JP Morgan at Morgan Stanley Conference Notes

Gordon Smith – Chief Executive Officer of Consumer & Community Banking

Extending into lower prime areas because economy/employment look good

“Yes we have extended slightly into that lower prime, if you like segment, certainly not into sub-prime, but we have extended slightly our credit box. In about 2013 2014, everything that we read in the numbers we feel comfortable that we will get paid for taking that extra risk. We are going to sub-prime lending, but we are seeing growth actually across all segments and I think it is actually quite encouraging when we look at the economy, I am sure we will talk about that a little bit later on, but the employment situation looks strong, small business looks strong, and actually slightly improving I would say, slightly improving. So generally speaking, despite perhaps what you might read in some publications or the perspective that some people might take away from the media, I think the economy actually looks very good and we’re seeing that growth as I say across all the credit range. ”

Amazon is really an amazing company

” The Amazon relationship is a terrific one, a really terrific one. It is an amazing company. The way that they have thought about the business in every segment that they play in, they really understand the use of data, as we do, so it is a terrific partnership, it is in the co-brand product, it truly is a general-purpose plastic product, and we do see meaningful use of Amazon on that product. So that is in private label.”

Definitely not the time to be loosening standards in auto loans

“So, Jimmy I will go back to the way I described. I wouldn’t say that this is a moment of tightening and this is a moment of weakening – of loosening that’s something we are constantly watching. As I say, vintage by vintage. It is not in my opinion a time to be loosening your credit standards, no questions. I think the industry is at a point where it should be rigorously managing credit and so – and I hesitate a little bit because it sounds very binary between those choices and as I say it’s done well, it’s about being much more surgical than that, and to some degree honestly there is instincts involved.”

Bank of America at Morgan Stanley Conference

Tom Montag – Chief Operating Officer

More uncertainty in the world than there’s been in a long time

“I was thinking about the world and how there is more uncertainty in the world than there’s been in a long, long time in a lot of ways. If you think about the Middle East situation which is a completely new situation and the problems there, obviously the soft Brexit, hard Brexit and what’s going to happen there. We have our issues here. We have North Korea, which is kind gone the back burner for a while, but still firing missiles, and of course you have the Brazil situation coming back again and you have the Russia situation, there is just so much uncertainty, even highlighted maybe yesterday by the treasury paper coming out which leads to more uncertainty as to whether those things will or will not be — will not come to fruition on what we’re doing. So I think for economic growth there is just so much uncertainty in the tax rules here. What’s going to happen there? I think people are just waiting. And so although the consumer seems to be growing at a relatively good pace, the corporate side just seems to be in that uncertain phase where they want more certainty in the world before they make the next decisions.”

Getting harder to differentiate between spending on business and spending on tech

“we’re trying to use some of the mobile expertise that we’ve developed in the consumer side, now into institutional side. So we hope to be able to have a good mobile offering. Remember, we can’t trade on the mobile, but the way we get information to people to our traders to our sales people to our clients, using some of the expertise we’ve developed in mobile. Hopefully on the institutional side we will be able to do that, but I don’t think [indiscernible], I think — the thing is the technology spend and business spend is getting closer and closer together, not farther and farther apart. It’s hard to differentiate between, well, are you investing in a new branch or is it the technology in the branch? Are you investing in — with clients, or you investing in a trading system, or is it in a mobile platform. It’s almost — well, you say tech dollars, but the tech dollars basically is the business in a lot of these places.”

Wells Fargo’s (WFC) at Deutsche Bank Conference Notes

John Shrewsberry – Chief Financial Officer

Optimism has faded a bit and confidence is lower

“we saw in the wake of the election and going through the fourth quarter a lot of optimism. It felt like it was going to produce real results as a result of the policy initiatives that have been all the rage….as a result of no real forward momentum on any of those fronts and frankly a little bit more of a sense of paralysis in terms of getting that legislative agenda through, my sense is that people are waiting and seeing. There still is a lot of optimism, especially at the small business end of things, but I think confidence is lower that these signature policy initiatives are going to come through….I think we are in a holding pattern from an optimism and momentum point of view until something breaks policy or legislative wise.”

Wholesale commercial customers are on wait-and-see mode

“so I think the wholesale customer, on average, is going to wait and see to figure out what the tax consequences, the trade consequences, the regulatory consequences are of deal activity or expansion activity.”

Long rates could stay low despite a hike in the summer

“…each time we’ve had a move in the front end, the long end has reacted by going down, and here we are in the 220 context, at least at the end of the day yesterday. So even if we get a move in summertime and a move at the end of the year, unless something changes on the policy side, which it could something that’s stimulative, something that’s inflationary, something that’s growthy, it feels like long rates could stay, could stay low.”

Yield curve may flatten

“something is going to have to change to not flatten if short-term rates come up, because there hasn’t been any stimulus for long-term rates to move up and stay up since the fourth quarter.”

US consumer not overburdened with debt

“I don’t think that we believe that today that the U.S. consumer is overburdened with debt, either with respect to cash flow in terms of the ability to service it, or with respect to the value of their assets given what’s gone on in home price appreciation over the time frame that you described. And in part I would give credit to the way mortgage origination has changed post Dodd-Frank in the modern era.”

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. “

JP Morgan at Deutsche Bank Conference Notes

Marianne Lake – Chief Financial Officer

The reality is that these policy things take time

“I mean, I think we still remain very hopeful that there will be [indiscernible] 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. It’s because it’s complicated, and so I think it’s–you know, we’re four or five months into the new administration, and while it would have been helpful to have some more scores on the board, I don’t think it’s time to give up the belief that–you know, we know a few things. We know that they’re deadly serious about reform in multiple facets, we know that they have smart and capable people around them, there’s bipartisan support particularly for certain aspects of tax reform and regulatory reform, and anything that’s constructive for the country and the economy and pro-growth is constructive for our clients, so we are trying to be as engaged and constructive as we can be, and we still see all of those things on the agenda, it’s just they take a little time and I think that’s a reasonable expectation.”

Confidence levels are still high

“So meanwhile, we have to keep the wheels turning and doing what we’re doing and serving our clients, and so there’s no actual change. 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, but I think the seriousness with which it’s being approached is something to applaud and we should all welcome it and be as constructive as possible, and so that’s the approach we’re taking.”

We feel that accreting further capital is not necessary

“So on capital, we’ve been pretty vocal and consistent for a number of years now that we think that the company can be run safely and soundly at around 11%; meanwhile, for a variety of reasons, we’ve been sort of operating in this capital corridor of 11% to 12.5%, and at this point we’re at the high end of that range. This year at investor day, we made the clear statement that we feel that accreting further capital is not necessary, and moving down in the range over time would be our preferred strategy in the absence of any new news, and so that really hasn’t changed.”

CCAR is the predominant binding constraint to returning more capital

“As you look at the capital agenda, CCAR at the moment is the predominant binding constraint for most of the large banks in the U.S., and so reforming CCAR through the way its implemented and supervised, I think is a real possibility, if not a probability. And even in his outgoing speech, Governor Tarullo laid on the table a number of meaningful improvements that seem somewhat uncontroversial at this point, so number one, let’s phase out or eliminate the qualitative assessment test.”

Second quarter does look better than the first

“some difference of opinion about the second quarter and whether or not it will rebound from the first. Our view is first quarter continued the trend of having seasonal distortion in it. People are looking through that, second quarter does look better. Consumer spending in the first quarter was disappointing – that’s rebounding. Inflation data is disappointing, but other than that, jobless claims are the lowest since ’74, retail sales, industrial production, capex were decent. So I think if you smooth out the noise, the first half is going to be a 1.5 to 2% growth situation, which is pretty in line with our near-term historical averages, and so we’re, I would say, solid, not stellar but not reasons to be concerned at the moment. We’ll keep an eye obviously on the inflation data, and the Fed have said the same thing; but if you look forward and not spot, I think the general assumption is that will be somewhat transitory in nature too, so we’ll have to see about that. We’re seeing that in our businesses, so we’re seeing strong spend, we’re seeing decent loan demand, we’re seeing reasonably healthy capital markets activity, so it feels to us like it’s still a pretty constructive environment generally in the second quarter. While there are small pockets, so you know, auto sales have been a little softer over the last couple of months for maybe obvious reasons, then they’re pretty small and pretty modest in comparison to the bigger picture, so I think generally pretty healthy so far in second quarter. Nothing that we’re seeing in our client engagement, in the dialogue or in the activity is a foreboder of anything different from that at this point.”

I would say our central case for US rates is two hikes this year

“You know, I would say our central case for U.S. rates is two hikes this year, the Fed starts to shrink the balance sheet at the end of the year, slowly and under control such that it’s more in the background, so rates remain the major monetary policy tool that we’ll see a flatter but nevertheless somewhat normal yield curve, and that the 10-year will be, call it 2.75 at the end of this year. Maybe we’ll be wrong, but implies a 2.40 so you pick your number. We’re not seeing it going down.”

Consumers are 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. I know that someone mentioned yesterday that the household debt burden has gone back to peak levels, but meanwhile GDP has gone up by 30%, so as a relative to income measure, it’s low.”

Wells Fargo at Deutsche Bank Conference Notes

John Shrewsberry – Chief Financial Officer

There was a lot of optimism but that has diminished as there’s been little progress on the policy front

“Well, we saw in the wake of the election and going through the fourth quarter a lot of optimism. It felt like it was going to produce real results as a result of the policy initiatives that have been all the rage. And customers from different segments would have reacted or prepared for that differently from taxes to trade to energy or other highly regulated industries, healthcare, obviously. And as a result of no real forward momentum on any of those fronts and frankly a little bit more of a sense of paralysis in terms of getting that legislative agenda through, my sense is that people are waiting and seeing. There still is a lot of optimism, especially at the small business end of things, but I think confidence is lower that these signature policy initiatives are going to come through.”

The stock market still reflects a lot of optimism but the bond market is not showing us that.
You can see it in loans

And the stock market still reflects a lot of optimism, but the bond market is not showing us that. And you can see it in loans, first quarter it was pretty soft in C&I, second quarter is about the same I think. We have had a big reduction in outstandings in energy-related loans over the last year. So C&I overall would reflect that as well, but it’s still pretty flattish. On the consumer side, mortgages coming into the season, where more mortgage activity, more home buying happens, so with jobs where they are and rates where they are for that matter, my expectation is that, that will look pretty good. But it might have looked even better had there been more forward momentum. Autos, there will be probably be 0.5 million fewer autos, new autos sold in the U.S. this year. We have backed away from the lower tiers of credit in auto a little bit, but that isn’t raging quite the way that it was, 16.5 million cars is still a lot of new cars, but it’s not what it was a year ago. Card, for us, is a smaller business, but the consumer payment patterns and card fee type activity still seems actually quite strong, kind of mid single-digit growth rates, but balances tick down in the first quarter after a higher fourth quarter and the second quarter reflects normal seasonal activity. Commercial real estate still feels pretty full and there isn’t a lot of growth opportunity there rather it’s making sure market-by-market and property type by property type that things are where they should be. So I think we are in a holding pattern from an optimism and momentum point of view until something breaks policy or legislative wise.”

I don’t think folks are getting ahead of themselves

“Well, so I think the wholesale customer, on average, is going to wait and see to figure out what the tax consequences, the trade consequences, the regulatory consequences are of deal activity or expansion activity. That’s, for the reasons I mentioned, I think that they are going to wait it out. And I think the consumer housing isn’t getting ahead of itself, right. People are, in terms of first-time home buying, we are getting back into a phase where it feels like more of that is going on. In spite of recent stories, we haven’t seen that much cash coming out of mortgage borrowing activity. So, I don’t think folks are getting ahead of themselves there.”

Something is going to have to change to not flatten if short term rates come up

” I think something is going to have to change to not flatten if short-term rates come up, because there hasn’t been any stimulus for long-term rates to move up and stay up since the fourth quarter. I mean, we had a big realized move after the election, because I think people thought that there was going to be a great big tax stimulus, a lot of growth oriented initiatives, more borrowing going on from greater deficits, more borrowing going on from infrastructure, things that were going to put big strains on markets and none of that has happened. The Fed balance sheet could be a catalyst for something to happen. There is multiple schools of thought about that whether it happens – whether it results in higher rates and how quickly it results in higher rates. But clearly, that’s one thing that could happen that could increase the opportunity for people looking to earn more in the 10-year area.”

I don’t think that the US consumer is overburdened with debt

“I don’t think that we believe that today that the U.S. consumer is overburdened with debt, either with respect to cash flow in terms of the ability to service it, or with respect to the value of their assets given what’s gone on in home price appreciation over the time frame that you described. And in part I would give credit to the way mortgage origination has changed post Dodd-Frank in the modern era. There is the real effort made to underwrite exactly what a borrower’s resources are and what they can afford. And there’s consequences for people who originate in a different way than that.”

Probably an opportunity for banks to be higher returners of capital

” I do think that, in general, that this is probably true, that there will be banks this year – banks who haven’t been big returners of capital over the last few years who have earned their way into – built their capital level to a full level, gotten to something like a stable run rate of profitability. There’s probably an opportunity for some of those banks to have gotten more aggressive in their ask for return of capital this year. “

Morgan Stanley at Deutsche Bank Conference Notes

Andy Saperstein – Co-Head of Wealth Management

No fee compression in a holistic relationship

“So far just empirically, we’re not seeing fee compression. Clearly, the trends in Wealth Management — the trends in many other aspects of financial service clearly, the trends such that we have to be concerned about decompression. But the reality is that our clients come to the advisors not to buy specific products for a price, but they come to advisors for advice around their financial well being and helping them to achieve their goals. So when we talk about what we’re selling, we talk about the value proposition. When we talked about the value or advice what an advisor brings, we’re careful to make sure that we continue to define it as advice to help a client meet their financial goals. So what you’ll see coming out of our organization going forward is a lot of moving towards, I briefly touched on the goals based planning and making sure that we’re always delivering that holistic type of Wealth Management advice to the client, because that really doesn’t have any fee compression on, if anything, that kind of a price point is quite acceptable. As soon as you start thinking about selling a particular product, there for a product, then that’s when the fee compression starts to kick in.”

Recruiting and attrition is at an all time low

“So attrition levels are at an all time low, I think that’s probably roughly true in the industry. And so much is what I said earlier is that recruiting has come down over the years and is also at an all time low. And so I expect that attrition will remain low for the foreseeable future as well.”

Toronto Dominon FY 2Q17 Earnings Call Notes

Bharat Masrani – CEO

Greg Braca

*We’ve seen some slow down in commercial markets

“I would just also call out that Q1 and Q2 we’ve seen some slow down in general across all commercial markets, a couple of things have been going on higher interest rates, we’ve seen clients staying on the side lines or hitting the bond market and retiring bank debt that we’ve also seeing less CapEx spend. And in the U.S., we’ve decidedly seen a lot of our commercial clients sitting on the side lines for the last couple of quarters with a wait and see attitude with everything from decisions on taxes to infrastructure spend and the rules of the road in the U.S. with the new administration”

Mark Chauvin

You can’t have lower losses forever

“Now, I’m not looking for major increases, but you can’t have really lower losses for the extended period of time. So, I would look for the modest increase maybe in next quarter, but from a quality perspective I prefer to look at loss rates. And we’re really in the current economic environment and borrowing a significant change in that, we’re looking at the loss rates in the U.S., staying relatively consistent to what we’re seeing for the — in this quarter and for the balance of the year.”

Mike Pedersen

Deposit beta has been low but rising with Fed rate increases

“Now, I’m not looking for major increases, but you can’t have really lower losses for the extended period of time. So, I would look for the modest increase maybe in next quarter, but from a quality perspective I prefer to look at loss rates. And we’re really in the current economic environment and borrowing a significant change in that, we’re looking at the loss rates in the U.S., staying relatively consistent to what we’re seeing for the — in this quarter and for the balance of the year.”

Sothebys 1Q17 Earnings Call Notes

Thomas Smith – President and CEO

*The market is starting to show signs of strengthening

“So, what is the state of the market for the art and luxury goods that Sotheby’s sells? In short, the market is starting to show signs of strengthening. The message from our Hong Kong sales in April was that East and Southeast Asia’s buyers were prepared to pay top prices for excellent quality art and jewelry.”

*Purchasing power of wealthiest has grown more than price of art

“In 2006, the 201st wealthiest person on the Forbes 400 would have had to spend 10% of his wealth to purchase the most expensive piece of art sold in auction that year. In 2016, that same number was only a little over 5%. In 2006, the 201st wealthiest person on the Forbes 400 would have had to spend over 70% of his wealth to purchase all of the top 10 pieces of art sold at auction that year. In 2016, that same number was under 40%. In other words, the median member of the Forbes 400 would have seen his personal spending power to purchase art at auction, grow 75% in the past decade alone.”

Goldman Sachs CEO Lloyd Blankfein on CNBC

Goldman Sachs Chairman and CEO Lloyd Blankfein on CNBC’s Power Lunch

The low volatility period usually precedes a shake up

“Every time I get accustomed to low volatility like we were towards the end of the Greenspan era, and we think we have all the levers under the control and there’s low risk in the world and the world is awash with liquidity that pounces on every aberration in the market so things go in. Something erupts to remind us of our – that that idea that anybody is in control of anything is hubris and the world doesn’t perform like that for long periods of time. So I don’t know what brings us out of the doldrums, but my expectation is that this is not a normal resting state.

Some warning signs point to a bubble

“Not as many warning signs…if I had to look for anything specifically, I would say asset prices are high…credit is very tight. So, I would say distressed credit as people search for yield… people are ploughing money into equities because the dividends are higher than the interest that some of these companies are paying. That may be evidence of a bit of a bubble. The low volatility itself might be a kind of bubble of confidence, but we won’t know until we know”

Forecasting vs risk management

“I always differentiate forecasting what do you think will happen from the exercise of risk management. In risk management, I don’t care what anybody thinks. I don’t care what I think. I’m just preparing for contingencies. On the other hand, in our trading businesses and trying to anticipate flows and what clients want to accomplish, there I have to try to guess the future and where thing are going. So those are two different exercises.”

They are positioned for a return of the Glass-Steagall Act

“We are probably the large bank that’s best positioned for a return to Glass-Steagall because we’re not a universal bank. We have some of those functions, but very minor in relation to our investment banking activities…our adaptation to that would be relatively easy….with that kind of remoteness and that kind of perspective I could say in 2017 it’s really hard to differentiate functionality such that one institution could lend money and complete a loan and another institution could underwrite a bond for the company which may be the economic equivalent, but that’s a security.”