JP Morgan Chase (JPM) at Deutsche Bank Conference

Marianne Lake – CFO

Don´t give up on reforms

“…we still remain very hopeful that there will be policy and reform on the agenda. I think it’s hard because everybody was super enthusiastic out of the gate, but the reality is all of these things is they’re extraordinarily hard and there are reasons why tax reform hasn’t been successful over the course of the last several decades…I don’t think it’s time to give up the belief….there’s significant reasons to be optimistic and in any case, as we’ve said many times before, just pausing in and of itself is a positive thing.”

But the status quo remains for now

“The flipside to that…is that nothing has actually changed and so when we come into work every day right now, we still need to work hard to comply with the rules as they currently stand to uplift our environment to the degree that we’ve been asked to do that, to continue to get ready to comply with rules that will be coming down the pipe, and so we can’t sort of take our foot off the pedal or eye off the ball in that sense. So in that sense, it’s sort of hurry up and wait.”

Optimism has faded a bit

“The levels of optimism are still high, they’re still higher than pre-election. They may be off slightly from their peak, but I think generally people are still feeling that the pro-growth agenda is real. How exactly it ends up being manifested in reform and policy action over the course of the next six, 12 months is still an unknown.”

A subdued trading environment

“I would say as a sweeping generalization, but it’s pretty broadly true, low rates, a more cautious outlook on rates, low volatility with very small bouts of increased volatility but then returning back to low levels, have led to low client flow and a generally quite subdued and challenging trading environment for the flow businesses.”

Q2 revenues likely to be down

“I will tell you that quarter to date across our markets businesses, we are down about 15% year-on-year. That’s pretty normal seasonal declines in the first quarter and second quarter…That’s fixed income down more and equities up slightly, and as I look to June, I would say I don’t see any particular reason for that to change, particularly given the strength of our June last year.”

Consumers in good shape

“…consumers are in very good shape. Their balance sheets are repaired, they’re pretty liquid, their debt to income ratios are pretty low, debt service burdens are pretty well insulated from interest rate hikes because interest rates have been low forever, and they’ve been able to refi debt at–term out at low rates….So generally speaking, consumers feel very well insulated from rate hikes, particularly if they’re gradual….the central case is gradual improvement in rates or normalization of rates, consumers are able to in large part withstand that very well. “

A Collection of Quotes

Jeff Gundlach, CEO of DoubleLine Funds, at Grant’s Fall 2016 Investment Conference

Quotes from Bloomberg and Business Insider articles

Rates should be going back up

“How in the world could we be talking about rates never going up when in fact rates have bottomed?…In the investment world when you hear ‘never’,( as in rates are ‘never going up’), it’s probably about to happen”

Getting back inflation

“I can bring back inflation by 5:00 pm by giving everyone $1 billion. The lines at BMW lots would be a sight to see”

Negative rates are harming the banks

“You cannot save your faltering economy by killing your financial system and one of the clear poster children for this is Deutsche Bank’s stock price…If you keep these negative interest rate policies for a sufficient future period of time you are going to bankrupt these banks.”


Monthly Investment Outlook for October 2016 from Bill Gross, Portfolio Manager Janus Capital

We have a casino here

“Our financial markets have become a Vegas/Macau/Monte Carlo casino, wagering that an unlimited supply of credit generated by central banks can successfully reflate global economies and reinvigorate nominal GDP growth to lower but acceptable norms in today’s highly levered world.”

Negative rates are harming the economy

“Our argument is that NIMs (net interest margins) for banks, and the solvency of insurance companies and pension funds with long dated and underfunded liabilities, have been negatively affected and that ultimately, the continuation of current monetary policies will lead to capital destruction as opposed to capital creation.”

Investors may consider other options

“At some point investors — leery and indeed weary of receiving negative or near zero returns on their money, may at the margin desert the standard financial complex, for higher returning or better yet, less risky alternatives. Bitcoin and privately agreed upon block chain technologies amongst a small set of global banks, are just a few examples of attempts to stabilize the value of their current assets in future purchasing power terms.”

The fight for returns at zero bound won´t end well

“Investors/savers are now scrappin’ like mongrel dogs for tidbits of return at the zero bound. This cannot end well.”


IMF Managing Director Christine Lagarde Interview with CNBC’s Sara Eisen

We need more aggressive growth not the present modest growth

“We have modest growth, because there are modest policies. We are very strongly advocating for more vigorous growth, more inclusive growth, and to do that, we need to set off more vigorous and determined policies it’s doable and it requires a bit of political determination and better coordination between the players…what we need at the moment is actually more growth, not that modest growth ”

Brexit brings uncertain times

“We think that there will be consequences. There will be down side effect as a result of whatever will come, and we’re still not sure when the negotiations will begin. This famous article 50 has not been triggered where, it will open two years of negotiations. If that is not called uncertainty with a big U, i don’t know what is. ”

Canadian Imperial Bank of Commerce (CM) 3Q16 Earnings Call Notes

Increase in sales force and focus on relationships has been key to growing retail banking segment

“On the personal side, again strong growth, good balanced growth in the total retail and business banking side, again balanced deposit and GIC, 8% growth on the lending side, 9% growth, so again trying to achieve a balanced book and those factors again go to things we’ve been working on for some period of time, building on deeper sustainable relationships and I think probably the key thing is the sales force and sales productivity, like we’ve really added to our sales force over the last few years.” David Williamson – Senior EVP, Group Head-Retail & Business Banking


CM is being cautious with mortgage growth, but is confident that relationship based sales team will prevent delinquencies

“Yeah, I think we are being prudent like, for example, on the business side some time ago we pulled back on commercial mortgages, right, we’re pretty much letting that book grow at a very moderate rate, we could really be growing that book if we wanted to be… You are right about the headlines on the housing market and Canadian indebtedness… And we feel really quite good about our growth in that market. But why is that? Well, first, it’s being done the right way through a much larger sales force. And secondly the productivity that sales forces is up and third, it’s important, based on client relationships like our team out there is very much embedded in the local community… it is a relationship based, balanced book.” David Williamson – Senior EVP, Group Head-Retail & Business Banking


CM believes the credit quality in the Vancouver market is strong

“I think that Vancouver has become a real international destination city, it’s a different market and we need to keep that in mind. It’s a strong and diversified economy and when we look at that market, the delinquency rates are actually lower than our national average. So we have not changed our underwriting standards.” Laura Dottori-Attanasio – Chief Risk Officer


PrivateBancorp acquisition will have an impact slightly higher than 100 basis points on CET1 ratio, but ratio will stay at 10% target

“I think as far as the PrivateBancorp acquisition is concerned, I think it may be slightly higher than that. But we have targeted to be a 10% and we continue to target that level, Mario.” Kevin Glass – Chief Financial Officer


CM rebuffs question regarding losses of mortgage insurers working with CM

“I hear what you’re saying but I guess, when we do our stress analysis here, we do our stress analysis based upon the impact that we at CIBC are going to have and not on the one that our insurer might have.” Laura Dottori-Attanasio – Chief Risk Officer

Nordea (NRDEF) Q2 2016 Earnings Call

Casper von Koskull, President and Group CEO

A significant dip in Net Interest income YoY but stable QoQ and leveling off margin pressure

“Net interest income has been under severe pressure for many years due to lower interest rates and low volume growth. NII declined 8% compared to the same quarter in 2015. However, it improved somewhat sequentially and for the second half of 2016 we expect an inflection point with an improving trend, for the first time since 2012.”

Q2 reflects effective cost management.

“Costs are under strict control and increased by 3% in local currencies compared to the second quarter of 2015. The cost-to-income ratio increased to 50%, compared to 47% in the second quarter of 2015. We expect costs to increase by 3% in local currencies in 2016 and to remain on a largely

unchanged level in 2018 compared to 2016.”

Ari Kaperi, Group Chief Risk Officer and Head of Group Risk

Stable loan losses compared to previous quarters

“Our loan losses in this quarter were reductively at a stable level compared to previous quarters so that we have had these levels of losses now in eight, nine consecutive quarters, which is still within this long term average level of 16 basis points.”

Impaired loans were up 4%

“One issue which made raise some potential risk to impaired loans they were up 4% roughly $225 million in absolute terms in this quarter. The reason for this is three individual customers and the fact that all these customers are quite well collateralized for example the biggest one of these which is representing half of the increase 100 — is grafted by ECA, Export Credit Agency. That means that our individual loan losses for this new impaired loss were relatively small and thereby our provisioning level at a group level is somewhat down. We are highlighting this quarter that what we had said even earlier that their strategy and we see clearly increased risk levels in oil and offshore side.”

They expect losses on the offshore oil portfolio.

“The overall size of our oil and gas plus coal services plus offshore portfolio is roughly $7 million, 75% is still consider as healthy, but 25% is bit higher risk. We anticipate that from this portfolio we see increased losses both in individual level as well as collective provisioning level, but nevertheless, the biggest relative size of this portfolio in Nordea context is relatively small, so its only 1.5% and it should not so significant or have significant impact.”

…but they cannot estimate the level of offshore losses though they have made provision for them

“And we expect loss levels from this risky or part of the oil offshore — oil portfolio. It’s very difficult to give on – actually impossible to give any kind of precise estimate…Currently, we have around 90 million of collective provisions just to cover increased risk for individual losses in this portfolio.”

There’s risk of a rate cap in Norway that may dim earnings in Q3 and Q4

“So the risk you can say is that there would be a rate cap in Norway in September which I believe is our economist’s view and many other as well, so, if that rate capital come, then in September that will then partly take out the positives that you would see in the third quarter, but that will come in the fourth quarter.”


Extra Notes on Q2 financials


  • Net interest income down 8% YoY and unchanged QoQ, Net losses down 1% YoY
  • CET 1 ratio improved 10bps from previous quarter to 16.8% (Pro forma 17.2%)
  • 2016 preliminary outcome of SREP indicates a minimum requirement of 17%.
  • Diluted EPS EUR 0.25 vs. EUR 0.24 YoY



G20 Finance Ministers and Central Bank Governors Meeting Communique 23-24 July 2016

The Global economy is recovering slowly though significant risks persist

“The global economic environment is challenging and downside risks persist, highlighted by fluctuating commodity prices, and low inflation in many economies. Financial market volatility remains high, and geopolitical conflicts, terrorism, and refugee flows continue to complicate the global economic environment..”

Brexit added to uncertainty but they are positioned to address the consequences.

“ the outcome of the referendum on the UK’s membership of the EU adds to the uncertainty in the global economy. Members of the G20 are well positioned to proactively address the potential economic and financial consequences stemming from the UK referendum. In the future, we hope to see the UK as a close partner of the EU.”

They are determined to see growth using all tools possible with clear communication of actions

“We are taking actions to foster confidence and support growth. In light of recent developments, we reiterate our determination to use all policy tools – monetary, fiscal and structural – individually and collectively to achieve our goal of strong, sustainable, balanced and inclusive growth…We will carefully calibrate and clearly communicate our macroeconomic and structural policy actions to reduce policy uncertainty, minimize negative spillovers and promote transparency.”

They promise to not use competitive devaluation & protectionism

“We reiterate that excess volatility and disorderly movements in exchange rates can have adverse implications for economic and financial stability…We reaffirm our previous exchange rate commitments, including that we will refrain from competitive devaluations and we will not target our exchange rates for competitive purposes. We will resist all forms of protectionism.

A steely response to excess steel capacity

“We recognize that excess capacity in steel and other industries is a global issue which requires collective responses… The G20 steelmaking economies will participate in the global community’s actions to address global excess capacity.”

Reaffirmed support for financial reforms including Basel III

“Recent market turbulence and uncertainty have once again highlighted the importance of building an open and resilient financial system. To this end, we remain committed to finalizing remaining critical elements of the regulatory framework and the timely, full and consistent implementation of the agreed financial reforms, including Basel III and the total-loss-absorbing-capacity (TLAC) standard as well as effective cross-border resolution regimes.”

The end of fossil fuel seems nigh as commitment to end them is reaffirmed.

“We reaffirm our commitment to rationalize and phase out inefficient fossil fuel subsidies that encourage wasteful consumption, over the medium term, recognizing the need to support the poor. Further, we encourage all G20 countries to consider participation in the voluntary peer review of inefficient fossil fuel subsidies that encourage wasteful consumption.

European Central Bank (ECB) Monetary policy decision July 2016


Rates left unchanged

“…the Governing Council of the ECB decided that the interest rate on the main refinancing operations and the interest rates on the marginal lending facility and the deposit facility will remain unchanged at 0.00%, 0.25% and -0.40% respectively.”

Interest rates expected to be lower for longer

“The Governing Council continues to expect the key ECB interest rates to remain at present or lower levels for an extended period of time, and well past the horizon of the net asset purchases.”

Monthly asset purchases to continue

“Regarding non-standard monetary policy measures, the Governing Council confirms that the monthly asset purchases of €80 billion are intended to run until the end of March 2017, or beyond, if necessary, and in any case until it sees a sustained adjustment in the path of inflation consistent with its inflation aim.”

Bank of America Q2 2016 Earnings Calls Notes

Bank of America Q2 2016 Earnings Calls Notes

Net interest income shows stable growth despite low interest rates

“in summary, adjusted for market-related changes in both last year’s second quarter and this year’s second quarter, we grew NII by 400 million or 4% year-over-year. And that took place while the 10-year Treasury yield fell 86 basis points from last year on a spot basis. Going forward in a stable interest rate environment, we believe we can maintain NII around the second quarter 2016 level based on the current loan and deposit growth we see. And if rates rise, we would expect NII to grow.” Brian Moynihan – Chairman and Chief Executive Officer


Investment banking and sales and trading segments are not in need of change

“question is often asked how we need to change this business, especially the FICC area as many of our customers have. I want to hit this head on. First of all, fixed income a good business for us here at Bank of America. It is a business which benefits not only by its core activities but by being coupled with our massive global banking franchise that has leadership positions across the globe. Combined together, they generate a pretty steady billion dollars or so of quarterly investment banking fees.” Brian Moynihan – Chairman and Chief Executive Officer


Management is focused on reducing expenses

In the trailing four quarters the total expense base was $56.3 billion. As we look out from the second – the third quarter of 2016 through the next six quarters into 2018, we believe that with our SIM efforts and the continued work we’re doing across the board on expenses, we’re targeting an annual expense number of around $53 billion in total expenses for the year 2018. Brian Moynihan – Chairman and Chief Executive Officer


And on restructuring operations

“I want to point out another important milestone for our company in quarter. This quarter we changed our reporting to eliminate the legacy assets in the servicing segment. This completes transformation.” Brian Moynihan – Chairman and Chief Executive Officer


Credit performance improves and BAC reduces exposure to energy

“the question we often get is, is credit deteriorating? As you can see, we remain very pleased with both consumer and commercial credit performance. Not only have net charge-offs not gotten worse, but they have improved in the most recent quarter moving back below $1 billion. Provision expense is and will remain roughly equivalent to net charge-offs. Even our energy portfolio we have seen lower exposures improve losses.” Paul Donofrio – Chief Financial Officer


Management believes BAC can perform in current economic conditions

While growth concerns persist in many countries, the U.S. economy continues to steadily improve, albeit at a less than optimum pace. The diversity and strength of our franchise makes us more relevant to clients and customers during times such as these, and you can see that in our results. Paul Donofrio – Chief Financial Officer

European Central Bank (ECB) Press conference July 2016

Mario Draghi, ECB President

Financial markets were resilient post-Brexit with help from central banks

“Following the UK referendum on EU membership, our assessment is that euro area financial markets have weathered the spike in uncertainty and volatility with encouraging resilience. The announced readiness of central banks to provide liquidity, if needed, and our accommodative monetary policy measures, as well as a robust regulatory and supervisory framework, have all helped to keep market stress contained.

The intention is to meet policy objectives by all instruments necessary

“Governing Council continues to monitor economic and financial conditions very closely and safeguard pass-through of monetary policy…If warranted to achieve its objective, the Governing Council will act by using all the instruments available within its mandate.”

Sluggish growth in the Euro area in Q2 2016 expected to persist in the near term

“Euro area real GDP increased by 0.6%, quarter on quarter, in the first quarter of 2016, after 0.4% in the last quarter of 2015. Growth continues to be supported by domestic demand, while export growth has remained modest. Incoming data point to ongoing growth in the second quarter of 2016, though at a lower rate than in the first quarter. Looking ahead, we continue to expect the economic recovery to proceed at a moderate pace.”

Significant headwinds inform a negative growth outlook

“headwinds to the economic recovery in the euro area include the outcome of the UK referendum and other geopolitical uncertainties, subdued growth prospects in emerging markets, the necessary balance sheet adjustments in a number of sectors and a sluggish pace of implementation of structural reforms. Against this background, the risks to the euro area growth outlook remain tilted to the downside.”

To generate optimal results, monetary policy needs to be augmented by structural reforms and fiscal policy

“in order to reap the full benefits from our monetary policy measures, other policy areas must contribute much more decisively, both at the national and at the European level. The implementation of structural reforms needs to be substantially stepped up to reduce structural unemployment and boost potential output growth in the euro area. Structural reforms are necessary in all euro area countries….Fiscal policies should also support the economic recovery, while remaining in compliance with the fiscal rules of the European Union.”

Bank of England (BoE) Agents’ summary of business conditions

Intelligence report on businesses and consumer actions post-referendum


Little to moderate change in annual rate of activity growth

“The annual rate of activity growth had remained moderate and little changed in the month up to the EU referendum. Consumer spending and construction output growth had eased a little, offset by a pickup in manufacturing growth from a low base. There had been further signs of uncertainty leading to delays in decision-taking, including on capital spending, hiring and property investment.”

Businesses weren’t prepared for the Brexit

“Many contacts planned to undertake strategic reviews of their operations over the coming months in light of the vote. For many, the result of the referendum was a shock; few had contingency plans and so for the time being were in a mode of seeking to maintain ‘business as usual’.”

Companies considering location changes and postponing FDIs

“As yet, there were few suggestions of disinvestment, such as exiting the United Kingdom in the near term, but there were a few reports of planned foreign direct inward investment being postponed. A number of companies were considering alternative European locations for aspects of their business, and some contacts within large international firms expected their continental European operations to receive a greater share of future investment than their UK ones.”

A ´risk off´ approach in the near term for firms

“The outlook for investment was uncertain. The majority of firms spoken with did not expect a near-term impact from the referendum result on their capital spending. But around one third expected some negative effects over the next twelve months, with reports of a ‘risk off’ approach to

expenditures and some imminent plans for spending slipping.”

Consumers are hesitant on higher value purchases

“There had been little evidence of any impact on consumer spending on services and non-durable goods, although there were some reports of consumers becoming more hesitant around purchases of higher-value goods.”

Companies expect to reduce hiring activity

“As yet, there had been few reports of major alterations to businesses’ employment intentions. But the vote to leave was expected to have a negative effect overall on hiring activity over the coming twelve months.”

Prices expected to rise but may not be passed to consumers

“Companies’ prices were likely to increase, as the fall in sterling passed through to higher import costs …Given intense competition, retailers reported seeking to minimise increases in consumer prices, with a view to protecting their market share. But in some services, such as catering, there were expectations that prices could rise relatively quickly.”

Lending unaffected, demand for credit easing.

“But the early evidence indicated that banks’ appetite to lend had been maintained following the referendum decision. There were reports that demand for credit was easing alongside lower expectations for investment spending.”


We’re excited to announce that Jeremy S., an investment analyst here in Southern California, has started to contribute to Avondale’s company notes database. Below are quotes from some of the calls that Jeremy has read this week.


Netflix CEO Reed Hastings believes the business is significantly under penetrated in international markets

“For most global Internet firms, the U.S. is 20%-35% of usage and revenue; we’re not anywhere close to that yet but we’re continuing to invest in international.” 

Netflix Chief Content Officer Ted Sarandos says the company is seeing the highest returns of its capital in its own original content 

“What we’re seeing is that dollars invested in our original programming are more efficient in that for every dollar spent, we get more bang for the buck in terms of hours viewed. and hours viewed leads to higher retention, more word of mouth, and more brand halo.”



Bank of America CEO Brian Moynihan says the bank has been laying off employees in various departments to drive efficiencies but the bank has also been adding headcount in sales and relationship-focused bankers

“We continued to reinvest in sales capacity. So just in our consumer business, headcount is down year-over-year but we have a thousand more sales people roughly out there selling. And so the idea is to continue to drive sales people into the businesses.”



Intercontinental Exchange CEO Jeff Sprecher on how they’ve grown different verticals of the business over the years

“Well, we have our historical data business that we grew organically, which was all commodities data set. And when we acquired the New York Stock Exchange, we acquired along with it obviously the data from trading U.S. equities and equity options. And then we acquired the Liffe Exchange, which gave us really an interest rate data footprint. We’ve built a new company called ICE Benchmark Administration, which is the company that took over the LIBOR administration, the Gold Fix and the ISDAFIX.  So we’ve got this new footprint of what are really regulated benchmarks going forward, very global, very important regulated benchmarks.  But what you’ve seen is the evolution of my company from trading into clearing and now increasingly into data and indices.”

Intercontinental Exchange CEO Jeff Sprecher sees growth in the derivatives business coming from Asia 

“We’re betting that Singapore is that nexus for all of Asia, which would include China, Japan and these growth areas of Malaysia, Indonesia and, Vietnam.”

Intercontinental Exchange CEO Jeff Sprecher sees significant operating leverage inherent in the data intensive business model of the stock listings and benchmark listings business

“There is also a very big footprint in our business that’s no longer volumetric.  Things like over-the-counter clearing where daily volumes are not reported but are growing tremendously, and then we’ve ended up with a very large data and listings business. But basically recurring revenue business that is growing against a relatively fixed cost. So, similar model to when the business went from analog to digital on trading, which the allure of that was this fixed technology cost against growing volumes.”

Intercontinental Exchange CEO Jeff Sprecher on the recurring nature of the NYSE listings business model=

“The listings franchise on the New York Stock Exchanges is a business that has been growing. There’s been a lot of IPOs in the last year or so.  And that is a massively recurring business with at least 2,500 listed companies, lots of ETFs and other things that are providing annuity revenue against a very fixed cost base.  So, you take all that together and about 40% of our business is in a form that is much more recurring than it used to be in the past.”



Wells Fargo CEO John Stumpf said that physical banking branches will remain a key part of how they intend on serving customers even though consumers are adopting mobile banking on a massive scale

“We’re in the information business as much as on the retail we’re in the financial services business, so this is really about connecting all the channels, not about trying to drive customers into what’s cheaper for us. That’s not how we think about that. We think about what’s best for the customers, and branches still remain an enormously important part in that.”

Wells Fargo CEO on John Stump discussed the firm’s recent bolstering of its investment banking unit

“The way we think about business here is around relationships, relationships with team members. My 11 direct reports have an average of 28 years with the company. We think of relationships with our customers, our communities, our shareholders. Buffett’s been an owner of ours for 25 years. We love long-term things, so as it gets to investment banking activities, we think of that as another solution, another product, another service.  Most of the revenue that comes from that business is from existing customers who have been doing business for a long, long time.  I only care that we do the right thing for customers.”



JP Morgan CFO Marianne Lake said a number of macroeconomic events occurred which helped JP Morgan’s transactional revenue

“A number of macro events occurred in the quarter including central bank actions, the Swiss Bank decoupling, stronger dollar and oil price volatility which supported market performance broadly and currencies, emerging markets, rates, commodities and equity.”

JP Morgan CFO Marianne Lake said loan performance in the bank’s energy exposure weakened during the quarter as a result of lower oil prices

“This quarter’s reserve build was at downgrade in the E&P portfolio and if the current price environment continues, it’s reasonable to expect some further reserve builds during 2015 but relatively modest.”



CSX CEO Michael Ward sees a robust pricing environment for transportation companies who are moving large physical goods

“We still see capacity as been very tight.  If you notice our minerals business was I think around 11% or so based on a lot of highway infrastructure, projects going on particularly in the region and country that we serve, so we’re seeing truck capacity staying relatively tight. Coast wise barges have been very strong and strong demand, so we still see capacity fairly tight and we still see a strong need for transportation, pricing does seem to be very robust if you look at the spot truck load market it is remaining fairly strong. So we see that it’s still a very strong, robust pricing environment.”