Surveillance: Bank Earnings Kick Off

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On Apple, Spotify and anywhere you get your podcasts, and always on Bloomberg dot Com, the Bloomberg Terminal, and the Bloomberg Business appich Nolly Boss has been parsing through the numbers listening to the call for JP Morgan because she can do everything at the same time, and I'm wondering if there are any larger takeaways before we dig into some of the details from these earnings that we can kind of draw a conclusion on with respect to the banks.

Yeah, there's one thing that JP Morgan says that I think is very important in terms of caution for the industry that is so excited that things aren't so bad today. And he says, these results benefit from our over earning on both net interest income and below normal credit costs.

What does that mean? Don't expect this to be normal? Per se?

He raised his net interest income at least three times.

There's a debate if it was a fourth time.

This year, and can you imagine to that many times say we're going to make more money, We're going to make more money. We're going to make more money, and we're going to make more money.

Here's the thing, there's a bigger takeaway here.

And John was asking this earlier, which is how much is this pr and basically saying, don't look at us. We're not expecting to make this money. It just keeps coming through the door. Or is this something that is some sort of tea leaf of what they expect to come and saying to regulators and saying to others, hey, it's not so great, we're not really making bank.

Is just sort of a quirk of the moment.

There is a little bit of balancing here.

Remember they are taking to Washington again soon in early December. You have the big banks that will be facing lawmakers at the beginning of their annual grilling. I love listening to this one because they are making pretty stunning profits in this environment. But you know, they can also say this is a US consumer, This is a good thing. Consumers want to borrow. They're still spending money. You are seeing some normalization. You think, look at City Group, the

They're going to really push back on potentially future bank capital requirements, aren't they when they come to Washington.

There's going to be two objectives.

From the banking perspective, they're going to be pushing back against those capital requirements. From the lawmaker's perspective, there's all sorts of other issues. Why aren't you lending to my constituents? Who want to buy a home. The housing market is still in dire straits in many places in the country.

There's going to be the constant.

Constant push pull on ESG matters, especially with this concern about energy security around the world. There's also going to be a lot of questions about headcount because besides for JP Morgan, most of these other banks are cutting jobs, not adding them.

One thing that you really should need to know about Washington when there's hearings like this is actually you think lawmakers in the room listening to every question, listening to every answer, they're actually not. They come in, it's very performative, they decide the point they want to make, potentially try to embarrass an executive, and then they leave.

Don't you just kind of want to go down there and buy them all a drink after? Like it is such a long day. But you know, speaking of long days, this that's us up for next week two, doesn't it, because we do have a Goldman, sax Bank of America, and Morgan Stanley starting to come in. Remember what's interesting a lot of money. Yes, the consumer's holding up the economically sensitive parts of the economy as you see it,

One thing that the JP Morgan CFO said on the call was that, as you mentioned, the full year net income guidance was up on as you mentioned Shnali slower reprice. Does this basically just mean that they are not passing it along as quickly as they thought they would be to depositors.

And this is where that big versus small question comes into play again. JP Morgan is not passing it on as meaningfully as some of the smaller banks, where you know, Jeffries in particular puts out this great chart about just how much deposits have repriced, because across the industry they certainly have, just not at the biggest of the big banks that don't need your deposits.

So at what point does that become some sort of rally and cry, If you're getting so much money, why don't you pass it along with some of your clients that you have.

At what point does.

That deposit beta play a role and really come under focus.

And it's also that question for consumers. Do you park your money at a JP Morgan where you know your money is safe, too big to fail, right, or do you park it at a smaller bank where there could be some more worries.

As we've seen earlier.

This year, the smaller banks are getting a bigger rate, a better rate on your deposits. But to your point too, this has been highly politicized. The bankers have been directly asked where is this money going if we're raising interest rates and you are not giving that money back.

To consumer, which raises a question of modest buybacks, and modest has been the word of the day. It's sort of, you know, something that we've seen as a theme and a lot of the banks.

How much are we going to see in terms of buybacks?

What will count as modest enough to satisfy investors and quell concerns by regulators.

It's a great question because the banking and investor story, I don't know that it's hinging necessarily on those buybacks. They just want the numbers themselves to get better. But

There's also a big theme, especially as we head toward Morgan Stanley Bank of America and Goldman Sachs next week, about why equity revenues, equity trading revenues disappointed and fixed income revenues beat. Do you have a sense of what was behind it? Is this a theme for the industry or is this an execution issue for both City Group as well as JP Morgan.

There's one big tell that shows you that this is a theme for the industry. You had three of the biggest investment banks in the world, Goldman's at JP Morgan and Morgan Stanley on the Birkenstock IPO and the IPO whift and so that is a really big.

Problem for the IPO market.

This lack of equity issuance, this real scarcity here makes it tough to keep equity trading live in terms of fees for the banks. But you know, a little inside baseball, that Goldman number versus Morgan Stanley.

Next week is the talk of the town.

Goldman has been leading on financing the big hedge funds and trying to win that business leverage while constraint is still alive and well, Chanelli.

Blasik, thank you so much.

We'll be catching up with you throughout next week and throughout the day ahead, and of course we're going to get those earnings from Bank of America as well as Morgan Stanley and Goldman Sacks next week.

Ken Leon a c if all right, Ken, you've gone through sacy what you might commit.

This was a good quarter. It shows that there's a progression of the restructuring, and yet some of their core franchises such as consumer and Treasury services are doing quite well. So I think on operational basis we would give them an we also for being courageous. Jane Fraser is moving ahead as discussed in terms of removing layers of management to reduce expense, and this is critical to get efficiency

Well, Ken, that's the problem. That's the question. Do they have a problem with expenses or with strategy.

I think the strategy is in place, and it does take time now to get the right people in place. That would be the management teams below the C suite or the first layer, so that they can execute on the strategy. We also are talking again, this could be a conversation in two quarters of a very highly efficient global bank as they paired off all of their non

Ken we saw JP Morgan just notch a record quarter of net interest income twenty two point nine billion dollars. They now see total full year net interest income of eighty eight and a.

Half billion dollars.

City Group also raise their expectation for their full year net interest income to forty seven point five billion dollars from forty six billion dollars.

Is the takeaway from some of these results.

That higher yields are now becoming a good thing for banks, a tailwind rather than a headwind.

So one scenario that hasn't been talked about, you know, with the Fed possibly what a rate pause, is that with rates staying high and if the banks can hold the line in terms of deposit costs, they can enjoy net interest income growth, particularly if there's loan growth. But one of the worries we have is that still twenty five to thirty percent of total deposits are still non interest, fearing that can certainly shift and go to higher deposit costs.

But Ken, we're not seeing it yet.

And this is something that a lot of people have pointed to that these deposits have been sticky, that it is such a pain in the butt to actually move all of your money from one place to another and rebank with an entirely new institution, that people just are not doing it. What makes you think that people are going to start doing it, especially if they do start investing in other assets and they haven't so far.

Well, we actually did see that again in Acid and wealth management down eight percent on deposits. But in the other areas, I think you're right, it's a little bit stickier. There's lots of reasons for small business or sometimes for consumers, you know, to keep those large balances and checking accounts.

Ken, I want to finish with a bondmark if we can something at least or not I've been talking about now for weeks.

Need lower yields or high yields.

A long long time ago, we'd catch up with people who would tell us forever that what they needed was yields, higher rates up because they can become more profitable off the back of it.

Can has that changed this year?

It really hasn't changed. But it's you know, for nen intra syncron, which is very different than the bond conversation, it's loan volume growth. I think for the bond market, it's really what happens in an investment grade that's so critical. Again, I want to see how many of these banks talk about getting to be balance sheet light, which means possibly partnering with private credit partners, given that they may have some portfolios that just don't make any more sense with higher rates.

So that means sunning off loans can Yes, it does interesting, Ken Leon Cfira, thank you sir for being with us this morning to break down JP Morgan. It's the perfect day to catch up with this man right here. Agia Denny, president of the Denny Research and ed. As I often say, but it's worth repeating the man who coined the phrase bond vigilantes. As you know me too well, you know the next question the bond vigilances backhead.

I think they are yes, because it's certainly one of the reasons that the bond yield has soared from just under four percent on July thirty first to over four and a half percent and a range only four and a half to five percent recently. If we look at the tenure the thirty years been higher. But supply clearly matters, and supply is a result of fiscal profligacy. It's you know, fiscal policy is out of control. Monetary policy has actually

And sometimes supply doesn't matter.

Typically an economic downturns, people will be willing to finance the deficit by treas rebonds with exceptionally low yields. And is this a situation that can be addressed with bad economic data? And what I mean by that is, will we buy this bond market where those auctions look better?

If this economy looks worse.

Well, for all the volatility we've had since the summer, I think we're fairly looking for a yield level at which the market will clear, and I think four and a half to five percent should do it. So I think some of this recent volatility, as long as it's range bound, is actually a good sign that the bond market figures this is a good yield relative to the

And I love that you said that you take out things that don't support your story because it's what everybody is doing. And you can take out whatever data that you want and support whatever story you want to write. A lot of people are looking at the volatility of the bond market, and you heard Michael Stowell yesterday talking about how something will break and that that will be something problematic for the market that the FED is going

I've been in the soft landing camp since early last year, and I characterized it as a rolling recession that's sitting in different sectors at different times, and something is breaking right now, and that's in the commercial real estate market. There's going to be a lot of things breaking in the commercial real estate market, and I think it's one of the reasons the FED is probably done raising interest rates because they realized that the bond market has been

Let's tie that together, because we heard from the Wells Fargo CEO is saying that they do expect commercial real estate losses to increase. They are expecting loan losses to increase, even though provisions are not necessarily increasing as much as people previously expected. Is your sense right now that we're seeing things just soften and that we're not going to actually see anything break in that basically it's all been priced in based on where we are in this cycle.

Yeah.

Well, I'm still in that rolling recession camp, and indeed, in some areas it's starting to look like a rolling recovery. I think in the retailing sector, for example, consumers may very well be coming back to buying some goods. The single family housing market looks like it's bottoming. But yeah, I still don't think we're going to have an economy wide recession going into next year. I think it's the economy's resilience is going to be proven to be with us,

Those boomers, not like Don Paranion out of the mh AS. Yeah, Danny, was that not the canary in a coal mine?

Well, look, I think that the retiring consumers are going out to restaurants, they're taking vacations more often, they're flying, they're using hotels, motels, and these are all the areas where where industries are very labor intensive, and I think it explains why the labor market's been so tight. It's very hard to have a recession with a record employment. I know, employments always at a record right before recessions, but it just keeps going going on. It just keeps

He's sound constructive at it's going to catch up, And John Denny, if you have any research. Let's turns to Greg Value, the chief US policy strategist at AGF Investments. Greg joins us. Now, Greg, wonderful to catch up with you. We have this phrase that we borrowed from a famous comedian in the United States in the last hour, Aren't you embarrassed? Is Washington embarrassed by the dysfunction this playing gap currently? Given what's happening in the world.

Well, we should be this City should be embarrassed. It's a clown show, it's a circus. And the serious part of the story, John, is that there are three big things that have to get done. One is, of course, a budget, and I think that November seventeenth deadline will slip. Maybe they'll do another extension, probably into next year. Number two, we really need more aid for Ukraine, they're starting to run low. And now a third story, of course, and

Greg, who can get to two seventeen within Republican caucus at this point?

You got me? I mean I thought that Scales would be likely. Jim Jordan isn't exactly mister personality. I'm not sure he's going to get there. So I am beginning to think they go for someone less well known. There's a House member from Minnesota, someone from Oklahoma. They may go for a fresh face who's not as badly damaged as some of these others are.

Democrats just as much to blame for this paralysis we're seeing in the House of Representatives.

A little. I mean, nobody's blamed a pox on both of their houses. But I would say that Hakeem Jeffries and others are valid in saying why should we bail them out? They want to impeach the president, that they've done a lot of things in the last year that have been inexcusable according to the Democrats, So I think they're not in any great rush to help them out.

For a long time, this stuff hasn't mattered. Does it matter out it does?

I mean, we need these loan packages, we need to get a budget. People worry about government benefits, their salaries, things like that. And there's one other factor, John that I think could come into the narrative once again, and that's the credit rating agencies like Fitch and S and P. I wouldn't be surprised if we see another credit rating downgrade on the US. And that's not a good story.

Every investors come on.

Whos said that there is absolutely no incentive to grapple with the real issues that are going to cause serious problems for the US economy and for the US deficit Medicare, medicaid, defense spending, and the other entitlement social security. How much do you see a greater willingness later this year or next year if interest payments start to significantly be the main expense of this country.

Well, you're speaking logically, and logic doesn't always apply, Lisa, I don't know that that will make a big difference.

You know.

The problem is that, you know, I go around the country, I talk to investors and ordinary people and they all say we have to reduce the deficit, and then I give them a list of options, and to everyone they say, no, these are not doable. These are not politically sellable to the voters. So we could have a national consensus that we need to do something on net borrowing costs, but there will not be a consensus on these specific prescriptions.

Nobody wants to take the poison to come along with the medicine. There's a question here, though, Greg, especially as we face off with a number of conflicts around the world where we have the US calling for more money and more resources to be deployed, whether it's Israel, whether it's Ukraine, whether that's going to mean more borrowing and

Maybe at some of these bond auctions. We've been talking about.

Two enormous wildcards that I think will determine the answer to your question. The first is could we see it movement by Hesbalah in the north that would be horrible to open up a second front. And secondly Iran, I think what once Hamas has dealt with, then they will be dealt with. I think the Iranians will be targeted for at least some kind of increased sanctions because of

We saw yesterday the administration come out along with Katari officials and say that Iran at this moment cannot act sass that six billion dollars that was unfrozen from the South Korean banks for the prisoner swap. Is this administration going to come under increased criticism for their strategy in Iran specifically.

Well, the Iranians are furious. The New York Times broke the story early early this morning, and I think This is going to be a big controversy, but they're not going to get that money. I think that is inconceivable. Considering all the political problems Joe Biden has, the last thing he needs is to give the Iranians six billion dollars.

Just a week and a half ago, Jake Sullivan greg said the Middle East was the quietest it's been in decades. Today we have Jamie Timon, a CEO of JP Morgan, coming out and saying the world is the most dangerous we've seen in decades. Is this administration going to face the consequences of what is going on in the foreign policy sphere come in November of next year, they may.

I mean, there are so many things, my lord, the fact that we're averaging eight thousand illegal immigrants a day coming into the US, we have big urban crime, average voters don't think inflation has been subdued. So yeah, I mean, this could be still another huge albatross for Joe Biden. He's in a difficult spot. I think that Blincoln is good. I think Sullivan's good. I think they may calm this thing down by the end of the year. But I think we got several really rocky weeks ahead.

Greg, doesn't look great. It really doesn't greg value of jeff investments.

Greg, Thank you, sir, joining us now, I'm pleased to say, is Congressman Mike laud a Republican from New York Congressman. Great to have you with us on the program, Sir. I'm sure this is immensely frustrating for you. A time for America to project power and at the moment, Washington d C seems to be projecting dysfunction.

How frustrated? Are you?

Pretty frustrated?

But you know, right behind the camera lens is the capital and I was just looking at it before the commercial break, and the sun is shining down on it. And we've been through tough times in this country and we.

Will get through it.

We will be meeting this morning to reconvene and begin the process anew to elect a speaker. We have to come together as a conference two hundred and seventeen to elect a Republican speaker in a Republican majority. The American people elected us to serve as a check in balance on the Biden administration, from spending to the border to

What can you do, Congressman, in the next twenty four hours to make sure that happens. There's a big issue right now for your party. Not only should this country be projecting power and solid aritory with Israel, your party also needs to demonstrate to this country that you can govern. Why is your party failing to do that?

Well, look what happened last week with the removal of Speaker Kevin McCarthy never should have happened. Eight Republicans teamed up with two hundred and eight Democrats, and I think people need to remember that both parties threw us into chaos here for no reason and it was totally unnecessary, unwarranted, and unjustified. And so now we're forced to pick a new speaker. This is not like just electing a class president. You actually need somebody who can do the job and

It's not just about who can do the job of speaker. It's about who can get two hundred and seventeen votes. A lot of your colleagues say they don't see anyone that can actually get to two seventeen. Do you know an individual that can get to that number.

Look, we're going to come back the room. We'll see who puts their name forward. I believe our strongest speaker is Kevin McCarthy. I said it this week, I said it last week, I said it the week before, I said it in January fifteen times. We're going to have to hash it out, and obviously there's some anger, some frustration, some hardened feelings in the room. But you know, if we need to bring a Festivus poll in and let everybody air their grievances.

So be it, but we have to get back to work.

Your district voted for President Joe Biden. Is it time for members like you to reach across the aisle and find a centrist speaker with the Democrats?

Well, respectfully, again, the Democrats helped create this mess. Everybody should remember that two hundred and eight Democrats voted to remove the speaker, and the American people elected a House Republican majorit to govern. So any deal with the Democrats would be to elect a Republican speaker. We need to exhaust all options within the conference, but ultimately as a nation, as a country, we need to get back to work.

And frankly, in.

My conversations with many of my Democratic colleagues, they regret their vote to remove Kevin McCarthy because they see the chaos that they've helped create.

But then the congressmen, to build on Emory's point, are you getting close, especially with your Democratic colleagues, to move towards some sort of centrist candidate to put up and then to be able to elect any bipartisan measure.

Look, right now we are meeting again today.

I think we owe it to the conference to continue the discussion, to see any other candidates that put their name forward, take a vote, see where it lands, and then take it from there.

Obviously, we want to.

Get back to work as expeditiously as possible and get back to governing.

That is why we're here. That is the focus.

The American people are not interested in inner party squabbles. They're not interested in the parlor game that often.

Goes on in this place.

There's real work that needs to get done and that has been and will continue to be my focus.

A lot of people talk about the former President Trump as being the front runner, and frankly the leader of the Republican Party. Who do you think is the leader of the Republican Party at a time when it desperately seems to need a leader.

Look, Kevin McCarthy was doing a phenomenal job as the highest ranking Republican official in Washington, and I think it was the single stupidest political act that I've ever seen to remove Kevin McCarthy as speaker. It undermined the majority, a torpedoed the work that we were doing. Uh And you know, I said earlier this week that he is our best player on the field and should have been should have remained a speaker, and you know, ideally would

This week you called in the Biden administration to start charter flights out of Israel. The State Department announced those flights yesterday. You have hundreds of constituents stuck in Israel. What are you hearing from them on the ground.

Well, there's a lot of frustration, a lot of angst, a lot of concern.

Uh. You know, people want to come home.

Many of my constituents were in Israel for the holidays, and you know, when the war broke out, and so obviously they want to get back to the United States.

I've been in.

Touch with the White House multiple times, State Department multiple times to try and expedite this process to get these folks home. I had called for chartered aircraft as well as military aircraft to try and expedite this process. We have nearly six hundred thousand American citizens in Israel, many of them dual citizens, but it's six hundred thousand Americans, and so you know, obviously anytime you're in a war zone,

A congressman, A lot of your constituents in the Jewish community, I'm sure here at home are on edge Hamas, which as you know, designated a terrorist group by the United States, also by the EU and the UK, calling for a day of rage today across the Muslim world, the mass protests against Israel. Congressmen, A, you're worried about the safety of your constituents and what are you doing to make sure they have the security they need.

I'm always concerned. You know, I have one of the largest Jewish communities in the country in the seventeenth Congressional District of New York. Unfortunately, you know, threats of violence against the Jewish people are not new, and so law enforcement in my communities across my district have always done a phenomenal job working with leaders in the Jewish community, working with municipal officials to really ramp up police presence at synagogues or you know, Jewish institutions to ensure that

A Congressman, thanks for being with us today.

Hopefully we can catch up again soon, Sir, Congressman Mike Laud of the Republican on the latest dysfunction in Washington.

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