Surveillance: Banks In Focus With CFRA's Leon

a period of normalcy. As it relates to help people think and live. As it relates to the economy, the stimulus is coming. That's going to help the consumer and small business probably will see that benefit by the second quarter UM. And again this rear mirror of COVID nineteen, we did see a reserve release of two point nine billion after building up to thirty three point eight billion.

That tells me that other than distressed industries and energy were in leisure, the economy has strong footing for twenty one. Banks are going to benefit from that. When Ms Bazik walked into the studio kenn Ley On, the first thing out of her mouth was give us scope and scale on that startling tangible number. That's enormous and it really speaks to um the build up of capital, for one thing, and the opportunity of return of capital with buyback and

dividends to shareholders. And banks are total return investments. So with yield and cash flow and that type of return UM, it's obviously going to you know, flow to investors. Can they sustain that, It's questionable, and certainly you want to be above certain regulated capital ratios, which they are, but certainly there's a chance to both invest in the business and to return capital the shareholders. That's a positive story for this year. We did not have that last year.

So just to refresh where we're at right now, JPMorgan shares a little change ahead of the open. They just reported earnings that blue way expectations with adjusted revenue in the fourth quarter, just to give you some size of scope here of thirty point two billion dollars versus he estimated a point seven billion dollars. There is a question of how long the trading boom can last ken especially as we see volatility dampened by fiscal and monetary policies.

Do you sense and they are the expectations that the debt trading and the equity chading revenues and beats will continue for we're in the risk on environment, which means that for both corporate issuers equity and debt, and also for investors it will continue certainly for the first half of this year. Earlier Alison mentioned about a more normal second half, but we are seeing acceleration in main street banking.

Non interest revenue in the fourth quarter was up nearly two billion, even though net interesting come with lower rates was down nine million. You continue that trend, we can keep capital markets kind of flat from a high level um and certainly the equity market does not reward bank stocks just for having the capital markets firing on all cylinders.

So I think it's really going to be back to traditional lending and how they're contending with getting the wallet chair from the consumer and business with fintech coming into the market. When you talk about traditional lending, can I'm looking at the fourth quarter provisions for credit losses that actually were more than expected at one point eight nine

billion versus the estimated one point three nine billion. Is there anything we can take away from this in terms of what they are seeing on the ground with consumers in the fourth quarter as the coronavirus pandemic continue to worsen. The only thing that I think still remains in the shadows is, you know, the related to mortgage payments and whether collections have improved or there's been either with state regulation, UM forgiveness in terms of payments for a period of time.

But when you go through the provisions and allowance for loan losses, UM, you know it's not alarming at all. And uh again, I'm actually seeing UM in the fourth quarter, UM somewhat of an improvement, you know with home lending. Home lending has been great, but also for new mortgage origination. UM. I don't see any risks with Carter Auto. And then it really gets back to the consumer with that narrative

of can they meet their monthly payments? Uh. I again see this more as a rear mirror issue unless there's going to be some surprise where both the economy and the consumer moved to a weaker position earlier this year. And I don't say that can hugely valuable kenth Leon where US was cfr A just greatly appreciated this morning. And again more bank earnings to come, not only here but in Europe as well. We have been getting a consensus on Wall Street the banks are the place to be.

Daniel Morris, BNP part about asset management, senior investment strategist joining us now based on what we're seeing, Daniel, do you see that that reflationary trade, that idea of banks being a sweet spot in one is still the right call um? We we do think so if we look at forward rates, assuming forward levels for fortenuer treasuries and markets looking for about one point three over the next year. So the important thing is is that's an upward trend.

Another key driver for value our performance has been what's happening with commodity prices, oil in particular, and there's probably still some upside there um. So it's something that we're watching. It's not going to be a multi year trend in the same way that you had growth out performing value for years and years, but now we think at least the momentum is still on the value side. Daniel, Thank you so much for joining today. In the middle of

bank earnings. I know it's inappropriate for a gentleman from a French bank to talk about American banking, so we'll leave that to Hinale here she massages city group earnings. Daniel Morris, how have you adjusted your view off of democratic president, a Democratic House, and a Democratic Senate. Well, it's it's a bit of plus and minus. On one hand, Certainly everyone is ratchet up their expectations for physical stimulus, and that's certainly what we're seeing, broadly speaking reflected in

treasury yields. It will be a question of how much UH President elect Biden is actually able to obtain relative to his initial proposal, but nonetheless it should be more then we thought would have been the case a month or so ago. At the same time, the market is pretty enthused about that. So actually we've reduced our allocation UH for equities from an overweight to neutral, just perhaps waiting for a better entry point. We all know there's

always going to be something upsetting that happens. At some point we'll have a pullback in the markets, and we think that's going to be the better time to go back, likely to an overweight position. Well, you know, it's like tina. I don't know how you spell tina in French, but we'll go with it. I mean, you need to pull back. When you get a pullback, people are massaging this outpast fourth of July. Daniel, that's a holiday in America. They're going out to July and into the summer. Do you

know when that pullbacks can occur? Well, the most likely trigger, at least of the of the risk that we're cognizant of, clearly it's going to be something around the pandemic. And unfortunately we have plenty of distressing news there. So at some point, if it accumulates sufficiently to the point where people start to rethink their forecast, either for earnings or for GDP, that could be something that would likely cause things to turn around, at least briefly. Daniel Moore is

too short of visit. We'll do this again. But we've got some interesting bank developments here for Global Wall Street. Mr Morris would the MP perry, but a busy, busy day. Not only are we getting the retail sales that came in highly disappointing, but banks have been reporting earnings. JP Morgan the leader when it comes to a top line earnings per share growth as well as the trading revenues. And yet there shares down one point four percent ahead

of the open. Wells Fargo shares tumbling after disappointing. Alison Williams tracking at all Blueberg Intelligence, senior banking analyst, and Allison, as you peruse all of the reports, what stands out to you? So before the reports we said we'd be looking for three key things trading and capital markets for momentum, interest income troughing, UH provisions peaking. So I think we got evidence again about that, oddly, but some differences across

the piers. I think the one key story that's developing across not just banks but financial services, as we saw black Rock yesterday, is higher spending. So JP Morgan had increased their estimates for investment spending at a December conference, they raise that again. They also do expect higher net interest income, so there's some offset there. Wells Fargo, everybody's been um watching the cost number. That's the big opportunity

over the next several years. Their guidance for costs is higher than consensus expected, while as their net interest income expectation is lower, So that's the negative um but again spending more on investments. UH City Group. We haven't seen the net interest income guidance, but their trading revenue did come in a little bit light fick worse that's their bigger business equities better UM. But again they're spending on costs not just for investments, but related to some of

their regulatory issues. And black Rock I referenced earlier stellar quarter. Yes, today great new business record assets, UM. But the fact that they said that they're going to be spending more on investments across a lot of different items UM, I think was a negative takeaway for investors. Allison, do we have too many big banks? Well, it feels it might feel like that on a day like today, but actually

the US banking system is still rather fragmented. So we do have these big banks, but we still have a number of smaller banks, and we do think that UM consolidation will be a continuing trend. I think it's it's interesting when you look across the banking system. If if we looked past, you know, multiple decades in the nineties, we saw tons of mergers, but we saw bank branches still growing, and that happened basically up until the crisis.

Since then, over the past decade or so, we start to see those branches come in and that's really the digital story. UM. You know, we we all talk about a lot of the acceleration and the digital story that we've seen during the pandemic, will that lead to a lesser branches? So again, supply not it's just about the number of banks, but about the number of actual branches. I mentioned this with this Bessic earlier, the idea the Bank of America was flat on their back and moining,

and clearly his turn Bank of America around. What does James Fraser need to do to do a mooint ahead? Well, the number one I think issue with City over the past decade and perhaps even the past two decades is operating leverage. And you know that's really been UM the focus of investors and I think where the disappointments have been. And again, if you take a very long term view in terms of how City Group was created, you know it was a lot of different entities brought together UM

after the financial crisis, UH corebat did. UM make efforts to simplify, but it still is such a more complex organization just in terms of UM the broad footprints. So they definitely slimmed down their businesses. UM. They divested the retail brokerage to Morgan Stanley, which has actually been a win for them. They've cut geographies, they've gotten simpler. So I think Jane really just needs to um continue that journey in terms of more simplification and then just really

getting the cost structure right. And I think that the regulators have sort of indicated that that's their frustration UM with a group just in terms of um, you know, the risk management and getting that sort of overview together Elison Williams and celebrating a new Bloomberg function m O d L. I really want to bring into your attention for those of you that are global Wall Street pros like JP Morgan, JPM Equity, m O d L is a whole new financial analysis with the leadership of Alison Williams.

You're gonna finish strong to sell. This is what our Control Room does well, team surveillance, wiring us up with Mr Rdholt. We're gonna do that right now. Of course it's wonderful podcast, longer conversations, harder conversations, masters in business, and of course occasionally buying stock. Barry, we got eight ways to go here. I want to get through this quickly because I think I've got to go to Europe.

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is really the poster child for just pure speculation. UM Tesla has some real great fundamental underlying technologies, but a lot of speculation in that, and then you work your way down, uh the speculative ladder. The problem with SPACs is that they follow Sturgeons law, which is everything is crap. So if you can get into UM Martin Franklin spack, or if you can get into UM A bill Acman spack, you the odds are tilted slightly in your favor. But look at how many SPACs came out last year and

how poorly they performed. You have to really be very selective. Are they by prospectives? Is this the fleecing of retail because they're not codified off of security Zack thirty three and thirty four. Well, it's a great back door around that. UM, we'll give us your money for a venture Uh to be determined later. Reminds a little bit of the Great South Sea bubble. Uh. And that's why you have to go to people with a track record who have done

this before. Hey, um, Social Capital that's done a number of home runs. You have to say, they seem to be really good at identifying things with with hidden value. On the other hand, who were there, like two hundred spacks last year? Uh? You know when everybody the genius of any of these new or or revamped asset classes is they identify a market inefficiency and the first few get to a profit from that, they find alpha. But when everybody else piles into the space, Hey, that inefficiency

gets arbitraged away and there's no more upside left. So it's like the old days when someone would find a little bit of gold and that stream. It was great for the first two panners. By the hundredth guy that shows up, it ain't nothing but pebbles and and fish poop. That is not how you make money in the markets. Consistently, very good, very We've got to leave it there with breaking news, very rittle, too short of visit. Look for his podcast out on Bloomberg. It is exceptionally strong Thanks

for listening to the Bloomberg Surveillance podcast. Subscribe and listen to interviews on Apple Podcasts, SoundCloud, or whichever podcast platform you prefer. I'm on Twitter at Tom Keene before the podcast. You can always catch us worldwide. I'm Bloomberg Radio