00:00Senior research analyst David George and Dave it's perhaps useful to start with JP Morgan because I'm just looking through
00:05your first take and it feels to encapsulate encapsulate the mood this earning season that they post an all-time
00:11record for managed revenue excellent core trends but a slight miss on FIC but a pullback in the stock you
00:18say it is very much so buy the room or sell the news reaction to their earnings is that the
00:23case for these banking stocks excellent results but excellent is already priced in hey Danny good morning
00:29and I think you said it well I think so this has been 2026 has been as you know obviously
00:35the year of semiconductor stocks and AI but bank stocks have actually done quite well in 2026 so they have
00:41outperformed the KRE and the BKX have both outperformed the broader market and over the last month alone the money
00:51centers the regionals are all up 20% plus going into the numbers and I've been doing this a very
00:57long time almost 30 years and this is
00:59probably one of the best quarters or starts to the earning season that I can remember but again as you
01:05noted Danny this is just a very high bar and we're sensitive to the fact and Jamie Dimon has corroborated
01:13this that we're of the view that the banking industry is approaching a peak in ROEs and I think it's
01:21something that market participants need to be sensitive to particularly given the fact that banks are cyclical
01:26and the earnings can move around based on some of these capital markets movements and I think it's unrealistic to
01:33expect that the kind of trends we've seen in markets are going to continue over the next several quarters
01:41David has banking been de-risked there was absolutely no mention of anything like cockroaches charge-offs were lower than
01:49forecast and although Diamond did warn of you know tectonic shifts potentially he didn't really give any color there
01:57to your point all the revenue metrics across all of these big banks have been very good and as you
02:04mentioned credit has really been benign going back to just after COVID banks took a number of charges to kind
02:11of front load potential credit losses coming out of that COVID time frame and we really have been knock on
02:17wood on one of the best credit environments that we've seen and I think most bank management teams would agree
02:24with that
02:24I think that the industry has been de-risked Vani to some extent and I think that's come in the
02:30form of just the fact that they've been stuffed with capital coming out of the GFC
02:36many of these banks particularly the money centers are 3 and 4x the capital levels the tangible capital levels today
02:43that they had then
02:44the granularity of these loan books is also very good the industry did a great job last quarter kind of
02:51debunking this private credit narrative
02:53that that was a little bit of a cloud over the sector earlier this year so the risks in these
03:00companies is definitely lower than pre-GFC but they do take risks and banks are in the business of taking
03:07risk and it's really all about risk adjusted returns and as you said right now things are very very good.
03:13Isn't this the irony though David that sure they've de-risked but they're more able to get back into risk
03:20because of easier regulation and that is go back into some of the areas of lending that private credit had
03:25really stepped into.
03:26We saw a big shift during well post GFC but especially during COVID as the banks pull back this time
03:31around when we're looking at things around AI lending for example it seems like the banks are very present.
03:37Just just just how competitive are they at the moment for their private compared to their private market counterparts.
03:43I think that these are somewhat apples and oranges Danny there are some deals that I think banks would consider
03:48as it relates to just this AI build out but the banks aren't really going to be able to compete
03:55with what private credit
03:56does from a structural perspective private credit lenders are willing to do highly leveraged transactions more cash flow centric transactions
04:04rather than most of the commercial banks any are going to be largely focused on secured loans more conservative loan
04:12to value constructs and and a more conservative leverage profile on the on the part of their borrowers.
04:19So to the extent that we have issues in private credit I do think that there's an opportunity for the
04:25banks over the intermediate to longer term for the market maybe to come their way a little bit and and
04:31that could could lead to a little bit better loan growth and a little bit better structures at the same
04:36time.
04:37David how do you estimate Wells Fargo's performance because obviously it beat on certain metrics but the market is not
04:44rewarding Wells Fargo hasn't been for a long time it's down this year.
04:48Yeah it's the stock has done it's it's not been a great year for Wells Fargo shares but the company's
04:55done a very good job executing if you go back to COVID I remember upgrading the stock was at 20
05:00there was a lot of concerns around their ability to navigate this asset cap Charlie Charf and his team have
05:06done a great job navigating the cap they've made very significant investments in their capital markets businesses over the last
05:12several years and that has paid dividends as you see in the most recent quarter.
05:16The stock is up a lot over the last couple of years and the stock is up a lot over
05:21the last couple of years and this management team should be rewarded for how well they've done fundamentally and and
05:27and the market has rewarded Wells Fargo appropriately.
05:30It's just more of a function of coming into the year with very high expectations perhaps unrealistic unrealistic expectations so
05:38we don't really see any fundamental issues at Wells they continue to execute very very flawlessly honestly and and it's
05:45just a function of a very high bar and again an expensive valuation money center banks now traded a premium
05:52to the regional banks.
05:53For most of my career they've traded at discounts simply because of the risks they're exposed to almost everything as
05:59you mentioned so nothing wrong with Wells just a very high bar going in.
06:04And Charlie Charf also just pointing out how strong the consumer spending consumer spending is higher charge offs and delinquencies
06:10and low are lower and savings and investments are growing across consumer segments.
06:14Moynihan also echoes that there's a willingness to spend borrow and invest also lowers provision for credit losses and in
06:22its consumer business.
06:23David I wonder how much you can extrapolate these earnings to the overall health of the consumer.
06:28We did have a guest on and said look the lower consumer they're doing buy now pay later they're less
06:33present in some of these banks earnings.
06:35I wonder if you look at this and what sort of snapshot you get over the overall economy and of
06:39the consumer.
06:41Yeah it's I think it it's it points to and I'm tired of hearing the K shaped economy acronym but
06:47but I think it I think it kind of points to that JPM B of A are really focused Danny
06:53on the prime part of the market on the credit card market.
06:56And that data continues to look very good and kind of is consistent with unemployment trends being at a cyclical
07:03low but that that should bode well for the banks next week and particularly the consumer finance stocks the credit
07:10card names at Capital One Amex and Synchrony.
07:13We think that Capital One and Synchrony in particular look pretty interesting from a stock perspective going into earnings next
07:19week.
07:20But but yeah from my perspective the consumer appears to be in relatively good shape.
07:25There's some concerns obviously around the volatility in oil prices and to what degree that's going to put a crimp
07:32in the wallets of the consumer.
07:34Yes.
07:35But but again these this this data this morning definitely suggests that the consumers in pretty good shape is evidenced
07:41by this loan demand and credit.
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