Earnings Begin | Bloomberg Surveillance 01/13/2023
This whole episode will turn out to be transitory, but the recent lies transitory, it is because the Fed reacted. The Fed is a risk manager. I think they need to stop. But this is a war that they won and they're in danger of tipping the economy into recession. I think making the fiscal problem worse is the prevailing view now. And I think it's right that we're heading lower inflation and we've seen a peak.
Inflation has a number of parts to it. John Williams talks about the inflation onion with that and the good news on the outer shelves. This is Bloomberg Surveillance with Tom Keene, Jonathan Ferro and Lisa Abramowicz. Earning season begins right now. Live from New York City for our audience worldwide.
Good morning. Good morning. This is Bloomberg Surveillance on TV and radio alongside Tom Keene ISE Jonathan Ferro. Equity futures down about a tenth of 1 per percent on the S&P this hour. Looking to hear from Bank of America in the next couple of hours from Goldman. Perhaps a little bit later next week, Tolman, then J.P. Morgan later this morning as well.
T.K., can you keep up? Well, yeah, can keep up. Why you think I'm not here? Happy Friday to you to know the answer is yes. I think it's going to be interesting to see. It's always interesting, but ever more
so with what we've seen and the inflation dynamic, how the banks deal with that, how it does with their traditional banking and also what they do and the answers they're going to do exactly one thing. Here in Davos and after Davos, they're going to cut costs. The recession took the recession took Tom Tesla. So we stand there like eight ways I started.
It's a busy Friday right there. It's 20 percent price cut us. And in Europe, Dick Berner was a giant at Morgan Stanley. And we once had dinner. And he and I walked through what fixed costs and variable costs due to a company.
I would suggest an automobile company, whether it's run out of a Twitter headquarters or not, is a massively fixed cost business. When you cut 20 percent in pricing, revenue is unit in pricing, you need a real unit makeup to cover any of your marginal fixed costs change. What is that volume come from China reopening Europe? Is it that or is it the new competition in the VS? You know, I sit there and I watch that uses of New York City drive by and not all of them are Tesla's piece in the performance of the airlines so far.
Yet today. Yeah, I went through the numbers overnight. Tom United up 36 percent. This is eight trading days. American up 32. JetBlue up 25. Down to up twenty point five percent. These are major gains in one of our guests said a zero, a huge repositioning going on. And the repositioning is not only there in equities and we'll talk a lot about that today, red and green on the screen, but also in foreign exchange, people here that are not focused on the nuances of 20 or 30 different pairs, which you can do in the Bloomberg.
There are some real tangible movement. I did not expect in foreign. Well, let's talk about a dollar is collapsing. Can we be clear about that? The dollar peak at the end of September, down by more than 10 per cent since then. The yen stronger again this morning. But dollar yen go from 150 to 130. We've had cable go from one to 350 through 120. And Euro dollar Tom, we were talking about 95.
Now we're staring down the barrel of one Satya Nadella. Let's dive into this now because we've got a bank extravaganza coming up for global Wall Street this morning, folks. A linkage here of economics and finance trying to get out front of 2023. And I would use this word respectfully is the unraveling of Japan. I went back and looked at a very careful regression study of why C, yield curve control.
And they're now they're not all three or four standard deviation. John, my mathematics is there out over six standard deviations off the hope and prayer of yield curve control two years ago. The yield has come up. It's breached through their collar, if you will, and you see it in strong. Does that get dropped next week? That's a massive question for us. Citigroup's we're going into that BMJ meeting the threshold 50 basis points. The T case point went through it in the
last trading day. Let's get some price action. Equity futures on the S&P 500 look a little something like this when negative, not even a tenth of 1 percent. Looking for numbers from JP Morgan and from Bank of America a little bit later this morning. You know, to higher by single basis point, your tenure, 345 22 Eurodollar want to wait 39 euro dollar right now negative a tenth of 1 per cent. Joining us now is Katrina Dudley, portfolio manager and research analyst at Franklin Mutual Surfaces. Can we get straight to you, Katrina, on
just what you expect from the bank earnings a little bit later this morning? Well, I think what we're looking for, the bank earnings is really that arbiter of whether or not we're going into a recession, because I think they're going to be the first line of defense here and the first people to see it. So we're looking closely at J.P. Morgan when it comes out and to see what Jamie has to say about where we are in the economic cycle. Look, Katrina, the economic cycle and I would suggest in nine days has changed, and for a portfolio manager with all the sell side advice, you've got your internal wonderful advisors who Franklin Mutual. Have you not radically adjusted, but have you? Is there a change agent within a given portfolio? Because we've gone from December 20th to what we hope will be January 20th, where a value manager. So we do not make those very, very significant shifts.
The only reason you're not shifting on the inflation dynamic now as a value manager. No. In terms of the inflation, we continue to see the Fed working and bringing it down. The question is and that's the question we've been talking about all over 2022 is whether or not the Fed engineers too much of a recession or whether or not they walk that tight rope of slowing down the economy to slow down inflation without tipping us into a deep recession. We continue to be at the position that if we do go into a recession, it will be a mild one.
And I think we're seeing all the signs of a very mild recession. And that has very good implications for companies because it's manageable. A deep recession is really difficult to manage as you talk about that fixed versus variable cost curve. We think a mild recession companies can muddle through. So on a value basis, where which sectors
do you find the best dynamics to surprise into, say, June or July? In terms of surprise, one area we're looking at is the industrial sector. ISE. I think that when we're talking about industrials, we're not talking about as much the autos that you're talking about with Tesla. And we are aware of what happened there
yesterday out this morning. We are now looking at industrial companies well-placed and they have this really good secular theme that we're focused on. It see electrification, it's industry 4.0, it's the Inflation Reduction Act. Those things will be structural drivers.
And we're just making sure that these companies have enough wherewithal to through 2023. We think the order books are very, very strong. The backlogs are very high levels. And we think that the variable costs are rising ranges and any other type of inflation is really manageable. These industrial companies are areas that we like. Katrina, where did the miners fit into this? We caught up with the guest a little bit earlier this week, Chris, for owners to take us Rio absolutely rapidly like Rio, BHP, Glencore. Where are you guys on those names?
We do own a position in Rio and we which we disclose that and we like that the asset quality that we have there. But you're right, those type of names have gone up substantially, which makes the valuation case a lot harder than it was just a few months ago. But as a value manager, we're looking at where are they positioned in the commodity complex. And we're trying to make sure that we've got that really good combination of companies that while they are dependent on commodity prices, they have a lot of things that they can do internally that will drive earnings in addition to realizing the benefits of the commodity cost moves both both up and down.
Katrina, can you just go a little bit further, though? You said it's important where they are exposed in the commodity complex. Where do you want them exposed? And why do you want them not exposed? I think that we can look at something like the copper market, which people are very much structurally bullish on. We're seeing some signs that actually that's coming into balance. And what does that mean is you're likely to have some level of pressure on prices. That balance is okay. It's when we have oversupply that we
need to be cautious about. So they're the type of markets that you want to avoid. And so from our perspective, we just push them to the side and we focus on those type of commodities where we have these either iron ore exposure and we have copper exposure and various metals where we're very comfortable with that supply demand dynamic.
And Rio has that, that's for sure. Katrina, thank you. Katrina, Dante there, frankly. Mitchell series looking ahead to the earnings later this hour. And over the next week as well. Let's get straight to Sonali Basak just on a headline across the Bloomberg just moments ago from Goldman Schneider. Good morning. That was unexpected. We've expected them to restate earnings here for the last nine months than first nine months of 2022.
And it's because they're reorganizing these businesses and they're going to report earnings on Tuesday. We have some details now of that reorganization, what it looks like inside. And you have a one point two billion dollar loss here for that platform solutions business where the consumer businesses are rolled into now over two years, really from the beginning of 2021 through the first nine months of last year. You have two point two billion dollars lost in that business. Now, that gives you a lot of context into how things are going there during this reorganization as he pivots what he was trying to do with the consumer. Because remember, out of the new
business lines that have been announced, it is really the. Money losing business over at Goldman Sachs, Goldman reporting. Next, we begin. Thanks, American J.P. Morgan this morning. A whole host of banks today all at once.
Natalie, what are you looking for? Well, one of the things even at Goldman, a lot of those losses are coming from provisioning for loan losses as well. In addition to expenses. So when we look over at J.P. Morgan, two billion are expected in provisions. Does that start to worsen throughout the year? We already know they're going to beat our net interest income relative to their initial guidance, similar for expenses. But they've already said that cards are going to start to moderate. Mortgages are still under pressure. So consumer businesses, remember, last
year did much worse than the investment banks, which is not always typical for what you see in an environment like this. You were talking about rates earlier, Tom. That is a huge boon for the banks. They've made a lot of money. They're going to be making more money. You know, I look at this, folks, and this is what's called a K, and the answer is it's a nothing burger except for one single block of data. And that is with this clown. This clown is free. What was platform systems?
What is the solution? Take it up with David Solomon. What? It sounds like McKinsey made it up at a cocktail party at Davos. What is platform solutions? Platform Solutions is where a lot of these direct to consumer businesses are going into, as well as this other business, which is now much smaller transaction banking. This is one of the worst paragraphs I've ever seen. The rest of it's a complete nothing burger. It's just a bunch of McKinsey man managed to change stuff as Mr Salmond's job at risk.
It's year five. It's hard to say. I'm looking at a vector trend here. There's there's no but I mean, just in one provision for credit losses was just just one line item 167, 310, 465. It's the trend line Matt Miller set on legs on this one paragraph in here.
Let me set up the stakes for you, for him for a minute here, because you have his Investor Day at the end of February. I think that's when the heat really starts to get on him. Once you get to next week, a few things to ask yourself. Tuesday, Morgan Stanley and Goldman are reporting neck and neck. How much savings does he have of these Goldman Sachs cuts of the last week? He has that.
He is there. He has some leverage there. And the question is, remember, some of those cuts are not even from this consumer business. About a third through are coming from the traditional businesses, which again, are making money. So the competitive dynamic going into next week, we've got to keep an eye on now the awesome going to be with us through the breaking down some of these numbers.
Bank of America, JP Morgan numbers. Still to come this morning, getting into all of that equity features negative about a tenth of 1 percent on a S&P 500 life from New York City as we close out the trading week and kickoff earnings on Wall Street. And this is pulling back. Keeping you up to date with news from around the world with the first word. I'm Lisa Matteo. In Germany, the economy probably stagnated in the fourth quarter. That's easing fears that the war in Ukraine and inflation have triggered a recession for the year.
GDP rose one point nine percent just ahead of the estimate. In a Bloomberg survey, meanwhile, the U.K. economy may avoid a recession for now. GROSS domestic product unexpectedly rose one tenth of a percent in November. The reason consumers kept spending through the worst costs of living squeeze in memory.
The new numbers would strengthen the case for a higher interest rate hikes. President Biden's handling of classified documents erupted into a political crisis with potential legal repercussions. A special counsel has been named to investigate. Meanwhile, the White House has confirmed that a second set of documents was found in a garage storage area in the president's home in Delaware.
Tesla slashing prices in the U.S. and major European markets after several quarters of disappointing deliveries. The electric car maker lowered the costs of its cheapest model Y by 20 percent. Buyers can save as much as twenty one thousand dollars on Tesla's most expensive vehicles.
And the only child of Elvis Presley has died. Lisa Marie Presley had been rushed to a hospital in a Los Angeles suburb Thursday after suffering cardiac arrest. She was a singer who earlier this week appeared at Graceland, the mansion where Elvis lived in Memphis, Tennessee. Lisa Marie Presley was 54. Global news 24 hours a day on air and on Bloomberg Quicktake, powered by more than twenty seven hundred journalists and analysts and more than 120 countries.
I'm Lisa Mateo. This is Bloomberg. We take this very seriously. The president takes this very seriously. He was not aware that the records were there. He does not know what is in the documents.
Again, classified information, classified documents. He takes very seriously when they were discovered. And this is the right thing to do, right. His lawyers reached out immediately to the archives.
The president finding himself in a little bit of hot water. That was Cary Jump here at the White House press secretary live from New York. In the next couple of hours, our attention switches to annex in America. I'm Wall Street's Citi Bank of America. JP Morgan all coming in the next couple of hours. Covid into equity futures totally unchanged on a S&P 500 three day winning streak on the S&P. And would you believe it? The three day winning streak on the S&P longest winning streak since early November. Now it's for T.K.
has been that long. Yields are up by basis points. I'm feeling 345, 40. This is important. It's a new feeling out there, John. And I think the gloom crew has been silenced. They reaffirmed their gloom and the optimists are going well. This happened fast. How about that? And yet some from 433 Soper down something like 90 basis points. I did a very careful study today of the
trend. The two year yield and I can't say yet it's broken down. I mean, other technician types can say that, but I can't get there yet. But it's made some real headway with DAX 30 basis points. And yes, so far the front end to Stearns comes in negative sixty seven basis point. Right now she's outside a Corvette dealership in Annmarie Horden Dow Jones US Bloomberg Washington correspondent Emery, do we have a clue what documents were next to the Corvette in the garage besides how to change the oil? We do not know. There's a lot of questions that remain
unanswered with this unclassified documents story regarding the Biden administration. What we do know is that there was unclassified. There were classified documents that should have not left the White House at the Biden Washington office that he used after his vice president. And then, of course, at his house in Wilmington, Delaware, in the garage, which is if you missed it yesterday, the president was asked why he kept these documents next to his Corvette. And he, you know, made a quip that has basically gone viral.
And I'm not sure it really helps his case saying that. Well, by the way, my Corvette is locked up, insinuating that the documents would have been safe if they were in a locked garage. But there's a lot of questions. And the White House really wants to make sure that they are not giving details on this and just leaving it to the attorney general who now has made announce a special prosecutor, Roger. Right, Richard Herr. And he is going to be the one that is in charge of this. So the timing isn't great, though, for
the Biden administration. He potentially was going to make a run, announce his campaign for 2024. Well, give us some famous John, you've heard about this, the famous hoarder and distraction measure. It's a very important meter. How much of a district uses for Democrats in Washington? Is it a kerfuffle or is it something tangible? So at first it looked like an isolated incident that maybe was minor and they can move past it. But then you had the revelation of second documents, which first was reported by NBC News and then the White House came out with a statement.
This is the second time that a news organization came out about the statements. First it was CBS and then the White House followed with a statement about the documents. Excuse me. So this is a lot of questions to the White House about why didn't they disclose it to the public in statements before it was scooped by news agencies? That's for one. And the second is when they came out and just talked about the disclosure of the first batch of documents at his office, why didn't they talk about the fact that there was a second set of documents at his house? So now this has become much more a different difficult political story in Washington, D.C., especially the fact that there is also another special
counsel that is investigating the former president. And Biden has made very clear that what he thought what Trump did was completely reckless. And while there's very different facts and really just how this has kind of unfolded in terms of the Biden administration is working with the lawyers, the National Archives and the attorney general, which we did not see with the Trump administration for basically over a year. The fact is, politically, this is going to muddy the waters. It makes us talk about policy, if we can. Is anything on the agenda as we kick off
the. While on the agenda for the by the administration is really going to be foreign policy. And that's going to be on full display today when the Japanese prime minister comes into town for policy domestically. It's going to be very difficult, right?
You rarely see House Republicans moving forward with bills that will never, ever get a say on the Senate floor because the Democrats control the Senate. So gridlock completely in Washington, unless it's those must pass bills, which we've already talked about, are going to come down to big fights. Dan in Washington, Amari, thank you as always. Tom Verni is coming through this morning. Let's kick things off with BlackRock for you. We start with a P.S. for the fourth quarter.
I'll get to that important a um, no. It's well over a BlackRock adjusted EPS 890 three. The estimate, eight dollars an eight cents at, um, eight point five. Nine trillion. Yes, that's a T trillion. The estimate, eight point three, eight trillion. Hearing from the CEO Larry Fink flows positive across each of our three regions.
The restructuring charged, Tom, 91 million dollars from job cuts. I think we might see a lot of that across the industry. The BlackRock presence, ISE and clarity, they've got a beautiful presentation, 15 pages that they come out with. And the answer is you take 91 million and you divide it maybe over 90 days by four point three billion. So it's 91 divided by 4300. It's a you know, is it a rounding error?
No. But, you know, they're probably spending as much on coffee in their food courts if they're still buying coffee for their employees. I see your point. Cost discipline is not going to be a feature of this quarter. They love it. I mean, I mean, you know, I wish we had Brian Moynihan here, too, you know, to sit in with us today.
Lisa's on assignment. But the answer is, yes, they are. They're genetically linked to cost cutting. That is the solution at all costs. The story in just the last couple of days, Tom BlackRock plans to cut 500 jobs in the first retrenchment since 2019. It's been a while.
I think to the point, the government cuts we were talking about as well. I think Shery Ahn has done a decent job there. Sonali Basak as well, just indicating that some through the pandemic, the cuts that were usually made, typically made, weren't made. And now they're all being made at once. Yeah. And I'm in the camp where they're using this is that's 2.5 percent of their workforce is published by Bloomberg. See this folks on the description
screen. You claimed your screen. And John, I defer to say Paul Sweeney, who I think is way more knowledgeable about this than I am. Helping me at 9 a.m. on Bloomberg Radio Empire would tell you 2 3 4 percent is normal.
And if you go to a percentage, cut it. Bank of America, whenever a bank that's tussle like or Salesforce like, that's a different story. Are we going to see that in the earnings season here starting in this hour? I'm not sure. Do we get the Mike Wilson of Morgan Stanley kind of earnings season that he expects and banking I beyond in retail? You don't think we will in banking, but in tech? I think they're in process right now. Maybe they've gotten in front of that. It'll kind of financial statements. But. But I you know, let's remember, John, if they let 42 people go and mortgage finance or whatever is flat on its back, they're probably higher.
And 45 people to code computers. You know, when they're not at the monkey bar having lunch. To be clear, it might be easier to get some of those coders. You want some of those engineers from those tech firms. If you're one of those big banks on Wall Street because you asked for absolute over the last time, what does that? These rooms are letting up. As you mentioned, the tech firms didn't lay off in the pandemic, nor did anyone else.
Who are the tech firms laying off is a big question. Are we done with that? Amazon went into the pandemic with 800000 employees, came out the other side, some pushing one point five million, one point six. And those numbers over 2, 3 years, monstrous. I can't believe how comfortable we've
all got with it. Kind of just gloss over the numbers. To me, there's got some 800 K and W workforce in 2 3 years just to pick on Amazon in the conference call. How will the verbal the speed of change that they're doing with those big warehouses across this country, which, you know, as a generalization, they overbuild. It goes to what we talked about with Goldman Sachs and Sonali Basak and Shery Ahn Rajat Nails in a story this morning. This isn't about losses at the consumer experiment of Goldman Sachs. It's the rate of change is moving in the wrong direction. February 3rd for Amazon, if anyone's
interested. Today, we're going to get numbers from the JP Morgan and Bank of America up next week. We're here from Morgan Stanley Funds and Goldman Sachs as well. Your equity market just a little softer than a tenth of one per cent on the S&P 500. In the next 60 minutes or so.
You'll hear from BFA and from JP Morgan City coming up a little bit later this morning. Getting some earnings a little bit later this morning, waiting for Bank of America. Then on to JP Morgan and to Citi as well. Equity futures coming into it down about
two tenths of 1 percent on the S&P 500 coming off the back of a three day winning streak. S&P as a senator a bit earlier this morning. That's the longest any winning streak since early November. Believe it or not, in the bull market, we look a little something like this on two tens and 30s.
Your tenure yield peaked at about 433 back in October, all the way back down to 346, 50. You it's just a little bit higher this morning by a couple of basis points on a 10 year on a two year unchanged at 413, 55 ended the year 2022 on a two year at about 426. So this is quite a move lower over the last couple of days. That's the move for the bond market. Let's finish on foreign exchange for you
in effects in a moment. We shape up as follows. One, a white 14 on the euro dollar negative, a third of one per cent. That has not been the trend has not been the trend at all whatsoever. Since September, we have had a much, much weaker dollar. The DAX y dollar index down by more than 10 per cent over that period. Time has been a tricky moment for both the bond market to lower.
And then you've seen what's happened in the affects market on a weaker euro. It's a trend that's in place and there is some argument we've seen argument to this week German Bloomberg Surveillance on dollar trend. And there's some people that question the durability of dollar weakness.
And that'll be, I think, a debate certainly to the Feb. 1 Fed meeting. Look at the moves elsewhere. Not much happening here. Some may be looking at Japan, perhaps into the BMJ next week with that 50 basis point move, 50 basis points, the target yield curve control. Just go through that briefly.
And I think it's a major move at the moment into next week. Some percent is a threat to the credibility, this jam. We'll see if they back away again as we await for earnings at the beginning of the season. They are coming out. An American Airlines surprising yesterday was some numbers. And Delta here just very quickly, traffic down 10 percent, capacity down 9 percent. I'm going to call it a bit of a mess. And maybe there's a bit of a lightness in the stock here in the second since Delta Airlines received the first quarter adjusted EPS of 15 cents to 40 cents. Tom, that's quite a white band, isn't
it? The estimate, 54 cents before that fourth quarter adjusted EPS 148. Estimate 130. You mentioned passengers, Tom, passenger revenue DAX ran on sort of fourth quarter ten point eighty nine billion. The estimate ten point six. The fact of the matter is these stocks had a massive run, sat down to stand about ten point eight percent in the premarket.
I mentioned where they were, Tom. And what they've done so far this year over a trading day status, up about 20 percent plus. Yeah. I mean, it's been a real tangible move. And I think there's a mystery here, particularly on domestic business. Travel seems to be what the sell side is looking at.
We're going to do right now with some free minutes here before the earnings extravaganza begins as drop in Sonali Basak secure. And this is something I've talked to our Shery Ahn, our colleagues, Shery Ahn Rajan about. But I want to go to you on it. With the Financial Times today looking for the future of Caroline Hyde, we should note that David Rubenstein, one of the founders of Carlyle, is very active with Bloomberg Television and Radio. And this goes to two guys who are exiting or rumored to exit.
Mark Mason at Citigroup, Goldman Sachs and Lucent and also, of course, Mr. Prune reported the other day. And what I find fascinating in the turmoil of what we expect to see cost cutting. Do we expect to see all of these companies really begin to rationalize succession path? Absolutely.
Remember, a lot of these folks have been in these positions for a very long time, especially at the big banks where there has been a lot of lack of movement at the very tippy top of the banks. Some people have been there for a certain amount of years now. So it's a progress story for Gene Fraser and for David Solomon. But when you look over at Morgan Stanley
and J.P. Morgan, it's that second rank. You have to really worry about attrition. Some people are retiring. Right.
You're seeing you see that in a recession. So last week at Morgan Stanley. He's been there a long time. John, the reason Jonathan present is so interesting is because that CFO role and C O role at Morgan Stanley think Ruth Porat over to Alphabet.
John was somebody you long watched and to see what his next move would Mark Mason with Jane Frazier at Citigroup C A for his year accolades from corporate and another time they moved together. And Mark Mason and Jane Fraser are, you know, the left hand and the right hand. And so I think she speaks them on a daily basis. I don't like to sit outside and camp out the banks. But the reality is, Mark is very close to Jane and a very important part of her turnaround story, whereas John Powers, that, of course, very poor at Morgan Stanley. But the ranks are full there. The succession plan is thick.
And it makes sense if he were to go into somewhere like private equity, especially, by the way, at a place like Carlyle where the politics are very, very, very challenging. So to have a CFO, CEO type to kind of smooth a lot of that over makes a lot of sense. Jihye Lee, stay close. We'll break those numbers with you when they come out waiting for BFA and J.P. Morgan in the next 60 minutes or so.
John CASSIDY with us now, the head of U.S. Bank Equity Strategy in large cap bank analyst, RBC Capital Markets. John. First to you, sir. What are you looking for from BFA? What we're looking for for Bank America, as well as some of its peers, is the expectation of very strong top line revenue growth that comes from net interest revenue. As you know, John, the rise in rates has been very favorable to all the banks, particularly for their net interest margins. The right side of the balance sheet for the first time, John, in the last 15 years is really important now.
Meaning you need cheap core deposits and bank America has that. On the other hand, we're going to see weak capital market numbers from Merrill Lynch. So it's going to be a tale of two cities for them as well as the other big universal bank. This conversation shared about peak net interest margins.
We approaching that peak. At that peak is that peak behind us. I would say what we're going to see is probably peak net interest margins in the first half of 2023. But the important number for everyone to focus on is not a margin necessarily. It's net interest revenue growth.
We're still going to see double digit net interest revenue growth or bank error earnings in 2023. You're right. We've got three companies coming out at once. It's a bank extravaganza just to make you go further gray like me trying to catch up with me. And.
What I find fascinating here is to take a traditional ratio like tangible book or I'll let you decide. Return on assets, pass those three banks. Am I right? The J.P. Morgan is more profitable than the other
two. Tom, you're right. Certainly JP Morgan, as measured by return on equity or return unchangeable common equity is more profitable than Bank America and Citigroup. Bank America, of course, is more profitable than Citigroup. And Citigroup's biggest challenge is that they just don't have the strength in the United States and the consumer banking business. Bank America and JP Morgan, do you know, look, you're on and bringing it up here in a Bloomberg, John, the. The function is the GDP function.
You bring up a chart. Well, thanks for that. As a useful finale, if you had heard that one before. Thank you, Gerard. I got I got Citigroup trading collegiality. Forty nine dollars per share, but
fossils like you and me do a reverse ten to one stock split. Is this stock still trading at four dollars and 90 cents pre great financial crisis? Tom, that is the math. That's exactly right. And it's it's unfortunate.
Citigroup at one time was a premium business in the United States. And unfortunately, they still, still have not fully recovered. Our David Westin scheduled to speak with Miss Frazier at the Happy Valley in Davos. How happy is Jane Frazier? Right now, what is the urgency for them to launch off a four dollars and 90 cents, five dollars a share? It's tough time. It is there. There is a sense of urgency.
But we have to remind ourselves there, turning around a giant ocean liner. It takes time. And unfortunately, the conditions in which they're turning it around the rough seas have been awful for them. So the timing of the turnaround has been very difficult. During the what's going on in the world economy and of course, with the tragedy in Britain. Joe, can we just say on JP Morgan just for a moment, 12 months ago, there are all these big questions, big questions have been presented to Jamie Diamond in a fashion that haven't been in a long, long time, if ever that was about cost discipline and the amount of money they were spending. And in the last 24 hours, the last
couple of days, renewed renewed focus on the amount of acquisitions and perhaps some sloppiness creeping in as well. Jared, I know they're not massive acquisition acquisitions for the size of this bank. They're not huge numbers. But Jared, what are you focused on? We're focused on the core banking businesses, John, and that is, you know, taking in deposits, making loans, of course, there's a core function of any bank, as you well know. But it's also looking at their investment banking and trading businesses, even though investment banking revenues for them in the industry will be down well over 50 percent year on year in the fourth quarter, the trading revenues should be pretty good. But to your point on expenses, J.P. Morgan, who has had the higher level of rate of growth both in expenses and that will certainly be an area. And unfortunately, they got caught in a
fraud in their most recent acquisition, which, of course, was disclosed this week. Jihye Lee, what do you make of this? Just the last 12 months and not the last couple of days, but the last year for this bank, for JP Morgan? Yeah. So the interesting thing is they do have if you look very closely, they do have some retirements that have been coming. They have not been the Goldman Sachs of
the world where they said we're going to cut thousands of people on our head, staff on our ED in terms of headcount. But they have seen cuts at the mortgage business. So they've held steady. So that does put pressure on expenses relative to, say, Goldman Sachs. So do they start to make those moves as the environment softens? I'd also say they sidestepped some problems.
You saw Bank of America go heavier when it came on to risk taking, especially the leveraged finance market. But, you know, JP Morgan has the biggest fixed income desk on on Wall Street. So you saw another 70 million dollars of losses there, European high yield trading.
So do they have more caution? I think it's my question for this year and this stock is ripped as well since October from the October low. J.P. Morgan is up about 37 percent. John, let's speak to that. The performance of the equities of the stocks coming into a new year. What do you make of it? John, the banks are doing well. As you just pointed out, since October,
it's been very impressive. But even year to date, the banks are outperforming the general markets. And the reason being is that I think investors are discovering that the economy is still very healthy. The real GDP now number coming out of the Atlanta Fed is pointing to a 4 ISE percent real GDP growth number. So the likelihood of a recession in the first and second quarters of twenty three, I think is quite remote.
Now, the second half of the year might be a different story. But it's just net interest revenue growth. Investors are recognizing if the Fed keeps Fed funds rate around 5 percent for an extended period of time. Banks like J.P. Morgan Bank America, they're going to do quite well in that environment, which at that point has had to down to what happens in the bond market because yields have been falling to start the year.
But the bank equities have carried on performing. Yeah, it's a good point because it's interesting the volatility in the markets last year helped, particularly in the trading fixed income trading. It really helped J.P. Morgan and others.
So believe it or not, if you get a less volatile market, the markets revenue may be affected and wait on that, but then you offer to offset it. Would stronger debt, capital markets, investment banking, Lisa Abramowicz, the lower yield? That's a good point, because now the mark to markets in their bond portfolios will be less, which means there'll be an accretion back into capital when those marks come through at the end of the first quarter. Judge is sticking with us. I'm happy to say Joe CASSIDY of RBC Capital Markets on the big banks as we wait for Bank of American J.P. Morgan time, we talked about J.P. Morgan, another hurricane, Jamie Diamond backing away from the idea that a hurricane is coming. Kind of tamed down, I would say, dialed
back. It is language early. This where I think he's trying to get out to 100 pages on his annual letter this year. John, I have a chart. It's super secret and I need to know basis. I could tell you were distracted. Scene it. What are you looking at? I'm looking at the five banks back to the great make it six banks back to the beginning of the great financial crisis.
And basically, there's Citigroup lagging big time, as Mr CASSIDY said. The other four bundled in collegiality. And then there's Fortress Diamond. I don't know what happened with the Kool-Aid at J.P. Morgan late 2016, but it's a moon shot over the last five years.
Equity futures right now down a third of 1 percent. Bank earnings on Wall Street coming up. Keeping you up to date with news from around the world with the first word. I'm Lisa Mateo in Alabama and Georgia. Violent weather killed at least seven people. Much of the damage took place in Alabama, where a tornado cut a 20 mile path across two rural communities. Six people were killed and more than three dozen homes were destroyed or damaged.
The FAA is out with preliminary findings on the computer failure that grounded all departing U.S. flights on Wednesday. The agency says it was caused when a data file was damaged due to a failure to follow government procedures. Now, according to the FAA, unspecified personnel were responsible for corrupting the file. It's a major boost to one of America's top exporters in its most important foreign market. Boeing 737 Max returned to commercial service in China after nearly four year absence. China Southern Airlines operated the flight.
A Chinese airline had it flown passengers on a 737 max since the plane was grounded in 2019 following two fatal crashes. China's exports keep falling as global demand continues to drop off. Exports in U.S. dollar terms declined nine point nine percent in December from a year earlier. That was better than expected
performance. Still, it adds pressure to an economy that's trying to recover from Covid 0 restrictions and a big pay cut in the works for Tim Cook. Apple is reducing its CEO's compensation by more than 40 percent to forty nine million dollars this year. The company is citing investor feedback and requests from Cook himself to adjust his pay. Global news 24 hours a day on air and on Bloomberg Quicktake powered by more than twenty seven hundred journalists and analysts in more than 120 countries. I'm Lisa Mateo.
This is Bloomberg. Earnings on Wall Street begins right now. Let's get some numbers B of a fourth quarter trading revenue comes at a three point seventy billion. The estimate three point three, a one billion fourth quarter EPS comes in 85 cents. There's a ton of numbers here trying to distill it all Sonali Basak alongside us all before we say here's the problem here. You do have net interest income, which is the most important number this year for Bank of America. Coming in light of expectations begs the
question, where does the money come from? Even with rates rising, are consumers borrowing, our businesses borrowing? Businesses have been very highly levered. We're going to look very closely into where those numbers are coming from. Provisions for credit losses of one point one billion dollars increased one point six billion dollars, according to Bank of America. So you do see an increase there in provisioning the environment here potentially potentially deteriorating. Be fair to you and grizzled pros like Gerard CASSIDY when you see a headline that says fourth quarter net reserve build of falls three. You can't analyze this stuff over a cup
of coffee in 12 seconds on financial TV, can you? You've got to dive into it. You have to dive into what are you going to dive into when when you're done with us and you're working feverishly here? None of you see this, but she's killing herself. She's not on air. What are you going to dive into? So you have to think about where those softness numbers are coming from. Is it continuously the mortgage market? There's a little bit of worry about the auto sector here and those things are persisting into this year. I will also give them the victory lap here on the institutional businesses because they had a strong beat and fixed income.
They're having the highest results ever in trading. And so for Brian Moynihan, which restructured a business here in terms of talent about a year or so ago, it's a very big deal after the departure of some seniors trading executives that they're keeping winning share there, especially with softness in the European banks in a tough market. So fixed income is up, equities met, but the consumer here is where there is weakness relative to what was expected. Gerard CASSIDY with us to with all of
his work. Tucker. Anthony, over the years in RBC Capital Markets, you know, I dive into the press release and the propaganda from Ford this morning. And Gerard, just as a basic idea, digital log ins, 3 billion digital sales grew 8 percent and represented 49 percent of total sales, 2, three, four, five years from now. Gerard CASSIDY, are all of these banks digital enterprises? Parliament. Bank America has been the leader in pushing the digital channel better than anyone else. Even JP Morgan, in our opinion.
But we're always going to have the multi-channel approach. I don't think you're going to see branches ever disappear. Now the amount of business going through the digital channel will continue to grow. So you're right. I think you're going to see companies like Bank America, JP Morgan Chase and others continue to drive profitability and profit through that digital channel because it's convenient to consumers and also businesses. It is also more profitable to the bank. Bank of America right now by one point eighty five percent in the premarket. JP Morgan numbers around as well.
So let's run through those numbers. Right now, investment banking revenue comes in at one point thirty nine billion. The estimate, one point six six billion dollars. So that comes in like telling numbers to go through here overall revenue.
Then just a little bit lighter on investment banking headline revenue adjusted revenue for the fourth quarter, thirty five point five, seven billion. The estimate, thirty four point one five billion dollars. Just a bit of commentary from Jamie Time, the CEO able to resume stock buybacks this quarter, going through the numbers against Nani. Listen, one big concerning number is the fixed sales and trading falling below expectations. The other concerning number is at the
provisions for loan losses as we're talking about concerns about the consumer moving forward, coming in almost 300 million dollars more than expected. That is well over 2 billion dollars of provisions for loan losses. So the commentary moving forward about whether Jamie Diamond's hurricane and whether you think actually comes into fruition is gonna be super important. And when you have weakness here on consumer and investment banking, your question moving forward is where do the expense disciplines come from moving forward? So, yeah, I mean, you know, you have people tweeting not not pretty when you watch some of their core or businesses here falls short, sets up the stage very strongly for Goldman and Morgan Stanley. And we've got to talk about those
provisions for credit losses. Jonah, I want to come straight back to you on that, both at BFA and J.P. Morgan, that number there, the fourth quarter profession for credit losses to point to 9 billion, the estimate to point 0 5. What should we read into that?
John, I think it's a positive note. No, believe it or not, sounds kind of intuitive when you hear that. But you have to remember the new accounting for credit losses known as Cecil can't expected credit losses. The banks have to do like a loan loss analysis. So they have to anticipate a recession over the next 12 to 18 months.
And so building up reserves in the fourth quarter of 2022 is smart because most investors are looking at 2023 earnings. So they were able to build them up and still reported bottom line numbers that were better than expected. But I would point out that we're going to see the banks continue to build reserves in case there is a, you know, recession. Right now, it looks like we're going to
at least have a slowdown on the economy and possibly a shallow recession. So by building up reserves, we would take that as a positive because they still can beat numbers and still bullet reserves, which gets to the point you talked about, John, the banks doing better this year. This is what investors are saying, is that you can build up reserves and still report strong earnings because the revenue growth spreads are quite good. So she told me this is pretty important stuff.
Just how high quality is that long book going forward and say what could be a tough year might not be a tough year. If you ask an economist right now, they've got no clue. Yeah. You know, JP Morgan's quarter includes one point four billion dollars with reserve belt. So I'm into Gerard's point. Bringing this forward makes a lot of sense. It puts the bad news behind them. But when you look forward, you know, 20
percent to Tom's point, tangible return on equity here. That that is that is through the roof that is showing you that JP Morgan has leverage here when it comes to expense control to posting those numbers. That 20 percent is nothing like you're going to see anywhere else. Gerard, if you and I parachuted on this from other bank worries that we've had over the decades, I have real trouble with any kind of angst and hand-wringing here. I would say and suggest respectfully, Gerard, that they're literally trying to hide their profit. I look at the operating income of JP Morgan wrapped around a tangible return of 20 percent to zero, and they launched from I believe it was 45 million dollars pre pandemic. And I don't know what that number is
right now, but it's a near double. Gerard, these guys are minting money, right? Are they underplaying it? I think you're right, and once again, we have to come back to something very straightforward, which we haven't looked at in 15 years, which is the core deposits, and because the banks are in a funds market that is approaching 5 percent. Think about this time a commercial loan to worthy bother borrower will reach 8 percent sometime in the spring of this year. And the cost of funding that. Think of the checking account deposits. Banks don't pay interest on checking
account deposits for consumers. That's a good basis. Point spread. Think back to where pre pandemics when the Fed was 0 to 25 basis points or during the pandemic.
You didn't get those spreads. That's what this is showing. I literally look, John here just to make a comment on this is is I am looking at them no different than I look at a luxury manufacturing company with Dana Telsey or any other sector. I gotta go back and look pre pandemic and what everybody, including Mr. Diamond, Mr Moynihan and the rest went through. And these guys, I would respectfully
suggest, are literally trying to hide how much money they're meant to get. In a commentary on the outlook from Jamie Diamond in a press release. The U.S. economy county remains strong.
Still don't know the ultimate effect of these headwinds. Just in other commentary over the last five months or so, with those headwinds turn into a hurricane or not. It's interesting this a line in here about the ability to resume stock buybacks this quarter as well. Jack, can you run me through what you expect from capital return to certain banks on the street three this year? John? John, you just brought up a great point. The buyback being reinstated. That was not expected. That's the positive surprise here.
You might recall this company was struggling with their capital levels in the second half of the year. So now, as we all know, these banks are generally paying out 30 to 40 percent in dividends. And prior to the pandemic, when there was minimal loan growth, it was quite often you saw a buyback that represented the other 60 to 70 percent of earnings. Then they all turned it off in the second half of this year, including Bank America in Sydney. And now for JP Morgan to come out and say its back on it and put up numbers like this.
It is a very strong statement in our opinion that the bank has plenty of capital and it's going to be able to grow and support its basic banking functions. But at the same time, you bank even more capital in 2023. How conservative do you think they will be? Jarratt, Given they have felt that we're saying how can said if you think that we'll pay with capital returns sense in the year ahead? I think that it will be on the conservative side, not so much. Dividends again. Dividends are pretty set. And that's another important point, John. If we get through this cycle without any
of the banks cutting dividends or negotiating like they did in the financial crisis, that is a huge positive for the banks for re valuations coming out of this. But I think you're right. The buybacks will be more limited than what we saw in back and repaint dynamic. Very. You are a very important question, and
all of us, all our viewers and listeners know this, that these banks are the moonshot and credit card interest rates with a higher interest rate regime. Some of them are buttressed up against 28, 29, 30 percent per year. What is the credit card business stable for consumer banking in America? Or do they have to go out and basically co-op fintech with their ginormous profits? Tom Mackenzie interesting. In the fin DAX and fintech stress bread that many people were concerned about three or four years ago has really been ordered by the banks as the banks have themselves been quite aggressive in investing in technology, but also in core banking businesses like credit cards. To your point. That's where consumers want to go for their credit cards and other businesses. You bring up a good point.
The yields in credit card portfolios are generally in the high teens yield and as a result of that, cheap funding is quite good. It's sort of like a lobster farmer up in Portland, Maine. You're yielding lobsters instead of killing them, John. This is an incredibly lucrative business single line. JP Morgan debit and credit card sales volumes up 9 percent due to the basic household solution. So to Shery Ahn nature out.
Thank you. We're to let you go. Come on. A 28 percent business that's called a loan shark business in my youth. John CASSIDY, 28 percent B.S..
I don't know if you wanna associate that with loan sharks. He said this was an immense respect to these banks. But everybody's worried about loan loss reserves. They're. I've never seen 20 percent. They're willing to work with those clients, though. You know, a hundred million dollars of the reserve belt is in the card business. And so you're seeing volumes rise.
You're seeing reserves, belts. They're taking on risks still. Which means that how concerned really are you, the consumer? Just funny out briefly. For JP Morgan saying 2013, net interest income at about 73 billion. The estimate, seventy four point four,
three billion to stop just a little lighter, softer in the free market. Also hearing from Wells Fargo as well. It's a miss on revenue, but expecting to resume stock repurchases in the first quarter.
More still to come. Citi just around the corner. Equity futures down four tenths of one percent from New York. This is pulling back. This whole episode will turn out to be transitory, but the reason recent is transitory is because the Fed reacted. The Fed is a risk manager.
I think they need to stop. This is a war that they won and they're in danger of tipping the economy into recession. I think making the fiscal problem worse is the prevailing view now. And I think it's right that we're heading lower inflation and we've seen a peak. Inflation has a number of parts to it. John Williams talks about the inflation on June.
That and the good news on the outer shelves. This is Bloomberg Surveillance with Tom Keene Jonathan Ferro and Lisa Abramowitz, life of New York City this morning. Good morning. Good morning from audience worldwide. This is Bloomberg Surveillance on TV and radio alongside Tom Keene. I'm Jonathan Ferro. Equity futures down about a third of 1
per cent on the S&P 500. Sonali Basak alongside us this morning. Break it down to bank earnings. JP Morgan, Bank of America, Wells Fargo behind us. Coming up, his city got start with JP Morgan. If we can get straight to the stocks in a premarket, J.P. Morgan a little softer, lighter, negative in premarket trading, fourth quarter numbers.
None of the massive concern is about the outlook here. About three point five percent. Let's run for the outlook line by line. 2023, net interest income of about 73 billion. The estimate, seventy four point four, three billion dollars.
Just a little bit a little bit of a line here about a modest deterioration in the firm's macro economic outlook and some of the back of some of these headlines. The stock just a little softer. I would say this is a massive, dramatic move across the banks this morning, but certainly gets your attention. Let me posit a question. And you and I grind this out every day
and surveillance. Are these bank executives any different than the pundits we interview? They're trying to get out in game and guess an economic slowdown of some character causes or, you know, to borrow from variety and Hollywood, these are boffo earnings. These are really good 20 percent tangible return. Okay, fine. But the gloom dot, the gloom, the tone, the tinge. John, is the first quarter. Second quarter could be a real strike is the reality of the moment.
Deborah Knight We've come into 2023, I guess, asking ourselves a really simple question that's difficult to answer. Are we meant to be pricing organic growth slow down off the back of all the tightening? Are we meant to be pricing in a growth rebound off the back of what's happening with China and the relief we're seeing in Europe? I don't think anyone can answer that question with confidence. So what you do if you're running a bank super conservative business, you build reserves, you build reserves. I get that. And I thought Chanel was very articulate on that in terms of the fact is there is a credit buildup. So you naturally build reserves. But far more than that is just the the the reticence here post pandemic.
And all of the economists, Thorsten Slack yesterday and others saying we're still in supply side shock, I would suggest Dani Burger. These leaders are managing out a 100 days with far more acuity than they were five years ago. Now, we've been running through this. Just a short quick word on what you've seen so far. Think about how incredible this is for the coming year. You have 66 billion dollar. Sixty seven billion dollars and net interest income in third for JP Morgan. The expectation is 73 billion this year.
It's hard to think that that's a bad year for JP Morgan ahead of it. And the idea that it just posted, we're talking about this in the break, 20 percent return on tangible common equity, even with the missing on some business lines while cutting bonuses tells you the banks still have leverage, and that is with headcount rising, compensation costs rising and tech expenses are actually down. So how they use that money is going to be absolutely fascinating in the year ahead.
I look at the financials here and let's go back to that social consequence right now. We have a lot of yea
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