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Sanford C. Bernstein Analyst Brad Hintz on the state of U.S. banks and the outlook for the economy.
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All right -- banks are set to report third quarter earnings starting this Friday with Wells Fargo and JPMorgan Citi.
Goldman Sachs and Bank of America are gonna report at the beginning of next week.
-- election -- -- can investors expect and what name should you get into it now.
With -- is -- hand analyst for Sanford Bernstein and former Lehman Brothers CEO Bradley CFO Brad -- has not every promoted don't I got a -- I wanna match that up and that is -- is that you are inside this industry you know it very well.
And you're looking at these bank earnings what are you expecting especially Friday when we kick things off for the fine.
-- -- well when we live in terms of the quarter right we're going to have much better fixed income and that's really QE3 right once the Europeans kick their can.
Way down the -- Then the Fed said we're gonna do we're going to be we're going to buy bonds if the yield curve that -- And so the fixed income side looks very very good retail investors are lining up.
To buy bonds now let me now be a prudent decision but they are -- lining up to buy back on the bank.
And so for word the -- -- divisions which normally go through just a slowdown in the summer.
If they're actually going to be -- modestly up and that's going to be the story so.
Get capital markets is going to be good debt underwriting.
The what's gonna be weak well unfortunately retail brokerage is going to be profoundly weak retail brokers the FAA's.
Are fundamentally twirling their thumbs right now because the -- -- -- retail investors have not re embrace the market yet.
But the market has been -- it granted on very weak volume -- you can you say it's because building on your theme of of fixed income you say we're in a fixed income cycle yes we are now when.
Do we break out of that -- it when does all that money in the sidelines begin to crowd in volume wise into the market well Dimon equity guy I would love to have that.
That can't what needs to -- what needs to happen for that half we need the beginning of an economic recovery not the uncertainty that we have now.
And for the retail investor to get them back we actually did the closest correlation of what drives retail investors is nonfarm payroll.
When you start seeing payroll picking up retail investors say I'm only take some risk and that risk will be the -- where you didn't believe -- -- the figures on Friday that they.
-- -- still skeptical of the numbers and I don't I don't think we're one data point gives us the trend unfortunately.
Retail.
Think back to it to the to another crisis crash -- 87.
They have -- market goes down for a year retail investors did not come back for four years so he's serum -- Iowa.
You know that should they they keep their money in the mattress and then finally they come back when there when they're comfortable that the economy's OK.
I don't -- -- -- -- a -- you said that we need the beginning of an economic recovery do you.
Not believe that we are in a recovery right now.
Well we're still at the QE3 is not an endorsement the economy's booming right.
QE3 is being done to make sure that that this stumbling -- recovery continues so unfortunately.
You know the QE3 wasn't done because the economy's booming.
-- the European kick the can down the road was not being done because Europe is is fixed.
And unfortunately -- says.
Fixed income is the name of the game that I got asked specifically about the banking sector because today we had Jamie diving nobody speaks like -- -- -- a brilliant speaker -- and he apparently did calm the markets -- were its stock was up quite -- -- It quite a bit today he says that basically the banking industry has stabilized in the United States is he -- told absolutely.
If you look at the him at the capital structure they're perfectly fine.
If there there -- addressing the issues which is a -- addressing the regulatory issues will I be able to make money in this new regulatory environment we're confident they can.
So our favorite stock is actually Goldman Sachs because.
Goldman the trading firm the market has said you'll never be able to -- your cost of capital and trade.
Well the markets -- re pricing.
Goldman's changing its its trading floors around their automating their cutting compensation.
They -- bringing inventories down in terms of getting risk weighted assets they're doing all the right stuff of course the other stock we like -- city.
The reason we like Citi is because that flattening yield curve is pretty good for those legacy mortgage assets that Citi has sitting over there in the bad day.
It is having people don't realize I was looking at Citigroup's -- year to date up 33%.
While JPMorgan up 25 markets in have fifteen.
Citi -- sort of the sleeper here it's outperforming.
It Vikram is doing a very very good job so if you think of Citi Citi is is -- a bet on.
Continual low rates narrowing credit spreads -- the bad bank.
But it's also bad on the on the growth of the international markets because that's the good -- and that's what they're focusing -- So it's a nice little mix there by the way did you buy you did you buy your Goldman Sachs was down -- ninety dollars or remember an equity analyst thank all of -- Tenaris but I assure you recommended -- so yes I did -- that -- thanks Brad great to see you again thank you for coming in.
