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Us now after the bank swere a Michael Mayo as well, Mike, let me dovetail in technology into banking. You and I remember E. F. Hutton they didn't keep up in technology. A. G. Edwards, They didn't keep up in technology, and on and on. Which bank is leading in using potential AI and in using present technology?
Well, that's an easy first question, Tom that JP Morgan is the in video of banking. They're leading with AI. They have it centralized. They say that, you know, most of their employees use it every day to save a bit more productivity. They seem strategically and operationally ahead of the pack. They do spend a lot of money on technology than eighteen billion dollars this year on technology, and you know, the amount to AI continues to increase, so
they think it's real. They're embracing it, and it's you know, it starts more non cumfort facing activities. But they're certainly ahead of the game.
Mike Mayo with US folks. Howard Lutnik moving from eight fifteen to eight forty five Secretary of Commerce here in half an hour.
Paul Sweeney, Hey, Mike, when we came into this second Trump administration. One of the sectors that was really called out as if a potential beneficiary was the financial services industry, primarily from a perspective of maybe loosening of some of the restrictions on the big banks. What have we seen, what have we learned so far?
Well, yesterday was the first ever Better Reserve Conference to overhaul regulations, specifically capital rules, and I had the pleasure to present on one of the panels. I was back in Washington, d C. At the Federal Reserve Board for the first time in thirty three years. Wow, And I would say this was remarkable. This was at their headquarters building. In the front row was Chairman Pale and Vice Charevin Bowman taking notes all day on by different panels. By
the way, Sam Altman was the keynote speaker. And they're operating with eyes wide open to modernize bank regulation, to keep up with the times, update some stale parts of it, and to create a more level playing field with more transparency and a more holistic approach. I think that what are.
Some of the big items, Mike, that you think may be ripe for change.
Well, I think the capital rules. I mean, this is really there's an alphabet soup of acronyms. They overlap, they double counts. It's convoluted. So I think they can make it, you know, less complex, less convoluted. You know. In my opening slide yesterday, I said, thank you regulators for a great job you did after the global fancer crisis. But the rules are too confusing, too constraining, and too costly, and so to the extent that you can make them,
you know, less complex, that's important. The extent that you can make it less constraining. I mean, banks have been marginalized. I mean, as a percentage of total corporate loans, banks have gone from sixty percent down to forty percent. Loan growth to the last two years of justin for inflation's been negative, and you see a lot of the loan go to the shadow working industry. So those are some of the changes.
Mike Mayo with us here with Willis Farger, we continue with mister Mayo. We welcome all of you on your commute to crastination at home in the office our new distribution YouTube. Thank you so much for subscribing to Bloomberg Podcast Punk.
So, Mike, give us a sense of timing here. I know that, you know, the Jamie Diamonds of the world would like these rules kind of relaxed yesterday. Realistically, what's the timing here, Well.
This year is about updating the stress test. You saw that last month in terms of a little bit more clarity, a little bit more less harsh, i'd say, and the assumptions are already more harsh than the actual experience during the global pancer phrases. We're not talking about going back to two thousand and seven or those sorts of days.
So that's this year. I think next year there's international capital rules that's likely to get modified, and then by the year after that, I think you should start seeing efficiency benefits and this can be win win win. The regulators can win because you cost less money for the oversight. The banks can win for more profitability. But the customers can win because that profitabilities, you know, a bit of that's going to be passed on to them and they'll have more options mic mail.
On the banking front, you look at your major overweight view M and t up in Buffalo, maybe a bit of a caution there. Finally you get a hockey stick move in City Group, a really really nice move even after the ten to one reverse split of decades ago. Reaffirm your strung by on City Group.
Well, tom As, you know, I've been on your show a few times since last year. It was slow going, you know through parts of last year the tariff sell off, but City Group remained my dominant number one pick by a mile wife and I, well, look what's underappreciated. They've transitioned from fifty years of a global matrix missmashed structure YEP, to five lines of business payments, banking, markets, consumer and well.
And each one of those lines of business, you know, has a P and L. They have returns, they have targeted returns, and they have a CEO that's in charge of achieving those targeted returns. Now, you say, Jane Frazer, the CEO does not get a Nobel prize for doing that. But City is now getting operated more like a normal company, and they're only six quarters into this new structure. Short term people are selling the stock inappropriately due to the teriff.
City is a tariff beneficiary. They moved five train dollars of money every day around the world. Now it might be moving to different countries. Also, a lot of the customers around the world need trade financie they need more trade financee now or in exchange. So this really fits right into cities right, you know, structural positioning. While they make the structural.
Change, perceive it on price to book using the b Q screen on the Bloomberg, I got JP Morgan two point four to four price to book. City Groups really recovering from a Deutsche Bank disaster, if you will, folks out to point nine. So City Groups at point nine JP Mortgan is a two point four four Mike in your head? How much of that delta can City Group make up?
Well, they can. Look which my kids do I love more? And uh, you know, I notice the two stocks that have been on our firm signature picklist. So Jake Morgan's best in class, City's worst in class. So I do think that City can re rate on training below book value when it's not a crisis where they're making these sort of moves. Is a little unusual. So I think the stock has fifty percent upside over the next two and a half years to one hundred and fifty dollars.
And that's there's no analytical gymnastics were doing that. That's simply as City's returns go up from seven percent last year, and that's return on tangible equity to ten or eleven percent next year, and then higher after that. Mathematically you get higher stock ranks. So it's there's a line of site for the restructuring. And Tom, you know what you neique for any industry, any industry when you say there's restructuring. Okay, what's going to happen to revenues? Citi's revenues were up
eight percent year a year of the second quarter. Here with City have a unique story of restructuring with revenue growth, and that's unique for any company.
Paul, get one more in here with mister Mandie.
It's got to go work out exactly.
So are you doing an upper body or lower body today? Mike?
This is a lower body day. Thanks for asking, and I'm doing my deadlifts and squats and I'm still trying to push forward.
Michael Barni are as well.
Paul, get one more exactly. Hey, Michael, what did you take away from the Big Banks earnings last week?
This is an on inflection. This is an on ramp to double digit EPs growth after having negative year of year EPs growth for much the last year and a half and we see this double digit EPs growth for the next ten quarters the end of twenty twenty seven, so after that we'll see
Mike Man, thank you so much, with Wells Fargo there in City Group and also on the technology over two seventy Park Avenue