Big Banks Kickoff Earnings Season

You can also listen to our radio show at two pm Eastern Time on Bloomberg Radio, or watch us on YouTube search Bloomberg Global News. Financials. The big banks really under pressure today following earnings this morning, City Group, Wells reporting, and of course JP Morgan Creaty mentioning at the top. Overall, those bank earnings not so great. So let's get to it with Bloomberg Intelligence Senior Global Banks analyst Alison Williams. She joins us on the phone in Summit, New Jersey. Allison,

nice to have you here with Katie and myself. So let's get to it. I guess we should start with JPM right, because everybody wants to know what they do. What Jamie Diamonds says, what do we need to be aware of us? Big news today, if you will, UM was the guidance for UM costs for this year, and that was much bigger than consensus had expected. UM costs are increasing. We know that across the industry. We know that volumes are very good. UM. With that becomes higher compensation,

so that's a big driver. UM. Back to work normalization of TNE that's also a driver. And then investment spending. Obviously it's a very competitive environment. There's lots of emerging fintech competitors and and competition broadly. And UH costs are going up UM perhaps eight to nine percent this year, So I think, well, there's a lot of revenue indicators that people have been excited about coming into the quarter.

UM rates are going higher, that's a great thing. But the expense and guidance was the new variable that we got today. Take Alison, was it all about just compensation or was it all also about cat bex? What was it? It's compensation, it's normalization of T and E spending as the world begins to go back to work live, and it's investing UM investing UM referring to you know, spending

on technology and keeping competitive on that front. UM JP Morgan is obviously a sizeable firm, and they're spending across the firm, and I think what's important for investors is that, yes, the class are going to be higher, but they're investing for the long term and they're still going to be earning a return on tangible common equity, which is the key metric we look at UM. They're still going to be earning one of the highest ratios in the business.

So UM perhaps a bit below their sevent medium term target, but I think that's you know why JP Morgan, you know, is the company that is today because it has been willing to invest in its franchise. Also, I'm curious to hear your perspective on trading revenue because we did see a big drop off there jeffries earlier this week than JP Morgan's city today, just to name a few. How much of that is, you know, just tough year over your comparisons versus actually there was a real slow down here.

So it's it's more the former there that the tough year of your comparisons. UM last four q was exceptionally strong for the industry, and so UM you know the fact that we're only seeing UM, you know, relatively modest declines against that for companies like JP Morgan and City Group. You know, I think is still a pretty solid result. Jeffreyes UM is a bit more Vottle their quarter UM ends in November and not December. UM. They were also way outperformed the bigger peers UM sort of in the

good times. And so we're seeing just a little bit of normalization there and that on the so trading, both equities and FICK trading, we're a little bit light equities trading at performing. But fees were really the big story for the global investment banking business. UM. That's a lot of what's feeding into the higher compensation. It's a talent driven business. There is a war for talent going on out there, and fees were better than expected for both

JP Morgan and City Group. UM. We expect that's a great indicator ahead of Goldman and Morgan Stanley UM that we're getting next week there. Goldman Morgan Stanley, JP Morgan are leaders in M and A and I p o S record year last year, three end of the year and momentum um coming into this year. And I mean We're only halfway through, right, So if you look at today's tea leaves what we saw today from you know, some of the big reporters today, JP, Morgan City, Jefferies earlier.

What is that portend for what we're going to come back to next week? Because I think we were looking forward to Goldman, Morgan Stanley, Bank of America. The list goes on. The figures that we have so far UM bode very well for the revenue side of Morgan Stanley and Goldman Sachs, especially with regard to the strength and investment banking fees UM trading as I said, might might be a little bit weaker UM, but also the asset and wealth businesses, especially UM for Morgan Stanley also going

to come in and benefit from very strong markets. Costs are going to be the thing that we're watching for both of those companies, as well as for Bank of America. UM. You know, on Bank of America, we're looking for loan growth as well as a key indicator. I would say that UM, you know, investors were relatively bullish, especially with regard to some of the industry data. Bank of America is even more bullish, I think than the industry a

lot of that relates to commercial industrial UM. I think the numbers generally support that the card is a little bit weaker for for the big um players. UM, but the costs are going to be UM. The key if if you have JP Moore in who's sort of um, you know, the biggest out there upping they're spending by the this degree, I would think it's it's hard. It's going to be hard for other companies not to also up their game. All Right, Gonna leave it on that note. Hey, Allison,

as always appreciate your insight. She is Bloomberg Intelligence Senior Global Banks analyst, Allen Allison Williams joining us on the phone from some New Jersey and Uh, Katie, were seeing a little pressure on those bank names today, but they've been running up higher this year so far. Yeah, absolutely having a fantastic year. But JP Morgan shares down six percent today, Carol, Yeah, that's quite a haircut. All Right,

you're listening to Bloomberg Radio. This is Bloomberg Business Week with Carol Messer and Bloomberg Quick Takes Tim Stinovic on Bloomberg Radio. We are continuing, as Katie mentioned earlier, tracking those headlines when it comes to COVID. We have b of A pushing back its return to office for staff in the US again until at least the fourth week of January. Katie BP telling its employees at its large US office in Houston to work from home until next

month due to those rising almicron cases in Texas. Yeah, I mean those headlines coming hot and heavy. He almost expects the question, I mean, who hasn't pushed back the return to office date at this point? I'd love to know. It's a really good point. Let's see what Dr Ian Lsbader has to say, his clinical professor of medicine over at n y U Land and we check in with him every week. Uh. And he joins us on the phone in New York City. Uh. Dr Lsbader, nice to

have you here with Katie and myself. How are you? How are you feeling much better? Thanks Carol and Katie, your pleasure. Last week, YEP, I was sick. I had thought perhaps I had COVID. I tested negative, but there are many other viruses going around RSV respiratory. Sincecial virus flew, we don't really test for all of them, and we're seeing a ton of people call in either COVID positive um or with symptoms that turn out to be negative.

So people are in a bit of a panic, and many patients are saying, oh my gosh, what do I do? Is there some treatment for me um And unfortunately there's a lot of limited treatment. A lot of what we have is really regulated by the state and limited to either elderly people or people with a significant underlying medical problems.

So people feel very frustrated, and Dr I am curious to hear your perspective on what the path forward looks like, because you know, like I mentioned a minute ago, we did hear from maderna co founder today saying in a Bloomberg television interview that two is going to be the year that this pandemic turns into an endemic. Would love to hear your thoughts on that. First of all, would that change our day to day life? And also do you think that's a realistic timeline? I do for both.

I do think that this will turn into an endemic problem, which basically means covid will be omron will be like a seasonal flu. You know, we get um hundreds of thousands of cases of flu every year. Uh and unfortunately thousands of deaths from flu every year. You know, the flu vaccine helps, it's somewhat limited. It doesn't work a d I do think we're seeing really a plateau, and and soon we will see a drop in the number of cases. Certainly in some areas. We're seeing that already

in the Northeast. So I think the number of O. Macron cases and COVID cases will be dropping in the next few weeks. We still are seeing some hospitalizations and and some deaths, but overall this does appear to be much more mild, and I think until we really are able to eliminate it, and we may not be able to do it, we will just have to live with it. And oh Macron or covid, maybe another seasonal UH coronavirus. And we have many coronaviruses that we test for in

a nasal swab, a PCR nasal swab. It's called a respiratory panel. When people come in they're sick UH, either in the emergency room sometimes in local offices, we do that swab and a test for you know, ten or fifteen different viral pathogens. And I think, oh Macron, and this will be enough. They're coronavirus that will be testing for and hopefully we will have some anti virals like tamiflu. Right now, a lot of the medications like the IVY

monoclon antibodies Strova MEB very limited in amount packs. Leavitt has a lot of drug interactions, so we really just offer people supportive care and fortunately most people do well, you know, hydration and mucus centers and cough suppressants. So um. Sadly we don't really offer people a lot of magic bullets. Hopefully over the next year or so we will get more effective therapies. What is it, though, Ian about you know, We've been talking with you throughout the pandemic. I'm going

to be fully transparent. I tested positive for rapid test and I'm at home, no symptoms so far. But I have to say I had felt so lucky navigating up to this point, um, and it was real shocking to me. And I'm like, you know, what is it that you know? I know you have said to us, everybody's going to

get this. It's just the way it is. It's getting much more contain ages, but it is still scary because you do talk to people who said it was nothing, and then there's other folks, younger folks, older folks, you name it, who say, yeah, I was knocked off my feet for a couple of weeks. You know, what is it about this virus that is still so tricky. Well, many viral infections knocked people off their feet. They do cause fatigue, you know this. We don't really know all

the details about this um coronavirus. We certainly know the mutations. The real origins we've talked about, you know, are still a little muddy and murky, and so it's unclear if whether or not, you know, this was engineered in some way, but it's certainly a very effective virus. It's highly contagious. It's obviously mutated to be much more easily spread by people who have no symptoms. Hopefully you're young and healthy.

Hopefully you'll have a pretty simple course. But you may have cloth sneezing, sore throat, laryngitis, bad for an anchor to have larynchitis, but usually within ten to fourteen days people will get over it. You should speak to your doctor some you know, there are some people if they have bad costs, will give them a short course of steroids to decrease some inflammation. But most healthy people will get over it. If you're people have underlying problems that

really puts them in a different risk group. And there are some therapists like monoclone at Lanta Buddy, although it is very limited. It's regulated by the state. You can prescribe it, it has to go through a committee that has to screen people. But I think most people, you're

a perfect example. You've done everything right. And if you look back over really a century, there are very few pandemics we've successfully dealt with small to box took years, decades and decades of slowly getting everyone vaccinated, So I think it was unrealistic to think we could sort of jam everyone in with a vaccine that honestly is not

totally effective. Right, people have three shots, they still get O macron, So I think it was unrealistic without tremendous preparation, lots of maths, lots of tests, lots of treatment to think we could have really succeeded. Well, We're glad to hear that you're doing okay and um and I love you forever that you were calling me young and healthy, So I'm all in. Hey Bewell. Dr Ian LUs Better, Clinical Professor of Medicine at n y U Land. Going

on the phone in New York City. You're listening to Bloomberg Business Week with Carol Masser and Bloomberg Quick Takes Tim Stinovic on Bloomberg Radio. We've talked a lot about the increasing legitimization of cryptocurrencies. We've seen that, Katie, safe to say, in a big way this past year, whether it's government's officials, companies, you name it. Our next guest lived in Africa and Latin America for over a decade, worked on building up mobile payment platforms. She is former

CIO of Emerging Tech over at GE Digital. Today she's the founder and CEO of O Group. We're delighted to bring in with us. Maya vo Unovitch, she joins us on the phone in Miami. Maya. Nice to have you here with Katie and myself and I hope I got your name right. Oh, absolutely, such a pleasure to be on and happy New Year to both of you. Well,

happy New year as well. Tell us a little bit about your background, because I think you know, Katie and I we watched the established financial guys kind of playing catch up now with the crypto world, and for a long time they shunned it. It does feel like, you know, the emerging markets and disruption innovators, those folks were really ahead of the curve. Your experience in the emerging market world, how does that give you maybe a different perspective when

it comes to the world of cryptocurrencies. That's an on point question and a very relevant relevant one to what we are seeing today. When I started oft in early two thousands, I went on to do payments in Africa and then Latin America followed. That was at the same time when Impressive was starting, and now you're seeing this incredible reversal where actually Africa is leading in adoption of

cryptocurrencies even comparison to to North America. So the perspective is absolutely different in a sense that I've lived there, I have paid employees, I've received my own salary and these things. And when you realize that the amount of money that it takes to actually pay the banking fees and cross board of payments and the difficulty of doing all of that. This is where I had my lightbulb

moment about bitcoin. And when I received the Bitcoin white paper, I thought, if this happens, this would be unbelievable and that was in two thousand nine and ten, so I have lived it. We've built some of these platforms in emerging markets and when you actually see, um, the amount of money that it takes in a difficulty for people to launch businesses, for people to get paid, for people

to transfer money to their dear ones. It is absolutely an incredible solution and no surprise that it's gaining such traction and emerging markets and maya, when we talk about emerging markets, Uh, where do you see the most potential two in a great crypto when we talk about the different countries. Yeah, sure, Um, I think that's also an excellent question in the sense that there is a uh, there is a bit of a divergence. And what I mean by that is you will see regulation in some

of these emerging markets really clamped down in crypto. We've seen it in Nigeria, We've seen in Zimbabwe. We have seen it in some of the Latin American countries as well. But if you look at Brazil, if you look at Argentina, if you look at Venezuela, these are old countries where the currency, the local currency, fluctuates tremendously and if you look at apps like, for example, Reserve that is a stable point in that is mainly in Venezuela, but across

Latin America. It's currently being used I think about sixty million dollars of transactions monthly volume is being used currently to keep the stability of boliviar while the currency fluctuates or depending on what happens with the US dollar. Right in Africa, you're seeing a huge potential because obviously, um once, if you look at Nigeria for example, right, which is the most populous country in Africa, it is full of

extremely impatient youth, youth that is hungry for innovation. And when the oil supply goes down, right and the dollar is actually the dollar supply squeeze out, many of the businesses are simply unable to pay foreign suppliers and lenders, right, And so this becomes a really big use case for countries like that as well. Yeah, let's dig into some of those use cases because I mean, crypto it's such

a broad umbrella. People usually think just bitcoin, but I mean we start thinking about cross border payments, stable coins, I mean, what are what are some of the big ease here? Yeah, absolutely so one of them that I'm so one. One simply can just be accessed to earning money right in a different way and access to some kind of a financial freedom. Yes, it comes with risk

because it is not regulated, it have huge fluctuations. So one could be just a massive umbrella access to ability to earn money besides what your government is offering you. So you could for example, there's another platform that is being launched very soon. It's called Toucan. It is a mature based carbon token right that is linked to a verified carbon credit market and it connects crypto capital um to kind of a planet positive projects around the world.

What does this mean for emerging markets suddenly, Katie, means that folks can access a fractionalized version of a carbon market that is usually very tainted that is only available to those that actually have a lot of money. It's a democratization of assets, right, and so you can now buy into something that you believe in um, not just what your government or what the local news might be

offering to you. So so that's another example. You would end up using some of the crypto and lending against your cryptos for a local currency to go and then take money for your local business, right. It offers a pleathora of opportunity for people to do that. Maya, you are full of information. You've got to come back and and share some more with us because your perspective is obviously unique, especially when it comes to all your time you've spent an emerging market. So we hope you do

come back. Maya Vuyanovitch, she is the founder and CEO of O Grip, joining us on the phone in Miami. This is Bloomberg Business Week with Carol Masser and Bloomberg Quick Takes Tim Stinovic on Bloomberg Radio. Folks, let's get to it. We've got just about ten minutes left in today's trading session, getting ready to wrap up another wild week here uh in two weeks in but we are near our best levels for the most part on our major equity averages. Carol Masser alow with Katie Gryfield. Let's

bring in our guests. Darryl Great, chairman and managing principle at Easterly Investment Partners. He joins us on the phone from Massachusetts. Darryl, how are you oh well today? Thanks? How about you guys? Do it okay? Trying to you know, uh, just watch the economic news. The FED speakers a lot going on. It does feel like markets are a lot more nervous than they were perhaps even at the end

of Fundamentally, how do the markets look to you? Yeah, I think what we're seeing is this fundamental transition from from growth stocks to value stocks as people fear the Fed. You know, Um, you know, this is beginning a theme that we're going to see probably for the next year or two. The forty year bull party for for bonds

is over. Jerome Powell has turned the lights up and he's asking everybody to leave, you know, with very low rates, Investors are discounting ear things that are twenty years out in today's growth valuations. And we're seeing a shift to value. And why why should we believe that this shift of value? Because you know, we've seen some runs at this rotation a few times in the past two years or so. What makes this time different? Why would value stick around

this time? Oh, it's a great question, you know. And um, what what is different this time is that we're going to see three, four or five six rate hikes over this over this next year. And what you saw in two thousand, seventeen, eighteen nineteen as the FED took interest rates to zero. Earnings for growth stocks, Um, we're discounting earnings that were again fifteen or twenty years out that

were significant. And as that as those rate hikes hikes go up, what you're going to see is those growth stock valuations declining and m and that and that is uh that that's that's going to have a permanent effect on the market. So at this point, what would you recommend to investors that they do at this point, because there's still a lot of questions out there right safe to say, we don't have the playbook for exactly how

we come out of this easily. Our Eric Shatzker gets catching up with Dr Kaufman and really nervous about that. We don't necessarily have a FED out there right now led by J. Powell that's going to maybe make the uncomfortable aggressive moves that we need to really reign in inflation. Yeah, I think you're right on it, which is, you know, our fear is that they don't move fast enough, and

there's also a fear that they're going to overreact. So you know, today, coming out of the pandemic, supply and demand and balances or the source of the greatest risk. You know, they're the driver of both this real and transitory inflation and UM and how the FED reacts is going to change the amount of liquidity and the economy through consumer purchasing power as well as the supply of credit.

I think the recent good news we see is that Senators Cinema and Mansion have decided to be the designated drivers in Congress, and they're going to prevent officials from throwing more gas on the fire while the FED is trying to get it under control and get us back

to a time of great price stability. I love to talk a little bit about that dynamic between fiscal and monetary policy because I mean, with all those uh rounds of stimulus that we saw, fiscal policy was maybe it wasn't in charge, uh, you know, but definitely had a big role to play. But at this point, I mean, do you think that monetary policy is really the dominant factor driving markets at this point? Well, I think all of these things that work together, you know, to create

an economy. I mean, for for the last twenty thirty years pre pandemic, UH, the economy became more and more refined with just in time processing these very complicated supply chains that were able to meet demand in an instant and the pandemic just through everything a foul. So we need proper fiscal policy, we need monetary policy, and we just need the economy to get going. I mean, these

are these you we need this pandemic to end. I think that seems like we are getting near with with a macron if you look get you know, we watched closely the r in a factor in wastewater in a in large metropolitan areas, and that in the last two days has declined materially. Uh So you know, as we see over the next week or two, that's going to work its way into the system and we're going to

get to a hopefully what is a new equilibrium. We've heard a lot from various FED officials and other market watchers Darryl about the difficulty though of the FED right now in terms of threading the needle and not making a policy misstep that leads us into a slowdown in growth. Um is that likely? Do you think about a recession potentially next year or maybe getting into three. I think

if there's a certainly an overreaction will cause recession. I mean, I think today That's why finding companies with with strong balance sheets, you know, that are favored in this market environment are really the way for equity investors to to play at this period. You know, as we look at these fourth quarter earnings and and see how this is going to come together, I think material stocks and consumer

consumer discretionary stocks are going to do well. Um. You know, in Key four, buyers wanted what they wanted and when they saw it, they bought it markdowns. Um in h for consumers that we've grown used to in the past, we didn't see it. So looking at stocks today like coals um is is a is a great place for investors to look, as well as anything that's selling into the home that's continued to be strong companies like Mohawk, Mohawk Carpet and Daryld. What don't you like right now?

When it comes to the markets, I think you've got to be careful around banks. I mean, we're going to see we saw some surprises this morning, but as you look forward, you know their ability to retain talent is is going to be difficult. Um. You see, these large money center banks that work in large cities have had a real workforce issue and as inflation is here. We you know, we all see it in the grocery store every day, paying ten more for chicken meats, you know,

the things that are on our table. Um, you're going to see wage inflation. You know at these institutions that's seven or eight percent. They have not dealt with that in many, many, many years. So um, you know, the their their margins are going to be under pressure. Notwithstanding that,

a yield curve is good for banks. But you look at companies like like Western Alliance, you know, who are trying to reinvent themselves in a way, you know, to address the new digital economy, which will which will help them. All right, Really appreciate your time today. Darryl Great, chairman Imagining Principle of Easterly Investment Partners, on the phone from Massachusetts.

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