is Jane Frazier's working with a bank that's really not in the scope scale and
03:41magnitude of the other major banks? They're moving in the right direction. Absolutely moving in the
03:46right direction. I thought the May 7th Investor Day was a home run. The team led by Jane- It's
03:51only
03:51because of Kate Morbid. Continue. And Andrew Howland. They did a great job. The bar was very high.
03:57The stockhead was a very good stock and they delivered. And they gave us what I thought is a
04:01very believable path from a 10 to 11 ROE to a 14 to 15. And they didn't, what they didn't
04:06do is they
04:07didn't pull every lever. They kept a few in their back pockets. So to your question, is it JP Morgan?
04:12No, but the valuations, one, four is tangible and Citi's, and JP's three. What's your single best buy
04:17right now? We love Citi. We love Morgan Stanley. You get, you get opposite ends of the, of the value
04:22spectrum. Citi's your deep value play. Morgan Stanley is your best in class, 30% wealth margins, 25%,
04:2920 to 25% ROEs. So you get a value play and a growth play. ROEs. I know listening to
04:35Alison
04:35Williams and all the bank analysts out there, I got to focus on the returns. What are the returns
04:40that big banks are getting today versus pre-financial crisis? So most, most big banks have targets in
04:46the upper teens. Okay. So JP Morgan is 17. They're delivering 20. Wells is 16 to 18. Citi's low teens.
04:54Pre-financial crisis, I think the difference is their leverage was so much higher. So the returns were so
04:58much, you know, artificially inflated. So companies are doing 25% ROEs, but they had no capital,
05:03right? So now we're doing mid to upper teens on record level capital. So the quality of your ROE
05:08is much higher.
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