J.P. Morgan, Citi, Wells Fargo & BlackRock Earnings Explained!

Hello and welcome back to the Trading Floor, and I feel like this is a bit of a prize fight of sorts. Combine the two heavyweights, the two contenders of the mid and end of week show have, have met now for the first time, squaring off. So who's going to come out triumphant? And any word from either of the contenders before we begin the, uh, the session today?

Well, I mean, I think this is where I finally get found out, isn't it? After all, what are we on, episode 100 and something? And finally, this is where the tide goes out and everyone realizes I don't have my swimming trunks on.

Again, a horrible, a horrible mental image. Well, and look, you know, we're, we're At Amplify, we're all about quantitative assessments and numbers and data and analytics and things like that. So you, maybe next episode, you can, you can tell us, you know, which of the two podcasts gets the higher viewership. I would expect it to be Friday because you guys are the incumbents, but I want to see what my trajectory is. I want to see when, when I— if and when I might kind of cross over.

So you're only as good as your last race, so it's all about this conversation. And at the end, what we'll do is we'll ask community to utilize their Q&A function on Spotify and pass judgment. It's not up to me.

Just, just to be clear, just to be clear, when, when the Midweek Deal Room podcast does rise above this End of Week Trading Floor podcast, I, I do get to retire then, right?

Yeah.

Perfect Friday show. It's not— be next week. This is it.

This is my big finale.

And by the way, and you can't recuse yourself from the popularity contest, you know, you've got to do a little LinkedIn poll and, and juice your own, juice your own numbers by just voting repeatedly for yourself.

Yeah, there's no more Hotmails, Gmails, Yahoo Mails that I can muster up anymore. But well, look, let's, let's jump straight in and let's talk about the main theme of this conversation, which is the first, the big bank earnings. They've literally just come out in the last hour or so, namely these being JPMorgan, Citi, Wells Fargo, and the world's biggest asset manager, BlackRock. And then perhaps at the end of that, we can talk about a little bit of the broader picture, because it's a buy-everything type of week, and I'm sure that, that Piers can, uh, shed some color on why that's occurred. But yeah, let's, let's kick it off then. Let's talk about, I guess, JP Morgan being the kind of beast that it is, that maybe we could start with them. Um, their revenue soared to a record in these Q2 numbers that we've just seen. Um, a lot of the press noting the boost coming from the Federal Reserve's interest rate hikes and this acquisition of First Republic Bank. Their EPS $4.37, Street was expecting $4. Revenues $41.3 billion above expectations of $38.96 billion. So before we look at divisions, anything from the top line kind of numbers and also this idea perhaps a bit more color about how interest rate hikes are impacting these results, because I know it's not just for JP.

Well, yeah, I think that there's 3 words stand out here or that are important. Those are net interest income. So this is about interest rates. It's really the spread between short-term rates and long-term rates, which is ultimately where the big lenders of this world, that's where they live. It's that spread, that's their profit margin. So it's the difference between short-term deposit rates So the interest rate you get on your deposit account, that's how the bank— that's the source of capital for these banks. So they've got to pay for that, but they're paying low short-term rates to depositors. And then of course they're taking that capital and they're lending it and they're for longer periods, a mortgage being the classic example, and they're able to charge a lot higher interest rate on those long-term loans. And as interest rates from the central bank have been you know, steeply climbing, then this is— get— this is like perfect for these banks to exploit the growing gap between those short-term and long-term rates. And that's called the net interest income. Um, and that's JP Morgan, uh, that has climbed to 44%. Sorry, it's grow— it's up 44% year on year. So they've now bagged $21.9 billion in the quarter just on their loan book, basically. And that's the— here's the best bit. And this is all about— because remember, interest rates have been going up for, well, what, I don't even know, 18 months? No, less. 15 months, is it? Anyway, this is the 5th straight quarter of double-digit growth on that. Net interest income figure. So yeah, $21.9 billion, better than the expected $21 billion. I mean, it's not a massive surprise, but yeah, that's the standout line on this report.

Piers, a bit of question. So this spread is obviously massive, uh, and it's resulted in, uh, really, really strong performance across all the banks. Is the spread, uh, largest when there are quick and repeated interest rate hikes? And does it settle down once everything flattens out, even if that interest rate is at a very— that central bank interest rate is at a very high level? Does that spread shorten and shorten as we, you know, we get more used to this higher interest rate environment?

100%. Yeah, I mean, basically this is— remember that this interest rate hiking cycle has been the steepest hiking cycle. Well, and you'll correct me if I'm wrong, but I believe since the 1980s. Um, so yeah, the more rapidly rates go up, well, then actually this is where the banks— we talked about this, I think, a little bit on the last part— they're quite sneaky in that they will— so the interest rate on their mortgage loans, right, as soon as the central bank raises rates like to the second, then the interest rate on your mortgage goes up. Okay, so they're charging more, um, so they're earning more on that, on that loan side of the book. But do they do the same for their savers and their depositors?

No.

So they're very slow to then see, you know, to tweak up their deposit rates. So the faster the interest rate hiking cycle, the more they can exploit that lag, if you like. And look, and I think actually on top of that, I mean, because we'll talk about—

you can—

well, Stephen, I'll let you dig into some of the, the nitty-gritty here. But if with JP Morgan, one other stat, um, as an example, was their, um, low— um, sorry, their deposits, uh, increased by 1% on the quarter to $2.4 trillion. Right now, what's gone on here is that obviously the Silicon Valley Bank thing has, generally speaking, been one catalyst that's led to deposits coming out of the smaller banks where there's perceived higher risk and being moved to bigger banks where there's lower risk, right? The other catalyst, it— for the banking system generally has been the fact that they're slow increasing the rates on savings accounts. So you've seen some Depositors go, you know what? Well, screw you. I'm not sitting here waiting until you decide to put your rate up, whenever that might be. I'm pulling my money out and I'm going to put it into a money market fund. And we'll talk about BlackRock later. They've benefited from this actually. But JP Morgan, because they're the big boys, so therefore the perceived safest, they've actually seen deposits increase during this time. And I think they're being bullies. I mean, the smaller banks, they're having to raise their interest rates on their savings accounts to try and stem the outflow, right? So actually, if you, if you put your money in a smaller bank, you're going to get a decent uptick on your savings rate. But if you want the safety, then you give up that higher savings rate. And so JP Morgan have really benefited from this Silicon Valley Bank shift in the perceived risk around depositors. So yeah, this all feeds into that. Another big double-digit growth on their, um, net interest income.

Cool. And then just looking at the, the other main divisions then on the breakdown. So the way that the results come out for JP is they've got Markets and they've got Banking, if you're looking at their like earnings presentation. So on the banking side They had revenues of $12.5 billion, up 4% year on year. Uh, the IB revenue of $1.5 billion was up 11%. IB fees were down 6%. Is this to be expected? We're kind of aware of the climate at the moment. Was there anything in, in those numbers that surprised you, Stephen?

I guess it surprised to the upside. These are really not particularly bad numbers considering if you read the average article about dealmaking, deal volumes, IPOs, investment bank fees, we're talking down 20, 30, 40% across the board in, in, in H1. So the fact that JPMorgan's even, even the cyclical nature, even the volatile nature of this, of this division, it's not struggling as much as its peers. So, you know, this is the earnings report where everything seems to be falling into place for JP Morgan. You know, it's, it's taking, as you said, it's taking deposits from smaller banks. There's a flight to safety. There's massive, massive uptick from net interest income. And the very volatile section is, is not, is not, it's not going down nearly as much as its peers. So, you know, I think we're going to talk about Citi later on, but I think his— its investment banking fee revenue is down 44%.

Right.

So yeah, you know, IB fees down 6%, you can take that. And you just think, you know, I'm thinking to myself, all right, what is the perfect conditions for a global bank to make money? Okay, a high interest rate environment without a recession. So there are lots of loan provisions, we can talk about that, but there's not a lot of defaults at the moment. The IPO market's opening back up. The M&A market's opening back up. So we're almost at this point where you think, all right, if I was to create the perfect scenario under which JPMorgan can thrive, probably about today is as good as it gets. So if they're missing earnings on today, then you've got to be worrying. But obviously they didn't. They smashed it.

And also you got to throw in, I saw they've benefited from a $1.8 billion gain relating to their First Republic deal. So I mean, this is the biggest— being the biggest player in the last quarter. Yeah, as you say, coupled with the macro scenario and the monetary policy backdrop. Yeah, this is optimum.

We spoke about it on the pod a few weeks ago that that First Republic deal could only go through— JPMorgan aren't allowed to make bank acquisitions because they're too big. Unless there is a distressed circumstance. So it's just like, how lucky can you be? You know, you pick something up on the cheap and you get a $2 billion kind of kickback that is going to boost your kind of unadjusted bottom line. So yeah, look, just maybe just a step back, I was just looking at its price earnings. You know, it's pretty— you think double-digit, uh, revenue growth over the last 5 quarters, or whatever you said, Piers. On the net income side, yeah, on the net income side, you're thinking that's kind of tech levels of growth, right? You know, whenever you hit double digits, you're thinking price earnings multiples of 30, 40 times. And obviously banks are different, but the, you know, JP Morgan's price earnings is what, 11, 12 times, something like that? Yeah, it's, you know, it's still, it's the— although we've got all of these amazing numbers it's still a bank, and it's still cyclical, and it's still subject to so many different external forces that it's not going to ever kind of break out of that moderate price-earnings level.

So, Anne, I've got a question for you. If you were Jamie Dimon, surely this is where you— this is like the mic drop moment. Oh, you just walk out the door into the sunset, don't you? And then still time to get in the race for the 2024 presidency. Yeah, right.

Could quite possibly be the case. You heard it here first. Yeah, he— I did note a comment that Dimon did say. He, he quote said, consumer balance sheets remain healthy, consumers are spending, albeit a little more slowly in terms of the pace. Labour markets have softened somewhat, but the job growth remains strong. So yeah, I mean, that sounds pretty positive to me, like hearing him say that. So one question then to wrap, JP, was on the markets side, when you're looking at these percentages, I guess, peers, is this more a case of, well, you've got to look at the world and where we were this time last year. So when you hear market revenues are down 10% year on year, fixed income market revenues are down 3%, equity market revenues down 20% year on year. Is that because second quarter in the prior was so strong? So it's just that it makes this look more difficult?

Well, no, this is, this is about trade volumes. I mean, um, I didn't know the split out. I knew that together the fixed income and equity trading divisions together were down 10% year on year still a cool $7 billion, mind, but, um, I didn't realize when you spit it out the equity side was down 20%. Um, yeah, this is just— yeah, well, there's, there's some kind of tricky year-on-year comps here because obviously if you go back to the, to the first part of 2022, this is where, you know, we had some big, big volumes as markets were coming off and coming under pressure and the rate hiking cycle had started to really ramp up and inflation was out of and what that led to was a lot of, well, just a lot of trading, right? This is where asset managers are going, well, hang on a minute, we're having a real shift in the cycle here. So I need to make major changes to my portfolios, which means selling a load of stuff and buying a load of other stuff. And when these big asset managers are doing big kind of portfolio rotations, then these big trades are being facilitated through the big investment banks. So this is trade flow. This is how the banks make money. They facilitate these trades for their buy-side institution clients. So when things settle down and they're calm, dare I say when things are a bit dull, which is the case the last 3 months. I mean, check out the VIX. It is way down, right? That's just a volatility index. So it's like we've been saying for the last few weeks, what recession? Just hasn't, just hasn't come and isn't coming. And so actually, people are just happy to just let this big tech rally just continue to, to grind higher. And so there's been a lot less trade volumes, which equals a lot less revenues for these trading floors. So it's not surprising, no. And maybe just back to Stephen's point about the banking side, yeah, these numbers are down, but it's like, actually Not too bad relative to others.

So context is key as ever. And I remember being in a restaurant with you, Piers, maybe about 4 months ago. Okay, maybe longer. Maybe this is when all the SVB stuff was going on. And I remember, uh, in between the main course and dessert, there were a few murmurs of the VIX mentioned at the time. Have you seen that? Did you see the VIX last night? And it was the opposite scenario when it was exploding at the time.

That was the— off the Silicon Valley Bank news. That was the one big volatility pop of the year. And it lasted—

and that was the short moment, basically.

It lasted a week. And then, look, we've had, what, 26, 27 weeks of the year. And for one week, there was a little bit of action on the volatility side.

And then that's it. So when you said that in the restaurant, my point being, that's when I went short VIX. And now you've just said what you've just said, that everything's super calm. Now I'm out of my shorts. So as soon as we're finished, I'm out. So, so moving on to Citi, because, uh, Stephen, you said earlier there's some kind of parallels, but I'd like to know what are the parallels with Citi and what are the differences. I did read some, a couple of things as well about them being the second largest credit card issuer and customers are still borrowing, but elements in your mind where there's similarities and differences.

Yeah, so I, I think you would probably, you'd probably look to Citigroup and put them roughly in the same category as big global banks that are too big to fail, if we're going to be as, as kind of generic as, as that. But once you scratch beneath the surface, I think the difference between JP Morgan and Citigroup becomes really apparent. First things first, post-2008, Citigroup have had a really, really rough ride of it, um, and have been in the process of trying to straighten their strategy, straighten their cost base. And this earnings report is a real reflection of them still trying to figure it out, figure out who they want to be as a bank, what they want to be as a bank, where they want to be focusing on. And I think It's really important. I was just looking at all of the earnings presentations before the call. It's really important to see not necessarily what's said, but the order in which it's said for these different banks. And it's interesting that on the earnings presentation for Citigroup, page 1 was a bunch of high-level financials, page 2 was a load of commentary saying this is how we are working towards our strategic turnaround plan. And it talked about things such as redundancies and reorganization and voluntary redundancies and things like that on page 2. So they're obviously thinking to themselves, all right, the market wants to know that we are on track with the longer vision. JP Morgan, things are all singing, you know, and all dancing. So it's in a very, very different place. And it's also, yeah, It had a pretty bad earnings, earnings report, although it did beat expectations. So net income fell 6%, um, although earnings per share were above expectations. Revenue fell, but again, above expectations. Expenses up 9%, driven by severance packages and, and the costly restructuring of the organization. Good news, as you say, on the— on credit cards and on more of the retail side of banking. But from an investment banking perspective, from a global banking and markets perspective, the numbers are way, way off. So if you think about the health and the strength and the certainty of these two big beasts, you've got to look at JPMorgan just crushing it and Citi still fishing around for a little bit of identity. It's, it's, it's not yet found its way post-2008, which is, you know, 15 years ago now. So it's a— yeah, it's a really interesting compare and contrast maybe to, uh, to JPMorgan.

Yeah, there was an interesting comment from the Citi CEO who said that markets— so it commented on both markets and investment banking. So on the market side, revenues were down from a strong second quarter last year as clients stood on the sidelines starting in April while the US debt limit played out. So she's blaming the, the participants for sitting on the sidelines for a period, and that was a lost amount of revenue. And in banking, that the long-awaited rebound in investment banking is yet to materialize, making for a disappointing quarter. So she's on the glass half empty side, Stephen, I'm afraid.

Yeah, I mean, that's— I mean CEOs tend to try and massage and maybe talk their own game and say, you know, and try and put as positive a spin as possible. So this is, this is pretty brutal. And it's, it's fair that investment banking has been down, but not all investment bank teams have struggled, you know. So if you look to different parts of the world, I was looking at, um, UBS in APAC, and its deal volume in terms of M&A deal volumes up 172% this year. So, so not everyone is feeling quite the pain. So if you kind of— if you use the excuse of a, of a, uh, cyclical downturn as a reason to not, you know, to not try, as an excuse to not perform better, then, you know, maybe hard words need to be said in the teams. Cool.

And then, Piers, anything on Citi, or should we move to Wells Fargo?

Well, when you said the Citi CEO, um, do you know who that is?

I know you mean Jane Fraser, is it?

Yeah, I might just mention her because I think she's one— obviously Citi, one of the biggest banks. Um, I don't think she's that well known yet. She has been— I thought she'd been in the job for less. She's been in the job for 2 years actually. Oh no, March 2021. I thought it had been a shorter period of time than that, but Um, but anyway, yeah, she's, um, obviously, uh, I think she's— I think I'm right in saying the first female CEO at the big, the big giant financials, which is obviously great to see. She's, uh, Scottish, did you know? Um, shout out to her. But yeah, I mean, the only thing I remember about Citi, like when you were talking about the financial crisis, I mean, going back to that moment I do remember 6th of March 2009, which is when the day that Citi, I mean, literally almost went bankrupt. I mean, their share price dropped below $1 and they literally almost ceased to exist. And so they clambered out of that black hole. Now, during that period, of course, JPMorgan fared a lot better and were way stronger. I mean, they got forced to buy Bear Stearns, which was a bit of a— well, and just so, so I guess my point is JPMorgan were the bank the government were going to, to make sure other institutions weren't collapsing. Citigroup were not on that list because they were basically collapsing themselves. Um, so yeah, it's, it's interesting that that, that, that, that is still impacting them, you know, 15 years on. Um, yeah, yeah.

She's actually been at Citi since 2004, so she would have been within the mix over that period.

Yeah.

2019, she was named president of Citigroup and CEO of its consumer banking division, and then she came in in September 2020, replacing Michael Corbat, part of your alumni, Stephen. You have to tap her up and get her on the show. She's Cambridge— Gerton College and then Harvard Business School.

So I didn't get as far as the latter, unfortunately.

CEO of Citigroup?

Not yet.

There's still time.

Yeah, just on that point, that's just a very— it's just quite an interesting one in terms of where banks pick their successors, where banks pick their next leaders. Often says a lot about the direction that the bank's board wants to take the business. And if that's ex-CEO of the retail bank within Citi, then I think that's a pretty clear move, pretty clear signal that that's where Citi's going to be focusing its strategic effort over the next few years.

Yeah. And just final point, in that report, their earnings report, it was their personal banking and their wealth management divisions that probably, out of everything, performed the best. Both were up about 6%. Year on year, coming in at about $6.4 billion. So yeah, makes sense.

Well, let's go to Wells Fargo. And again, you said earlier that although we've just discussed how different the circumstances are for Citi to JP Morgan, but from a business and proposition, I guess from the products, the services they're doing, fairly similar. Is Wells different then? If someone could elaborate, and I know in the mortgages market and so on, how are they different in terms of being a lender, I guess? And is their business more structured around the lending side?

It's a bit more of a normal bank, isn't it? It's a bit more of a commercial, normal, non-investment bank where net interest income and products related to corporate and commercial banking rule the day. I mean, it's a, it's a huge, huge, huge bank in terms of deposit base, in terms of loan book. It's, it's one of the largest in the world, but it probably doesn't get the headlines that the Goldman Sachs is, albeit smaller from a personnel perspective, uh, but all the JPMorgans would get. But it has had— Wells Fargo, mainly US-based, although, you know, increasingly international has been over the last 15 years It's had another brilliant quarter. And I think because it's so exposed to its loan book, net interest income $13.2 billion, 29% jump. Its net income 57% up for the quarter. It's not bad, is it? Earnings per share $1.25 versus $1.16, smashing earnings estimates. $20.53 billion of revenue versus $20 billion expected, you know. So this, this is— again, we're talking about this sweet spot. I just want to, I just want to call out the CEO's, uh, Charlie Scharf's comment. Um, so our strong net interest income continued to benefit from higher interest rates, and we focus on, uh, controlling expenses. As expected, net loan charge-offs or kind of loan write-downs increased in the first quarter, but consumer charge-offs continued to deteriorate modestly. We expect commercial charge-offs to increase, but we haven't seen it yet. So it's kind of like, all right, you want that situation where your net interest income is flying, but the pain that is supposed to be felt through rate rises through the economy has not yet happened. And as you've said on the pod over the last few weeks, will it happen? So it seems to be, again, you're making hay when the sun is shining because these write-downs that usually put a drag on your net interest income, we're not seeing them. Provisions are going up. There is the expectation that there will be more in the future, but they're not really getting tapped. So it's It's an interesting one at the moment.

I think I'm a bit more worried about the forward-looking picture for, well, um, just because, you know, being, being a more of a traditional bank, they are more dependent on those— well, they got more exposure to, let's say, things like the commercial real estate, um, market. And look, there are— there are San Franciscan-based bank— I don't know what They're obviously a global bank, so I don't know what their— the proportion of their commercial real estate book is in the San Francisco area. I imagine a small percentage, but they've probably got a bigger exposure to San Francisco than any other bank. The reason I just say is San Francisco is thought to be right at the top of that sort of list of regions that are most at risk of like a commercial real estate sort of collapse. And obviously there's two— there's a double whammy with the commercial real estate side of things where you've got interest rates super high and jumping fast. And then also, of course, the post-COVID hybrid working model just meaning naturally demand is softening as well. So yeah, I think going forward with all of these banks, really it's the loan provisions or the loan default provisions, I should say. That's the amount of money they're kind of setting aside now to pay for defaults on loans in the future. And obviously that's a forecast, right? They're predicting how many defaults they might see. And I think what you're going to see is that's going to steadily rise. But back to the original point, maybe it's not going to be as bad as we thought.

And this seems, you know, just looking at this quote, you know, we have made an additional $949 million increase in the allowance for credit losses, primarily in the commercial real estate space. So they're obviously kind of factoring this in.

Does this—

Piers, you were obviously around in '08— does this feel very, very different in terms of a normal business cycle slowdown and recession as opposed to, oh my gosh, there's all of these things happening and we haven't factored them in, there's no provisions and— The differences that you feel?

I don't know. This feels very— it's almost like in slow motion, this one. And I mean, I guess going back to the crisis in 2008, 2009, there was a decent interest rate hiking cycle going into that crisis. So thinking about US rates, if memory serves me right, US rates went from about 2% to 6% from 2004 to 2007. Okay, so a decent increase, but it was much slower. Um, so, but an increase nonetheless. So these banks did have this uptick in net interest income, but there was not— there was nothing on the horizon to start preparing for, right? We weren't— back then we weren't going, oh my God, rates are so high and the inflation's through the roof. Inflation wasn't high at all. And so we weren't thinking, right, let's prepare for recession. We were thinking there isn't going to be a recession. And then bang, it just— we literally fell off a cliff. I think this time it's very much the opposite where we're preparing for a recession that's actually just not coming. So yeah, I think the differences are very stark. And yeah, banks are certainly much better prepared.

A recession that is not coming. Famous last words on the pod.

We're talking US here.

One thing I just wanted to flag, maybe for you, Stephen, there was an article that came out on Bloomberg yesterday, and there's been quite a lot of headlines around Wells Fargo being quite aggressive in hiring in the IB space. And the article yesterday on Bloomberg was saying that Wells Fargo have hired a couple of M&A bankers from Barclays, and they're pinching them from Citigroup. Of all places as well, maybe because of, as you've described, the situation there. But so Tom Drake is one of these people. He's joining the San Fran-based bank Wells Fargo from Barclays as an MD focusing on healthcare services. So I guess the sectors might be meaningful here for you. Healthcare and medical technology deals is what he specializes in. And then the other chap, Chris Norman, is joining as well, and that he comes from Citigroup's technology M&A group. So it's tech and healthcare they're pinching at the moment. Is that meaningful or not?

I guess it just makes sense, doesn't it? And I think maybe you can tie that into Piers's earlier comments. If you feel like the going is good at the moment, but you may be slightly overexposed to a particular part of a particular loan book within a particular market, i.e., commercial real estate, maybe maybe this is the time to pick up some smart bankers. I mean, they're San Francisco-based, so technology makes sense. Healthcare probably makes sense as well. Pick up some smart bankers in this space when other, when other organizations, other banks like Barclays and Citi, which are very heavily exposed to the investment banking downturn, need to shift and need to get rid of some people. So it's, it's, it's a kind of classic trade. Um, whether, whether it works out, whether Wells Fargo had the distribution, the network, the, um, the institutional expertise and the reputation to nab a bunch of bankers and then suddenly become the, the go-to. You know, you've got to take on Morgan Stanley and JP Morgan and Goldman Sachs if you're going to get there.

Yeah, so, so Drake and Norman, they're going to report into a chap called David Di Nunzio. I think that's how you say it. That guy. Um, so they're going to appoint to him and a person called Jeff Hogan, and these two are the co-heads of global M&A at Wells Fargo. And Wells Fargo pinched Hogan from MS recently, and Tom Lawler has also been hired from Credit Suisse. They've picked him up in the, in the whole debacle that's happened there, and he's going to focus on real estate gaming and lodging M&A. So it feels like they've been quite aggressive here in this space at the right time, I guess.

Didn't they move into the top 10, um, on deal volume? I can't remember, was it in quarter 1 or maybe it was in 2022 overall, which was like the first time they've been in the top 10 of the IBD league, well, since I can ever remember. But Just talking about Credit Suisse, there was an article in the FT today actually about, um, 120 Credit Suisse bankers have, um, jumped ship, uh, for obvious reasons. And it's actually Deutsche Bank that have been picking up more than any else. So 40 of the 120 have gone to Deutsche Bank, 25 of them went to Jefferies, 20 went to Santander. In fact, one of those 20 is a friend of mine, so I can definitely attest to that direction of, of travel. Um, yeah, so Santander actually are another— I think in some ways similar to Wells Fargo, where they're using this downturn in IBD, plus specific cases like Credit Suisse where they're looking to try and pick up some bankers, just increase that side of their business, maybe some sector specialization to bring a bit more diversity.

And Stephen, what does a banker's, um, in, in their senior, senior part of their career, what does it tend to look like when they move like this? Is it quite common to jump and move from bank to bank? What's like the normal time horizon of an, of an MD in one of these senior positions? Was that not such a thing?

Yeah, it's— I mean, I don't know whether there's a, there's a kind of rule book for it, but I guess if you're thinking as these As these people get more and more senior, as they move into the MD realm, again, the pyramid becomes shorter— uh, becomes steeper. There are less places that you can possibly move to. You've made a lot of money. So at this point, it's kind of retirement and non-executive directorships, uh, if you're not going to kind of continue to move on up into that, uh, up into that— into the top of the pyramid. Making a lateral move. But as we know, that's incredibly expensive. That can be incredibly expensive, you know. So Wells Fargo are not— yeah, I would love to know what they're paying for some of these bankers because it, it won't be cheap. Um, and also, if you've been at a bank, you know, these banks are— they have their own institutional memory and their own culture. If you've been— and a lot of these bankers would have been with the same bank for 15, 20 years to take a shift and go from being, you know, a belt-and-braces bank into a more tech-focused bank or whatever it might be, I think that's going to be quite hard when you're relatively ingrained in an institution. So, you know, there's a number of things to consider. There's not as much movement obviously as, as there would be slightly further down.

Okay, well then, final one, let's go to BlackRock. Markets actually are open now, Wall Street, so I was just trying to see if I can clock what the percentages are pre-market. BlackRock were up about 1% comparative to JP Morgan, which are up nearly 3%. So the BlackRock numbers are always pretty big when they start talking about things like assets under management. But from a quick scan of the initial numbers as they came out, um, well, just going off the top, the Q2 adjusted EPS, $9.28, far exceeded expectations at $8.46. Revenues, $4.46 billion. That's broadly in line with expectations of 4.47. Uh, net inflows topped $80 billion. However, that was actually short. Uh, estimates on the street were for $81 billion, and they did note that cash management products had inflows of $23 billion as investors flocking to take advantage of this interest rate environment. So anything there, um, that really stood out for either of you?

I mean, I think it's a bit more straightforward with asset managers. You know, ultimately their top-line revenue really is a— well, is in large part a function of just how well markets are doing. Just— and that's just because it's about fees generated from assets under management. And as the value of the assets under management change, well, then obviously your fees change, your revenues change, right? And we've obviously had a great first half of the year. Well, I know we talked about a narrow rally, but obviously the big tech giants have just had a stormer, which has meant their assets under management's gone up. And so it's up to $9.4 trillion. So obviously they charge, you know, the dollar fees for that is more, right? So that, that's one thing. I mean, I do think, yeah, and maybe just to add, actually So their revenue overall is, is still down on— so on a year-on-year basis, their revenue is negative, um, it's down 1%. And that's again just a function of where markets are. Um, I mean, go back 12 months and their assets under management was north of $10 trillion. Um, it dropped sharply below $9 trillion. I can't even remember where we got to, um, at the start of this year when it kind of bottomed out, but now we're back up to $9.4. So You know, I think on the one hand it's a bit easier to kind of decipher and forecast, I would say, these revenues.

But if I'm an investor, if I'm an investor in BlackRock, or if I'm an investor in publicly listed asset managers, do I kind of just discount— obviously revenue rises in line with assets under management or the increase in the value of the assets that are already under management— do I just discount that as just you know, it's not, it's not necessarily smart, uh, it's not, it's kind of, it's not necessarily the edge that this asset manager has, especially one that is so ETF-focused, right, index-focused, right? You know, $6.5 trillion of their $9 trillion. I don't know if I'd be celebrating an increase in AUM and fees resulting from that. There's just what, you know, they haven't done anything special, right?

Well, they've got the products for the masses. So you say they haven't done anything special, but they've actually nailed the product that has generated the most amount of inflows of any other product on the planet for the last decade, which is basically stock ETFs. So I guess from a product point of view, they were first and they— that first mover advantage has always been in their back pocket.

Yeah, yeah, I was just going to add, just on that point, there was a comment from Larry Fink, who's the CEO, and he said specifically what you've just said, which is— because I know you and Larry are pals— and so what you came out with the statement earlier today was that our platform-as-a-service strategy powered by strong performance is leading to clients consolidating more of their portfolios with BlackRock. So yeah, makes, makes a lot of sense.

There's another— I mean, what I would say also is, well, obviously on one level it's just, all right, stock indexes have gone up, more assets under management, more revenue, happy days. But underneath that, they do have this thing called— they specifically talked about their Aladdin risk management system, which is then like, like, this is different, right? These are These are other products and very tech-oriented products that, you know, they've been working on for years and years and years and are really starting to build to become, you know, actually something a bit more meaningful in terms of the proportion of their revenue. But that— so the Aladdin risk management system revenues and from other technology services, that was up 8%. So whilst net overall their revenues down 1%, that part of their business is up 8%. So that clocked in at $359 million now, um, you know, which is starting to get, um, pretty interesting. Um, and yeah, they said, uh, Larry Fink said their 25 largest clients had given BlackRock a larger share of their spending over the last 5 years on these kind of tech, you know, risk management type, type products. So their technology um, you know, is really— has probably been best in class because you've seen other asset managers really suffer a lot more because they're— that kind of tech product bit piece, if you like, just isn't, isn't as strong.

Yeah. And there was an equity analyst in the FT on the back of this who kind of encapsulated that, that thinking. He wrote that they've built a better mousetrap in terms of having better technology and options across all the asset classes?

Well, look, I mean, so calling it platform as a service, you know, suggests that they are trying to get into the tech speak. I don't know if you've been to BlackRock's offices in London recently, but it is, it's like, it's like a tech startup, you know. They're all wearing button-down shirts and sipping their lattes. It doesn't feel like, uh, it doesn't feel like when you go into Schroders or something like that.

It feels like flat white.

Sorry, sorry. Yeah, not your type. But yeah, the last thing I want to say about these numbers is just in terms of those inflows of $80 billion, you mentioned $23 billion in cash management. There are actually net outflows in equities. So even though fees from assets under management driven by the equity rally have increased, there's been $4.3 billion of outflows and $44 billion of inflows in fixed income. So just in terms of where, you know, where the money is going, that's quite, quite an interesting kind of signal as to where people see the future, right?

And that's what I mentioned earlier, right? This is where people with cash in deposit accounts at banks earning no interest whatsoever— well, this is where it's going, right? They're pulling it out. And so this goes back to the point about being the biggest and having a good set of products. And a good platform. It's easy to kind of just get onboarded. So yeah, if you've got some cash you want to generate more return from, well, I'll take it out of my account. Where am I going to put it? Well, BlackRock. Let's start with them, they're the number one. And then obviously you start with them and then you probably just end with them as well and you just stick your money there.

Okay, cool. Well, let's, let's look to just bring everything together and talk a little bit about the market right now. I mentioned earlier we've just gone through the open on the street. I'm not sure if either of you have got your charts up, but US equities have just popped to the upside through the open. Um, the NASDAQ is— NASDAQ's ripped, feeling fine on a Friday here. And actually, I was just looking at the NASDAQ on a daily chart. I mean, it's the highest going back to the beginning of 2022 right now. And there's a really— I think Wednesday's CPI saw the price really break quite a key long level of resistance which was holding the price action for recent weeks, but by de facto then this year, 2023. And it was capping some of the, the price activity we had through March and a retest in, in late, late March, April of last year. So technically looks quite bullish, Piers. I mean, perhaps we could just also layer in firstly the reasons why, and obviously that inflation number was really important this week.

Yeah, so this is markets, and particularly tech, uh, still leading, um, but it's about a reducing risk of a bad recession. So a hard landing— we talk about hard landing and soft landing, right, which is just a description of how bad a recession is when you're on that downward leg of the cycle. And what's happened because of Wednesday's inflation data the risks of a hard landing have gone down, and the probability of therefore a soft landing has gone up. And I guess you might even want to put in the category of a, a probability of no recession at all, um, has gone up. So this is about the inflation data, which is, of course, of course has driven everything for the last 2 years and is the entire reason why the central banks have, um, ramped up interest rates so quickly and the key reading was on the core inflation print for the month of June, came in well below expectation and came in at 4.8%, which just indicates that inflation not only because, well, I guess it's been trending down for a while, right? But that downtrend has just sped up. So we are accelerating back towards 2% at a faster rate than we thought. So it just means that The Fed, I think if you look at rate probabilities, I think it's still the case that markets are pricing in a rate hike from the Fed in 2 weeks, 25 basis points. But actually it's beginning to look like that might be it. So like one more hike and done. So, so yeah, the peak of the interest rate hiking cycle being revised down, and then maybe, yeah, rates don't stay as high for longer if inflation is going to return back to normal fast. Then yeah, this, this is a, this is quite a pivotal moment perhaps in that whole debate about are we going to get a recession, are we not, are the Fed going to carry on hiking, are they not.

So yes, add some percentages there. So the probability of the hike on the 26th of July, next FOMC meeting, is still 95%. So pretty much hasn't altered at all. However, the probability of end of year which was priced for another step up, as you said, that's now decreased to 18%. And just sitting at the then 25 extra, which would take us to 5.25 to 5.5 federal funds rate, that's at 62%. So yeah, it's this— it's, it's the one and done as far as the market is concerned for now. I would say now till December is a lifetime, of course. In terms of percentages, just, just having a look, Nvidia is up 12% on the week, uh, Meta is up 8%, Google's up 5%. These aren't small companies here, so it's definitely got some decent pace to it. One question then, maybe to wrap the British pound, Piers. That's, that's also well and above through 1.30 at this point in time, just because I want to talk in your mind about the contrast between some of the data we've seen. This week we had GDP was a contraction, but only 0.1 against 0.3 expected. So the resilience, the resiliency, despite the coronation of King Charles— God bless the King— he— the economy's still going and wages are still going up. It was shown in the latest jobs data this week. So further fueling this idea of UK rates going even higher.

So anything there that you see with these Well, and Rishi signing off on a 6% pay deal for the public sector. You know, all of this stuff feeds into the very clear evidence that the inflation problem in the UK is— has definitely not gone away like it is doing in the US. The US are on a great trend here on inflation. Unfortunately, the UK, it's still— not only is it not coming down, it's still going up. At a core inflation level. That pound against the dollar chart's quite extraordinary. Like, just in, in 2 weeks, less than— basically in 1 week, it's gone from 1.27 to 1 to above 1.31. I mean, I can't, can't describe how big a move that is in such a short space of time. Now, a lot of this is dollar related, right? The dollar is weakening rather than the pound strengthening. So the dollar is devaluing because of that inflation data. Indicating the Fed are done, whereas the Bank of England, they're going to have to carry on hiking for God knows how long here. So you've got all of a sudden quite a divergence again in the interest rate expectations between what the Bank of England will do, carry on hiking, and what the Fed will do, stop. And so that's leading to the pound depreciating and the dollar sort of devaluing. So Yeah, quite an amazing move, I have to say.

Okay, cool. Well, look, just to wrap, two things I wanted to say. For one, yeah, given the breakdown of what's been described, for some people might have been quite a lot to absorb. So if you jump on the AmplifyMe YouTube channel, Stephen did an awesome series of explainers that are like 2 to 3 minute long videos with animations and slides that explains some of these things like What's the difference between investment bank and a commercial bank and the different divisions and so on? And when you see that visual cue, maybe it will help just pull the pieces of the puzzle together of what we've discussed for anyone where, you know, this is— might be a new subject to you. So do check that out. And then also what I'll do is I'll post myself on LinkedIn this weekend some of the earnings statements where we've, you know, gathered some of this information we've discussed. It's not that it's difficult to find, you just got to know where to look. And so I'll give you a little walkthrough for any curious-minded students or investors who want to know how to find these metrics. I'll give you some step-by-step advice on there as well. So feel free to check out Ampfy.me and then feel free to connect with all three of us on LinkedIn. We'd love to speak with you. But thank you very much, guys.

Thanks, Ant.

Catch you later. Thank you.

All right, take care.