00:00 Speaker A
Bank of America and Citi reporting first quarter earnings this morning, beating on the top and bottom lines and following a trend of strong Q1 bank earnings. For more, we’re bringing in now Gerard Cassidy, analyst at RBC Capital markets, covering the banking sector. Gerard, it’s great to see you as always. So, listen, the bank earnings they continue to roll in, Gerard. We heard from Bank of America and Citi this morning. Investors clearly like what they heard there. Both those stocks are higher in today’s trade. Broadly, how would you characterize what we’ve heard, Gerard, from the sector you know so well? I mean, it has seemed generally positive, Gerard.
01:25 Gerard Cassidy
Josh, you’re absolutely right. The results have been good. Um, the banks have generally beaten all of our estimates on the street consensus EPS estimates as well as my own. And I think part of the reason is of course, the capital markets businesses for the large money center banks and for Goldman and Morgan Stanley were really strong in trading, particularly equity trading. So that was a large reason for the beats from most of these companies. Also credit. Credit remains very resilient even though they’re building up reserves as they’re required to do under the new accounting standard called CECL, current expected credit losses. When I say new, it’s January of 2020 when it was introduced. So I think what we’re seeing is that you know, the first quarter of course had two months of no commentary about tariffs. It was only in March that the commentary started to be elevated. And April of course has been very volatile. So I think what we’re seeing is first quarter results overall are better than expected. Credits strong. Capital levels are very healthy. Liquidity is high. It’s really the future and the unknown of the future that has everybody on edge.
04:12 Speaker A
How long do you think the elevated volatility, that the trading volume that comes from that, can make up for muted deal activity? Can that continue for a couple of quarters or is there a limit to how far that could take you?
05:08 Gerard Cassidy
It’s a really good question because it was outstanding in the first quarter and it did more than offset, you know, the lower, the lower numbers in some of the selected investment banking categories, particularly ECM, equity capital markets. The IPO market has really kind of fizzled out here due to this volatility. So you really need volatility and volumes to go with it to enable these larger firms to offset any slowdown in activity and advisory, which is M&A activity of course, and then the ECM business. Um, the DCM, debt capital markets had a very strong first couple of months of the year. It has slowed down a little bit. So you’re right, we will need to see elevated volumes and volatility if the investment banking markets don’t come back. Ideally, if we could have some resiliency in the markets and less volatility, you might get a combination of lower revenues and trading, but more than offset by incremental pickup in the advisory and the ECM business. So we’ll have to see how that plays out, but right now the uncertainty is really weighing on the ECM and advisory business at this time.