Day. Pete, i come to you. Jpmorgan the quarter was good Loan Loss Provisions were surprisingly good. The commentary today is a surprising show of coronavirus resilience thats what i just read. Why is the stock down . You know, initially it had a nice pop to the up side, scott i think people step back and say the financials, we need to hear a lot more about what theyre going to be able to do at some point in time thats outside of the trading spot because thats another area the Loan Loss Provisions, you just brought that up but how about the trading numbers . The trading numbers are outrageous for them and for citi that is an area we expected to be strong. It was Even Stronger than expected but theres more to the bank than that. I think thats what were going to be struggling with for a while with these financials. And when you look across just about every name, scott, other than Something Like a black rock, asset manager. When you look at the banks and the financial world there, they just continue to struggle. I think its going to take not only time but obviously were going to have to see the rates shift around before we really see any, like, continual up side moves from these names weve had moves to the up side and then they just pull back jpmorgan, you can close your eyes and say its 100 stock thats where its been stuck it seems like for months now. No kidding. Josh, you own it, too. Whats the issue here . If not now, when this quarter was good. I think you have to start thinking about these Companies Like very heavily regulated utilities. They need permission to raise their dividends. They need permission to buy back stock, they need permission to go to the bathroom all of that is an overhang from the credit bubble they helped cause 12 years agriculture, has not gone away. We thought that there would be enough deregulation under president donald trump, that these companies would find in ways to grow but they arent if you look at the last three years, the s p 500 is up 20 and shes stoc these stocks as a group are down i own jpmorgan i think of it as a total return stock. Over the last three years on an average annual basis its given me about 5. 5 in total return. A lot of that comes from the dividend and as long as you think about it in those terms and you dont look at it versus visa, mastercard, square, paypal, you wont be as disappointed but if youre buying these stocks because you think theyre anything other than a very heavily regulated utility, you are bound to be disappointed steph, some may look whats happening right now and say why bother is todays stock move after pretty decent earnings, is it an indictment of the bank trade in general . You cant even get a good day on this well, i would say the setup wasnt all that good because jpmorgan rallied 12 offver the last few weeks but they are up you need a steep yield curve for them to work this is why i said the names i own are special situation stories. Wells fargo a new ceo. Morgan stanley, love what theyre doing in terms of changing their stripes and creating opportunities for themselves, not waiting for the steep yield curve and bank of america is quietly becoming a great digital bank i think you have to look stock by stock jpmorgan was very good citigroup not so much. Their ratio massively disappointed jpmorgan on the flip side, their efficiency ratio fell 600 basis points sequentially in the quarter. Their rote, 19 thats going to be best in class. Theyre doing everything they can. As you mentioned, its the trading that came in better than expected but its the other part of the bank thats having these struggles and you need a steep yield curve for that to turn around were trying to steepen the yield curve. Were trying but we cant get out of our own way as long as the yield curve remains where it is, theres no indication rates are going to rise soon. I dont know if under a Biden Administration if you get a huge stimulus package, that may be something that jump starts rates. But other than that, theres a reason you dont own the banks one reason that we dont own them is that we see better buys in other spaces in the financials we do have exposure to Capital Markets we own s p global, we own broadridge. We have these companies we own in the Financial Sector but we dont see the same type of valuations that we would like to see in banks before we would be in them. Plus the banks in our particular index, u. S. Active large cap, russell 1,000 growth, theres really no exposure there so we avoided the banks. Josh, you said something interesting. You said if you look financials but not visa card, mastercard or square, its almost the way they categorize what the financials are and who should be in the group and who isnt and that somewhat depresses your ability to deliver alpha, if you will, in the space in general. If you look across the sector classifications by s p dow jones, i would say Financial Services is where theyve probably made the biggest mistake and have dropped the ball to the greatest degree. This is not representative of the way people are using Financial Services its dominated by four banks that havent been able to grow in over ten years. Quite frankly, youve not got 73 million millennials and another 75 million gwen0s that may never have a traditional savings or Checking Account at a brick and mortar bank and they will not be poorer for that the same for investment and insurance. Go on down the list. You have really big Companies Like paypal, 200 billion marke cap. It would be like when air bnb goes public, they put it in the tech index rather than call it lodging, which it clearly is i think its a missed opportunity to reclassify this sector for the 20th century. As long as they keep visa, mastercard separated from amex and discover, this sector will continue to be an outperformer and loser for people who own it. Pete, you owe capital one is that now the best bang for your banking buck . Each one of us breaks these down i think its 64 coming from the credit card side its a little bit different. Each one of these points to stephs points are complete ply different, one from another from another. I would say my knowledge in the option world is what makes jpmorgan so intriguing for me, scott. I can literally look out to november, sell the 105 calls and get a little over 2 if i can do that for the next ten months and the stock does what its been doing for the last six months, trading close to 100, i know steph had just moved back up towards 100, but its been in a fairly tight range for a long period of time. If i can take in 2 every month against that position, if i can do that ten times, thats 20 . So thats what the opportunities are right now in the financials while youre waiting you also get the difficult bend yiel d yield. Youre also looking at jamie diamond, you can see the trading volumes. Its about the curve and when are we going to see that but while youre waiting, you can do this against that stock popgs a position and enhance your ability to make some money i hear you but its telling that everybody thinks so highly of jamie and his ability to run that bank but josh paints a scenario that the really only reason to own that bank is because of the dividend. And the buy back. But mostly the dividend thats what its come to only because its a utility. Thats saying something. Well, that is saying something. And thats where they are stuck right now because they have become a utility because of the fact theyve got all these restrictions on them, number one. But, number two, they, like everybody, is in a position where much of what they really need to have happen is these rates and thats just not happening. So for now while youre waiting, why not get paid to wait and thats my point here because i see the quality, we look at the Balance Sheet, we know what the Balance Sheet looks like, we have all of that weve seen improvements in terms of loan losses, much better than they expected. So there are some positives to take away from what we just heard and what we heard even the quarter before from jamie diamond and what theyre doing right now. If i can do that, scott, and bring 20 there and add on the dividend yield that we were just talking about as well, thats not such a bad return as something that you from as quality from top to bottom and fundamentally and the leadership, that doesnt sound so terrible to me. Mike mayo just got off the citis Earnings Call its good to see you, by the way. Lets focus on jpmorgan first. Thanks for having me. Whats going on with jpmorgan good quarter stocks down the question is are you owning jpmorgan or the bank for three months or three years . We think jpmorgan will lead the largest banks through showing resiliency through these covid times. Jpmorgan, you talk about growth, they grew deposits by 200 billion. Their return on tangible equity, 19 . Their efficiency held in check year over year, even by absorbing a body blow of a onefourth decline in their net interest margin. Jpmorgan epitomizes the industrys resiliency. The stock is down on these good results but the stock also ran up before this theres still a recency bias from events from over a decade ago. You have Global Financial crisistype privacies but for baek banks, this will not be the financial crisis for the largest banks, youre not going to have dilutive equity raising events, youre not going to have Large Bank Failures recency bias for 12 years our viewers are tired of waiti waiting. Well, youre going to have to wait because banks are one of the most highest covid beta sectors there is in other words, as goes covid, as goes the banks. Banks have been the worst performers since the covid outbreak i do take exception that you need Interest Rates to go higher for banks to work. Youre seeing the correlation in the short term we estimate a 200 billion piece dividend once the war on covid is done, that equals to more than doubling earnings from the Second Quarter and that doesnt reflect any improvement from Interest Rates we do think beaks led by the likes of jpmorgan can generate returns above the cost of capital through factors such as improving credit theres also good citizen cass f costs for the banks. Those costs should be going down, too. The point about Interest Rates, youre overlooking the Bigger Picture well, the markets not looking over the Bigger Picture. I dont know when youre going to see Net Interest Income or margins go higher. Even at jpmorgan, they were down you needed a steeper curve for that part of the business to work sure, they can do well on trading and Investment Banking and that sort of thing they can cut costs eventually theyre going to be able to buy that stock back. The capital ratios of jpmorgan are astounding, great. Im not disputing that i think people are waiting for the traditional part of the bank to do better it was worse at citigroup, by the way. Jpmorgan, their cards business, purchase volume was up 20 sequentially and delinquencies fell 14 basis points if youre looking for a derivative call, i think the Credit Card Companies are interesting. I happen to own American Express but the cards should do well when they report earnings. We were talking about those, too, in terms of the cards and where pete is in the market. Mike, citis call. We mentioned it earlier in the introduction to you. I dont understand, you called out mayo i mean, you called out korvat telling him heshoul leave today. Why did you do that . Ive been on your show for quite a while talking about citigroup. Theyve disappointed on strategy and controls and now theres a new regulatory consent matter. Citiis worth more dead than alive. If somebody said break up citigroup as an investor, you would make money as this point the more reale esistic outcome,e enough ceo has a strategic perspective. You need to mckienzieize citigroup, cut the fat, increase the intensity, improve the sense of urgency i said that because im hangry im hungry and angry at the same time im angry these problems werent more transparent to investorsi say bring in the new ceo, jane fraser, tomorrow time is up they were the postal child during the Global Financial crisis and here they need to chang the busine change the business model. Bring in the new ceo now as opposed to say its going to take time. No way no one investor has disagreed with this view youre talking about this as if its a basket case. Youre the one with the outperform on it first of all, theres a deference between the execution and the stock price. So city group and the industry, Second Quarter was the low water mark for earnings, returns and credit reserve bills so thats all going better youre seeing some green shoots, maybe not as much as youd like. The piece dividends for citigroup not to miss the forest through the trees, the biggest driving factor will be winning the war on covid having said that, if you fall short on execution and your stock trades at one half of book value, which is where it was eight years ago when the current ceo took over. One half of book value is good book its not like you have 50 billion of ceos on the Balance Sheet that arent marked down. This is good book value, which actually grew last quarter versus last year it just needs management led by the new ceo you really think three months is going to make a difference . Korvats leaving in february you need to set a tone at the top. And it really starts with citis board. You see the ceos at citigroup has gotten paid almost 400 million over the last decade the stock is down 80, 90 . You set a stone at the top and say were not waiting another day, were taking action now and jane can have a strategy but it will be Crystal Clear shes the only person in charge. Having said all this, while its a longer road for citigroup, our favorites are the highest quality banks like jpmorgan, u. S. Bankcorp and usc, but in three years when you get through this covid situation, youll see the banks are nothing like they were during the Global Financial crisis josh brown, do you have a word for mayo . Yeah. Branch baking is banking is basically drilling for oil at this point we have plenty, we dont need more nobody cares about it. Why wouldnt these Companies Close more branches and start having sub skipgscriptions for r clients. They would probably double their multiples on wall street, everyone would cheer they could still provide the same services they provide but people would actually i think rerate these stocks, give them higher multiples and give them more credit for what they are good at. The stuff that is transaction an is transactional on jpmorgan, 52 profit jump in Capital Markets and underwriting we did a million ipos in the Third Quarter and jpmorgan was very involved, involved in raising debt theyre very good at that. Why wouldnt it be like a netflix of banking whats taking them so long to get this every other sector has finished this out well, the Banking Industry are lagards. When you start your consulting firm, we might have to recommend you. I just did. Its me and you. The largest banks have half the revenues and fees already. The diversified are able to weather the storm. Youre seeing the biggest structural change in technology in the history of banking. You heard jpmorgan today theyre not getting credit for it, mike nobody cares they will get credit for it because coming through the cycle, you will see structurally improved efficiency because a lot more business with a lot in the case of jpmorgan, more customers at lower marginal costs as you use Digital Banking like youve never used it before you cant chang cue Customer Behavior but Customer Behavior is changing ten years from now this really is exciting from a structural standpoint. And then while you bide your time, banks have the foundations, they have the Balance Sheets, they have the reserves to weather the storm. Whats missed here is that city citigroup today mentioned reserve releases are possible next year. Reserve builds at jpmorgan are done for now that just reinforces the fact that Second Quarter was a low point. Will jpmorgan buy back stockneck quarter . Fiend at this point anything short of nationalizing the bank will be an up side surprise from a regulatory standpoint. These narratives that banks will be regulated out of existence, i think thats so far overdone doddfrank was a bipartisan bill regardless of who wenins, its o a lifethreatening change for the banks. The momentum is absolutely against the banks in the short term, but eventually stocks follow earnings and we think earnings will be resilient over the next couple of years thats mike mayo, wells fargo securities, joining us today keep an eye on tech after the nasdaqs monster day yesterday what a month it is, steph, so far for big mega tech. Alphabet 7. 5 , facebook up 6 pn6. 5, microsoft up 6. 5 havent these just roared back and said, no, no, not so fast, this is still where the moneys going to be made, steph. I think the money is going to be made in tech. Ive been saying it all along, though i said you want to own a bar bell you absolutely want to own secular tech because the total Addressable Markets are enorm s enormous the Free Cash Flow generation and market share theyre gaining, especially the work from home, its such a tail wind for these companies. You absolutely want to have some of these companies i was reading all kind