Goldman Sachs 3Q17

Marty Chavez – CFO

M&A pipeline

The pipeline, as you noted in equity underwriting is strong also in our conversations with clients on the advisory side. There’s no sense of slowdown. We’re seeing a pickup in client dialogue, particularly I would note in technology, media, telecom, as well as industrials and natural resources. And so, it’s strong for all of the reasons that you would expect that CEOs are confident, equity market support valuations and acquisition currencies, the financing markets are open, the overall levels of financing costs are relatively low by historical standards. That’s all constructive on tax reform which you also mentioned, that is certainly a part of our engagement with clients. And I will also note however that clients, it seems to us, have moved towards saying, well, tax reform would be a good thing but it’s not stopping us from considering strategic acquisitions and sales right now.

Fed unprecedented but good backdrop 

note that there’s a positive backdrop, so the U.S. economy is performing, there’s improving GDP growth depending on who you talk to, the U.S. is at or perhaps even beyond full employment. And at the same time, all of this unwinding quantitative easing is unprecedented territory, never happened before. So, you could see volatility and spikes showing up in this process, simply because it’s never happened before. We don’t see duly unwind risk priced into the markets. You could imagine of all spikes that that client confidence make market making difficult, you could also imagine a positive scenario with modest fall, more conviction, more activity, all of these things could be catalysts for the FICC business, rising inflation, any changes in central bank policies against the expected trajectory, clarity on U.S. policies of all kinds, tax, obviously regulation, also infrastructure, all of these things you could see as better catalysts.

Bank of America’s (BAC) Q3 2017

Brian Moynihan – Chairman and Chief Executive Officer

Moderate economic growth projected

“We expect moderate economic growth to continue this year and we expect the US to grow a little faster next year above 2% and outside of US is growing in the mid-3s.”

Consumers are spending

“in our consumer payments we are seeing consumer activity pickup. Consumers are spending, whether it is checks written, cash taken out of the ATM’s, P2P payments, and all the debit and credit cards, 5% more through the first nine months of 2017 than they did in the first nine months of 2016. That’s up faster growth rate than it has been in prior years.”

Optimism persists

“Our commercial clients continue to perform well. They continue to remain optimistic. They continue to look forward to continue implementation of a pro-growth agenda, particularly focused on meaningful tax reform. Housing starts home prices continue to remain on positive trends. Employment is strong and employers continue to search for skilled workers. So that leads to a solid atmosphere and we see no near-term indications of any change to it.”

Paul Donofrio – Chief Financial Officer

A rate hike would be beneficial

“If we get a late 4Q hike, as expected by the market, this should mostly benefit NII in Q1 2018. With respect to asset sensitivity as of 930 [ph] an instantaneous 100 basis point parallel increase in rates is estimated to increase NII by 3.2 billion over the subsequent 12 months. This is largely unchanged from June 30 and continues to be predominantly driven by our sensitivity to short-end rates.”

Morgan Stanley 3Q17

James Gorman – Chairman & CEO

lending is a big differentiator in private wealth

So I was on a phone call with a client yesterday. His adviser left to a competitive firm, a multi-hundred million dollar relationship. We have a significant loan out to that client. And the client has no interest in moving because they like the loan that we have. They like the funding they’re getting from that. They — in fact, after the call, he said they were likely to increase their assets here. So that stickiness for the high end is a big deal. These markets go in cycles as we all know. And people want access to credit. They have large illiquid positions, so concentrated stock in businesses they founded, and they don’t necessarily want to liquidate that. And we’re in a position where we’re dealing with a lot of very, very wealthy people.
Jonathan Pruzan – CFO & Executive VP

Cash at low levels

. It happened a bit sooner than we anticipated as we saw more cash go into the markets, particularly the equity markets as those markets rose around the world. And we’ve seen cash in our clients’ accounts at its lowest level.

Environment won’t last forever

think the underlying fundamentals sort of the global recovery, if you will, are pretty positive. But we haven’t seen real dramatic changes in the rate profile. The 10-year treasury rebounded a little bit here recently. But given the geopolitical risk and the persistently low inflation numbers, it’s a pretty tight trading band, FX rates, tight trading band, credit spreads, tight trading band. So again, I don’t think it’s structural. I think it’s cyclical at this point. At some point, there will be catalysts to change the direction of the trading environment, and whether that’s tax policy, whether that’s better inflation data. But there will be something. And so this has been a sort of a subdued environment. I don’t think it persists forever. But when and how that catalyst appears is clearly a question mark.

Netflix 3Q17 Earnings Call Notes

Reed Hastings – Founder and CEO
David Wells – CFO

Ted Sarandos – Chief Content Officer

No correlation between spending and price increases

I shouldn’t let that go without addressing that there’s no timing correlation between our intent to grow content and to grow content spending, and the price increases. I mean, this has been planned for a long time and so we’re sort of growing and slowly growing and planning the business steadily. So we’ve assumed that we’re going to grow ASP slowly over time and we’re taking the content up with that as well.
Happy with competition

I think everyone is going to have their own strategies and it’s exciting that everyone is trying to make over-the-top television better and better. I think that is good for all of us and we just have to focus on creating content that our members can’t live without and get excited about it every month. So that’s really the — and not get too distracted by the competitive landscape around us and whether or not one of our partners decide to produce for us or to compete with us, that’s really a choice that they have to make based on their own business. And we’re thrilled that more people are doing it, because I think it’s great for the — for innovation. I think it’s great for consumers to have a lot of choice, and that we just have to be the best choice out there.

First Republic 3Q17

Mike Rofflee

We have experienced a modest increase in our deposit rates, despite several increases in the Fed funds rate. Loan pricing in our market however has remained very competitive causing some pressure on our net interest margin

Bank of America 3Q17 Earnings Call Notes

Brian Moynihan

Credit quality improvement is years in the making

That’s a multi-year discipline. This is not something that happened this quarter. This is – multi-years of changing the underwriting standards and sticking to it and not varying those standards as we move through time. 

Company Notes Digest 10.12.17

Each week we read dozens of transcripts from earnings calls and presentations as part of our investment process. Below is a weekly post which contains some of the most important quotes about the economy and industry trends from those transcripts. Click here to receive these posts weekly via email.

Earnings season just started to trickle, but it was still a light week for conference calls. The story remains largely the same as it has been for a while now. The global economy is strong.

The Macro Outlook:

The market environment has improved considerably in the past year

“Over the past year, the market environment has improved considerably. We’ve seen greater political stability in Europe. China is continuing to show economic strength, and after a long period of stagnation, we’re seeing consistent growth in Japan. Overall, the world has become much more resilient. However, large cash balances remain on the sidelines.” —Blackrock CEO Laurence Fink (Asset Management)

The consumer is healthy

“not just in the U.S. but as we look around the world we would rate the health of the consumer right now is pretty good…as you look across the world unemployment is low, employment is high. Probably the bigger challenge to the consumer or to the worker has been the lack of wage growth…And we’re beginning to see some of that and again that’s helping to the consumer.” —Citigroup CFO John Gerspach (Bank)

Business travel is strong

“demand strength continues and we are seeing further improvements in business fares. Indeed our last survey of corporate travel managers showed more than 85% project their spend will be maintained or increased in the fourth quarter and into 2018…Europe is coming out of a multi-year recession. US economy is strong and people are traveling for business” —Delta President Glen Hauenstein (Airlines)

Credit quality is so good it’s hard to believe

“although we absolutely expect at some point that we’re going to see normalization of credit, we haven’t seen that yet – I just want to make that clear. We are appropriately cautious and staring at everything, but we’re not seeing any deterioration or any thematic fragility in our portfolio that we’re concerned about at this point.” —JP Morgan CFO Marianne Lake (Bank)

“Obviously we are a long way or we’re a long way from the last credit cycle and so we’re always challenging ourselves in terms of where we are. But a lot of the signs we looked for in terms of the deterioration of the consumer I got to say right now, we just don’t see” —Citigroup CFO John Gerspach (Bank)

Some still see risk

“We seem to be living in the riskiest moment of our lives, and yet the stock market seems to be napping. I admit to not understanding it. I don’t know about you, but I’m nervous.” —Nobel Prize Winner Richard Thaler (Economist)

Geopolitical tensions always lurk

“geopolitical tensions don’t seem to have weighed on growth at least as of yet, I don’t know how long that can continue. And while tax reform remains a question mark we do like the direction the administration is going in terms of regulation ” —Citigroup CEO Mile Corbat (Bank)

Tax reform is uncertain but it’s not a factor in most business decisions

“at this point [tax reform] is not front and center in the dialog we’re having with our clients about whether they should or shouldn’t do a strategic deal or take an action, so I would say it is neither holding up business nor spurring business, but that could change. So at this point, I’d say it’s a factor but not a driving factor, and that could change.” —JP Morgan CFO Marianne Lake (Bank)

There is still inflation; that hasn’t changed

“There is still inflation; that hasn’t changed…if at some point we determine that we can’t protect our level of profitability without resorting to some sort of price action, then we will take that step…But we didn’t do anything along those lines in the third quarter.” —Fastenal CEO Dan Florness (Industrial Distributor)

International:

Brexit negotiations appear to have reached a deadlock

“we have reached a state of deadlock which is very disturbing for thousands of project promoters in Europe and it’s disturbing also for taxpayers…We worked constructively. We clarified certain points. Without making massive steps forward” —EU Chief Brexit Negotiator David Bernier (Government)

Financials:

Banks are constantly under attack from a cyber security perspective

“not to diminish the importance of any individual breach or situation, is that we are honestly under constant attack, both in a more general side but also from a fraud perspective, and so while we always react and learn lessons from every individual situation, this is not the first breach nor will it be the last breach” —JP Morgan CFO Marianne Lake (Bank)

Full transcripts can be found at www.seekingalpha.com

Citigroup 3Q17 Earnings Call Notes

Michael Corbat – CEO

Macro environment remains positive

“The macro environment remains a largely positive one, growth while not as high as we would like remains consistent and we don’t see too many economies in distress. However, while geopolitical tensions don’t seem to have weighed on growth at least as of yet, I don’t know how long that can continue. And while tax reform remains a question mark we do like the direction the administration is going in terms of regulation which we see as just a course to accommodate higher growth rather than a full scale regulatory repeal agenda.”

Near term challenges from natural disasters

“We’ve obviously also had the near-term challenges of a lot of natural disasters. And whether that’s been hurricanes or earthquakes or flooding damages that it comes as a result of some of those things, those things will have a near-term impact in terms of what growth will look and feel like. But probably as we’ve seen historically in some ways those actually end up being a stimulus in the longer-term in terms of those monies that come back in the form of aid and investment and in rebuilding. And that’s our expectation that we would probably see that occur again.”

John Gerspach

Consumer health pretty good

“I would say it is not just in the U.S. but as we look around the world we would rate the health of the consumer right now is pretty good. And again so you touched on a number of the most important things, so when you look at a consumer what are the things you look at, does the consumer have a job. If they have a job are they going to keep it, if they don’t have a job how difficult is it to get one. And I think as you look across the world unemployment, slow employment is high. Probably the bigger challenge to the consumer or to the worker has been the lack of wage growth and again not just in the U.S. but in many places. And we’re beginning to see some of that and again that’s helping to the consumer.”

No sign of deterioration

“Obviously we are a long way or we’re a long way from the last credit cycle and so we’re always challenging ourselves in terms of where we are. But a lot of the signs we looked for in terms of the deterioration of the consumer I got to say right now, we just don’t see and if you go and look at our NCL rates and look at our delinquency rates around the globe from the document we’ve given you, again the numbers don’t point to it.”

Fastenal 3Q17 Earnings Call Notes

Dan Florness – President and CEO

Didn’t take price this quarter, but there is still inflation

“As you roll into 3Q, we feel like we got a little bit of incremental price but we also began to see a little bit of the incremental cost flowing through. And frankly, those probably balanced out relative to where we were in Q2. So, yes, we feel like the price that we envisioned getting, we got. The costs have begun to come through. We talked about that, perhaps hitting in Q4 that will certainly be the case but we saw some of that hit in Q3 as well to result in sort of stability in that dynamic, if you will.

There is still inflation; that hasn’t changed. And I think I would probably answer the question of how we address that the same way I have answered in the past which is that if at some point we determine that we can’t protect our level of profitability without resorting to some sort of price action, then we will take that step, and we believe that we would be successful in that. But we didn’t do anything along those lines in the third quarter.”

Continuing to see really good trends

“Luke, if I look at what we’re seeing, I have a few observations. One is we’re continuing to see really good trends in the numbers. Averages are in line with what you are seeing. Averages can be deceiving; you have some that are well above it, some that are below it. That’s the nature of the averages I guess. But very pleased with the run rates we are seeing from the standpoint of what we would have expected”

Miscellaneous Quotes for Week to 10.13.2017

Richard Thaler, Nobel Prize in Economics Winner on Bloomberg. (Here and here

“We all need a lot of humility, and especially about the economy…Surely it can’t be based on the certitude that there will be a massive tax cut, given the seeming inability of the Republican Congress to get their act together. So I don’t know where it’s coming from.”

Risky times

“We seem to be living in the riskiest moment of our lives, and yet the stock market seems to be napping. I admit to not understanding it. I don’t know about you, but I’m nervous..”

David Bernier, Chief EU negotiator

Deadlock on Brexit Bill

“we have reached a state of deadlock which is very disturbing for thousands of project promoters in Europe and it’s disturbing also for taxpayers…We worked constructively. We clarified certain points. Without making massive steps forward””