00:00 Speaker A
Wall Street executives struck a cautious tone when talking about the path forward for the US economy and first quarter earnings. JP Morgan’s Jamie Diamond cautioned of considerable turbulence in the near term, while Wells Fargo’s Charlie Shiff said Charlotte said timely resolution would be best for markets here. Now, all three banks, they beat on profits in the first quarter and right now we’re seeing them move lower pre-market. With us to discuss, we’ve got Chris Wayland, Wayland Global Advisors chairman. Chris, great to have you here with us on the outset of these earnings. What what grade would you be giving these banks as they’re starting to kind of kick off earning season and and set the tone for how CEOs are talking about the economy?
01:04 Chris Wayland
Well, you said cautious. I think that’s the word. Uh the first quarter is normally the strongest quarter for the industry. Um and what you’re seeing is slight increases in reserves. JP Morgan hit that number with some sales of uh of assets and also expense reductions. So, I I think overall it’s an okay quarter. Um Morgan Stanley interestingly saw client assets fall uh single digits. It’ll be very interesting to see what the second quarter looks like because if you think about the first quarter, really January, February were okay. We did have some sell off and financials, uh really going back to last November. Uh but then March, the change and the uncertainty accelerated and you saw Jamie Diamond essentially pre-announced on commercial exposures for the rest of the year, which is uh unusual to say the least.
02:41 Speaker A
Yeah, and it’s interesting too in the context of Wells Fargo, they did not lower their net interest income guidance. I wonder if you if you buy that and how you’re thinking about guidance from these banks amid the macro.
03:00 Chris Wayland
No. I have written very positively about Wells, but this is not the same Wells Fargo as three years ago. They have exited a lot of different areas of the bank, commercial real estate, residential real estate, they are shrinking their book. So when you look at them, it it was not bad. There wasn’t much going on one way or another. There’s still around 70% uh operating efficiency, which is 15 points above JP Morgan. So they need to do some work there. Uh Jamie Diamond has such a huge advantage in terms of operating efficiency. He’s down in the low 50s. So there’s only small banks that can really chase him at those levels. Uh City, the rest of them are 10, 15 points above him. And what that means is that less money drops down to the bottom line.
04:05 Speaker A
Chris, financials were one of the sectors that were bullish calls for many investment firms coming into the start of the year. Positive deal making, they were looking at the markets and investment banking revenue as well. In the absence of some of those major catalysts for the banks, what is your outlook? How are you assessing the investability of them right now?
04:37 Chris Wayland
Yeah. Well, after last year, when we saw financials galloping along at 40, 50% annual rates of increase, you had to know that they were going to sell off. The third quarter was a very strong quarter for the industry, big volumes and lending, because people thought we were going to have a rate cut, but we didn’t. So now what you see is that the entire sector has basically given back all of the gains from 2024. Where do we go now? I think we’re going to see higher credit expenses. Hopefully some deposit growth since the Fed is slowing down the shrinkage of the balance sheet. Uh but as Jamie Diamond said so, you know, appropriately in the fourth quarter, we don’t see a lot of demand for our products. You see the same problem with Goldman. Goldman is still going into new areas simply because they’re looking for growth. Uh and I think overall, 2025 is going to be about credit, first and foremost on the commercial side, but by the end of the year, we’re also going to see it on the consumer side as well.