00:00They beat expectations generally, and expectations were high coming into this quarter.
00:06What are they saying about the back half of the year?
00:08I guess that's probably the bigger issue.
00:10Yeah, that's right.
00:11That's the chief question on the earnings calls today.
00:14We had robust results, knocked it out of the park, particularly in equity trading.
00:18Can this be sustained, at least from the J.P. Morgan earnings call earlier this morning?
00:24Management said that while it's hard to replicate the second quarter earnings results from equity trading in particular, there's still
00:32a constructive backdrop.
00:34Some of the activity in the second quarter was really driven by the trading activity from SpaceX and the like
00:41that may be a bit more idiosyncratic to the quarter, but still really strong trading results expected for the back
00:46half of the year.
00:47What are the banks with the big lending books like Wachovia, like BFA, like Citi, what are they saying about
00:52the credit quality out there?
00:54Yeah, credit quality has been really strong.
00:56You see that in Wells Fargo in particular.
00:59Their net charge-offs for the quarter loan losses were down about 10 basis points, and that was really led
01:06by much lower commercial loan losses in particular.
01:10So the commercial borrowers have been able to weather some of this economic insurgency and expectations for rates to be
01:18higher for longer.
01:18So we're actually pretty sanguine about the credit quality for the group, at least in the near to intermediate term.
01:25What are some of the return ratios that you and bank investors look at, and how are they trending these
01:32days?
01:32Yeah, returns and return on tangible common equity in particular is the key banking metric that we look at.
01:38And those were strong across the board.
01:40You see this in J.P. Morgan's adjusted ROTC, 23%.
01:45Their target over the longer term, 17%.
01:48Even banks that are at the lower end of the spectrum, banks like Citi, we're seeing ROTC at 13%.
01:57And their target for the year is only 10% to 11%.
02:01So they're vastly outstripping their targets and their expectations, and that's happening across the board for the banks that reported
02:08today.
02:08All right.
02:08So in that context, how have the easing regulations on the banks, how have they impacted their performance and those
02:19types of ratios?
02:20That's right.
02:20So that's another positive story for the banks, particularly the big ones, where we have easing capital regulations that will
02:30create more flexibility on the balance sheet.
02:33So that's in terms of both buybacks, that's in terms of dividends, that's in terms of increasing their lending capacity.
02:41And that means there's less equity component on the balance sheet, which is inversely related to return.
02:48So returns will go higher systematically because there's lower equity capital ratios.
02:54So all in all, a really good story.
02:57You just saw from the stress test where after that, in the aftermath, banks really lifted their dividends by 10%,
03:0511%, 12% across the board.
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