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Ken. What we're going to do is talk to Mike Mayo here with Wells Fargo. Mike Mayo is absolutely legendary in banking. He's one of the few people that Congress called upon in the Great Financial Crisis to say what in God's name is going on? And it has finally paid off his optimism on large cat banks in Europe and of course here in America, I have a charted city group with a ten for one reverse split cratering from you down and when and then it just forever
and finally a legitimate leg up. Let's start with that, Mike Mayo. Why is banking finally getting a leg up?
Well, the times they are a change in and you're sharing historic inflection in terms of the revenues, the earnings, and especially fifteen years of regulation going from a headwind to a tailwind. Now I'm not talking about going back to two thousand and six, two thousand and seven before
the global financial crisis. I'm talking about preserving the safety and soundness of the banks and eliminating a lot of red tape, and that can help banks operate at a lot of higher profit margins to help their stock raise.
Is it operational excellence or is it the gift of the yield curve?
You know, it's really more just operational streamlining because regulation has gotten so complex. Pull back that complexity and banks can perform better. But yes, you've had fifteen years of financial repression. Zero interest rates were disturbing to banks profitability. Now you're going back, just back to normal.
So talk to us about how you think the regulatory framework may change and what it can do to returns on equities.
For example, Well, I think the regulatory framework was vastly improved after the global financial crisis. Banks doubled capital, they double their liquidity, They de risked for their consumer customers. Remember all those subprime loans. They derisk their commercial customers. If anything, banks have been marginalized to the benefit of the non bank. So a lot of the more risky stuff is going outside the bank industry. So I would say, great job regulators from the year you know, twenty ten
through it's called twenty fifteen. But the last decade you had complexity. Pile on top of complexity, the living will, the FED stress test. JP Morgan submits eighty thousand pages for each and you know, I talked to the ex vice chairman of the fdiic has said he didn't understand it when he reviewed it, and nor did a lot of the banks. So it's a lot of wasted money.
So I think you can save a lot of money on expenses at the banks, at the regulatory agencies, and I think some of that gets passed on to the customers. And also banks deserve to have a level playing field when it comes to how much capital they have, So compute those capital ratios the same way you do for everybody else, and the numbers go up by quite a bit. So this could improve banking returns by two hundred basis
points over a few years. That's significant, and that can propel a bank stock rally over a few years.
So are there certain banks that are better positioned in this type of environment or is this a blanket call on us financials?
Well, a rising tide does lift all ships. JP Morgan remains best in class Globile Bank. But my favorite, number one, number two, and number three favorite is City Group. I was on your show not to you know last year, and it's moved, it's starting to move but it's still that my dominant number one pick. It's a new era for banking, but it's also a new era for city group.
I've got a chart normalize. We're going to talk about this, folks with Mike Mayo. You're well as Fargo as we go into the next half. For I got a chart normalized. Back with the day Lehman collapse, I think I maybe talked to you that day. Remember I got a JP Morgan moonshot. When you say banks are going to do well, are they catching up with JP Morgan or is it all boats rising even for JP Morgan.
I'd say both. So I think the lesser bank will narrow the gap with JP Morgan for sure. But at the same time, JP Morgan should continue to image what a bank generating over twenty percent returns on fifteen percent capital with some best in class efficiency.
Mike Mayo with this, So I got JP Morgan, you know clearly way ahead. Three hundred and seventeen thousand employees is the working number we've got in the des screen. You know, there's all this, you know the stuff Schinelli basic talks about, all this, OMG, who's going to take over for Jamie? Does that Germane to you is like, is that part of your analysis of JP Morgan or do you just ignore the people moving around and just look at the financials the execution?
Well, I think good Jamie Diamond. I asked him this question at last earning cast, said Jamie, who's your successor? And he didn't give much of an answer.
And he's still doing that for ten years.
Well, then I finally said, so are you going to be around for a few more years? He said yes, So I think when you have this many moving parts, Jamie's not going anywhere in the immediate term. Having said that, there's a deep bench at JP Morgan. It could be a number of three or four different people. Marion Lake certainly is the name that comes to the four investors knowers. She telled a lot of positions. But if Jamie stays on for several years, it's you. We'll see what happens.
I'll say this, Yeah, I'm not. A couple of years ago, I downgraded JP Morgan when they were spending all kinds of money without telling us why they were spending and everything else, and I upgraded it made it my number one pick. After the failures from a couple of years ago. But not one investor that I've spoken with, and I've traveled a lot the last month, last two months, not one investor that I've spoken with wants Jamie Diamond to leave.
So people want Jamie Diamond to stay right now, and so I think he should get that message and stay. And look, he'd been playing for this moment. I caught reregulation, not deregulation, reregulation, making more common sense regulation. And he's gonna benefit. Japen Morgan's gonna benefit. Why leave now? He's been waiting for the to go to the ballgame your whole professional career. You're finally getting there. You're not gonna leave before the first home City.
I'm a former employee there at City, and when I worked there, I felt like there's not a piece of business we couldn't win. What happened to City? And why is it now your number one pick?
Well, look what's compared to the time you work there. There was a dramatic shift last year that's underappreciated by almost everybody. They went from five decades of this global matrix management structure that nobody understood, and now they have five lines of business. They have payments, banking, markets, wealth and consumer. When they have a CEO in charge of each, they have return targets for each, they have accountability for
each one of those five lines of business. That's what you're playing for for the next five to ten years. But at the same time, they're at that flection point of the J curve. You invest money and your profits go down. They're turning up on the other side of that J curve where those investments start to pay off and they start spending less. So you're gonna see twice or maybe three times better efficiency improvement at City Group and return improvement at City Group than the other banks.
And by the way, they're passing this magical line where they have single digit returns to double digit returns. When you do that, you go from value destruction to value creation. That is the number one biggest driver of bank stock performance. It's the number one big bank stock performer so far this year. I think it'll be the top performer by the end of the year.
Michael Meyo with us there on City Group and we'll continue. He is, of course large cap bank research at Wells Fargo. Fairly to say, legendary industry. Also very cut and chiseled yep. You know, he's like, you know, he said to me, Tom, you got to hit the weights again, Jim Tomlin. You know he's like time getting the gym.
Thank you, Mike Maya on your City group pick. I'm fascinating by this now it's all coming back to me. I walked out the out of the door of City after a few years, sold all my stock literally on the day I walked out the door.
Very cool.
In January of two, two thousand. Jane Fraser, she's I think she's got a pretty good message for the street. How is she different from other CEOs at city who have also promised change and to clean things up in the streamline things.
Oh boy, you're triggering me right now. I think of the other CEOs. If he goes back, Tom Kane probably remembers Walter Wriston, right, countries don't go pro My father.
Knew him personally. They used to talk farms in all he worshiped Walter Wriston and then it ended.
Yeah, lending, let's lend. You know, Latin American countries will pay us back. They did in nineteen eighty seven you had big charges and then you had John Reid back in the early nineties, he had the Saudi print, had you pump it up with capital, and then you had the whole Sandy Wild era one leader. And then you had long term capital with the problems, and I called that Noah's Ark because they brought two of everybody along
with the beat mergers with travelers. And then you had Victim Pandit, which first you had Chuck Prince the lawyer, and that remember he's gonna keep dancing till the music stops, and that that ended very stop, and then the music stopped and basic they effectively failed and the government bailed them out. And then you have Victim Pandit, which was kind of there. And then you had this guy Mike Corbett, who didn't change the strategy at all, and through it all,
I'd say city was very arrogant, very arrogant. Jane Fraser gets there and says, you know what, we have a lot of problems. We have a lot of things to fix. The first step is to recognize that you have a problem. And it's taken a little bit longer than some people would have liked. I understand that, and the expensives are a lot higher than they should have been. But recognizing a problem then last year, everyone said City's going to
mess up up three concurrent initiatives. One is this org simplification. They went from the five decades of matrix structure, five lines of business. They eliminated five management layers. They told all the employees you're going to have to manage more people's It was gut wrenching, and they fired some people and that's always tough. And then you have there divesting, you know, over a dozen consumer operations and a dozen countries outside the US, and then they have this transformation
in the back office. They're doing this all at once, and everybody says city is going to implode. Well, guess what. Last year City medics efficiency targets. They beat, their revenue targets they met And so going through those major changes and people saying, what's the proof, what's the evidence? Look at the results last year and they're guidance three years in a row. They're now guiding if you believe them, revenue is going higher and expenses going lower. So you're
at that huge inflection point now. So they're recognized and they have a problem. They don't have that same degree of arrogance. They have the ability, they have the capability They're in one hundred countries. So if you're global, multi national corporation, you want to do payments or global investment banking, you got it. Their top three and credit cards to the franchise, a new strategy and Jane Frasier as the ultimate architect of where city groups should be the next decade.
You are more qualified on this than anybody I know on the sales side. You know the great group of sales side analysts that are out there. Jamie Diamond this weekend was a Talk of the Weekend with some tape that was, you know, out of JP Morgan and that Mike Mayo on Work from Home.
I loved the Jamie Diamond video and the audio that got leaped out to the press, and that's vintage Jamie Diamond.
Is I agree with that.
He just said he's going to say what he thinks, and he says, if you don't like it, don't work at JP Morgan. We want you to work at JP Morgan, but if you you need to work in the office so you can mentor people and everything else. And for JP Morgan and Jamie Diamond, that works and that's their strategy.
Correct. When you saw when you were at credit Sweee. You at mentors as you built your career. You went from you know with the day you got candidate credit Sweez. I think I spoke to you that day or the day after. Whatever. The answer is, you need mentors, Mike Mayo and work from home. Talk to the kids right now.
But I'd also say it's not one size fits all either. Okay. So there's different departments at different.
Banks, different departments, but come on.
Differ different departments, different banks. I will say though Jamie Diamond and JP Morgan, it's worked for them. They came back early during the pandemic. Goldman Sachs. That was actually my first meeting at Goldman Sachs. I wasn't going to go in and my wife's a doctor, as you know, and she says, no, you're going in to meet with them in person, okay. And and I went to Goldman Sachs and I'm telling you, they have this middle area where you have to transfer to the upper floors, and
it was almost packed. And this was at a time no one was going back to work. So the JP Morgan and Goldman Sachs they had all their not all they are so many employees back early and look at the most successful. But it's not one size fits all. So if if City Group decides they're going to allow some people to work remotely, that might be a competitive advantage in hiring certain people. So I saying I get it. Well, just sometimes you can get great people if you make
some accommodation. So Jamie Diamond is not of that.
You know, we got Lisa Mateo.
I mean that's the way I actually Okay, you might talk to us about Bank of America again, former employee, thank you through Merrill Lynch, I've worked pretty much.
Every work to us.
Are the Bank of America story? Sometimes I g's lost a little bit between the Jamie Diamond talk and maybe the turnaround at City. What's what's the story at Bank of America.
Look, we have three words that sum up the largest banks. That is Goliath is winning. Okay, okay, scale is making more difference in banking than ever before in the history.
Why don't you tell the European regulators that, I mean, because we've they've.
Lost, They've lost, absolutely lost. The five biggest US capital market players Bank America, JP Morgan, Golden Morgan, stan Goldman, Morgan, Stanley, uh and uh Baba Yep. They've gained market sharing capital markets since the global financial crisis, you know, in spades, and I think they'll continue to do so. And you're like talk about twice or three or JP Morgan four times larger than the European bank peers. And by the way, this whole idea that US banks should not merge, that's
like the Brian moynihan or Jamie Diamond Protection Act. Why do you want to protect them? You should have more large banks PNC. Bill Dempchek talks about wanting to have another trillion dollar bank. He would like to be that, but the unintended consequence of regulation. For the last time, thirty.
Seconds, Do you have a regional right now you would own around that Mike Mayo theory? Do you have a regional that could be mergeable with the people from Pittsburgh with their beautiful baseball park.
Look, if you want to name it own, it's city group. It's city group. It's city group. I don't want to dilute that call. Let we're weaving all portfolio limits, okay, but it's it's really city group. And then look and JP Morgan Bank America. Those are the three goliath They benefit.
You're not took down.
And you know, look, P and C is a quality bank in the national main street Bank. They're the thirty largest cities. They have a ten year runway bill Demcheck is an exceptional CEO, and they should have revenues growing far past the expenses. And they'll benefit from the rising tie of lists all ships. But again for me, it's City Group, City Group, City Group as my primary recommendation.
Thank you so much. He's with Wells Fargo.
Folks,