Daybreak Weekend: US Bank Earnings, New Energy Summit, Gold’s Future

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1:10Bloomberg Audio Studios. Podcasts. Radio. News. This is Bloomberg Daybreak Weekend, our global look at the top stories in the coming week from our daybreak anchors all around the world. Straight ahead on the program, a look at earnings from the biggest banks on Wall Street, what they'll tell us about the health of the U.S. economy. I'm Nathan Hager in Washington. I'm Caroline Hepker, where we're considering how climate change is hitting Europe the hardest. Plus, this week's fresh record for gold. What's ahead for everyone's favorite medal in the final months of the year? That's all straight ahead on Bloomberg Daybreak Weekend.

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2:10Good day to you. I'm Nathan Hager, and we begin today's program with earnings from the biggest banks on Wall Street. JPMorgan Chase, Goldman Sachs, Citigroup, and Wells Fargo kick off big bank earnings season with Bank of America and Morgan Stanley, not too far behind. For more on what to expect, we're joined by Alison Williams, senior analyst for global banks and asset managers at Bloomberg Intelligence. Alison, thanks for being with us. Let's just get into it. What to expect, especially now that we've heard some comments from JPMorgan Chase CEO Jamie Dimon himself. What are you looking for from the big banks?

2:45Thanks for having me. Three key things that we're looking for for the big banks this week. First, the strength in markets is going to translate into further revenue and profit momentum, both for the third quarter and the outlook. We expect this could be a record year for capital markets revenue, and that benefits all of the banks, especially Goldman Sachs and Morgan Stanley. But J.P. Morgan, the leader in absolute revenue. Second, we have the added tailwind of improving coordinate interest income as rate expectations are moving lower, while loan growth and in particular commercial loan growth is picking up.

3:22Third, credit remains solid. And we will see some provisioning we expect for normalization and loan growth, but not much change to economic assumptions underlying reserves. So based on these three core trends, putting them together, we think their earnings could beat with upward revisions to estimates for 2025 and 2026, we are seeing some estimate increases for the quarter, some positive revisions going into results. But notably, when it comes to trading, which we think is going to be very strong, analyst estimates do tend to be conservative. So we think there is room for upside there. Are you looking for any big shifts in market share when it comes to trading?

4:04Because it seems like all of these banks are really going after each other on that front. And we have seen this torrid rally in the stock market from the April low? We do think that the big are going to continue to get bigger. So the shift that we've seen over time is that banks like Goldman Sachs, Morgan Stanley, and JP Morgan have gained share. We've also seen Bank of America and Citigroup gain over the very long term. But we think that this is going to be a quarter where we see outperformance, especially in the equity trading business from Goldman Sachs, who is the leader in that business in absolute revenue.

4:45Goldman is also the leader in M &A, and we also expect them to have a quarter in that business. One of the key businesses that has been helping the banks is prime brokerage and some of the larger hedge funds and the asset levels. When we look at some largest hedge funds, and we look at things like record equity prices around the globe, we do think that there's going to be some help to that business. We also saw record trading volume. When we look at the underlying trends to trading, the equities trading business should be supported by continued strength and prime brokerage. We saw some record balances last quarter.

5:28We think We're going to see new records this quarter. We also saw a record in U.S. exchange trading volumes. So that's a big business for the banks. But we're also going to see strength on the fixed income side of things, both within rates and spread trading. So really broad-based strength at the banks. And we think that that's really going to help all the competitors. And what are you looking for when it comes to commentary from these banks on the resilience of the consumer? That has been the driver for this economy, even when we're starting to see cracks in the labor market. When you think about banks like Bank of America and Citigroup that have more of a focus on households, what could they tell us when it comes to credit quality?

6:14To your point, we always do get an eye into the consumer for these banks. The one interesting thing that we're seeing at the industry level is the commercial side of low growth picking up. It really has been the credit card business that's been driving growth, especially at these large banks in recent years. But we are seeing a little bit of a shift to that on the commercial side. And we do think that that's healthy. On the credit quality side of things, as I said, I do think that we see some normalization. but we don't expect to see big changes in economic assumptions. So we think that the reserve building should be relatively modest.

6:56And when it comes to banks with sort of a big wealth management focus, I'm thinking of Morgan Stanley, Goldman Sachs, those kind of firms. Is the bar high for them? The bar is high, but we think that they are going to deliver on that bar because, as I mentioned, we've seen global equity prices and global equity market capitalization hit a new record towards the end of September. We've seen new highs already in this fourth quarter, and that is very good for wealth and banking fees, both for the third quarter and the outlook going into this quarter. All right. Well, we'll see as that big bank earning season kicks off early next week.

7:41That's Allison Williams with us, Senior Analyst for Global Banks and Asset Managers at Bloomberg Intelligence. Allison, thank you. We move next to earnings from some of the regional banks, Citizens Financial, First Horizon, PNC Financial Services. They're among the flood of lenders opening their books this week. Let's bring in Herman Chan to preview those results. Herman's a Senior Analyst for U.S. Regional Banks at Bloomberg Intelligence. These banks have been in the spotlight, Herman. Of course, these results are coming off the heels of the fifth-third bank deal for Comerica that we all remember so much about.

8:15So should we be looking for more consolidation chatter when the banks report this week? I think that's going to be the top question within the analyst community is which banks are going to be acquisitive and which banks potentially are thinking about selling themselves. We've seen, as you mentioned, the Fifth Third Comerica deal, and that comes on the heels of PNC buying a bank in Colorado called First Bank, which really boosts their Denver presence. And also Huntington, which is an Ohio-based lender that's going into Texas with its Veritex deal. So there is definitely some consolidation that's brewing, and we'd expect that to continue going forward.

8:55And of course, Fifth Third and Comerica are both going to be among those banks opening their books. What are you expecting specifically from those results? Yeah, so Fifth Third specifically has talked about some strong lending trends. So that's great to see. And we'd expect some further improvement in their top line. And what was the surprise for a lot of the investment community is that Fifth Third mentioned that they are ensnared in this tricolor bankruptcy. So that's going to create a fairly large credit loss for them, which will hit the third quarter numbers. We view that as more of a one-off issue that shouldn't reverberate throughout the entire loan book and throughout the industry.

9:40But it is something that will affect their 3Q reporting. In terms of Comerica, Comerica has been one of the banks that has taken a bit longer to recover from the SVB issues a couple years back. And so they're along the way of trying to shore up their balance sheet in terms of their deposits and deposit repricing and growing loans. But that'll be more steadier going forward. And given the fact that they're going to do this deal for a fifth third, I think that's going to be less of a priority for a lot of the analysts and investors. Are there some other banks reporting this week that could be in a similar situation as Comerica and potentially be acquisition targets themselves?

10:23Yeah, that's a good question. That's one of the things that we'll try to suss out. There are banks in our coverage that we think are probably better buyers than sellers at this point. So banks like Regents, which operates in the southeast and has a really strong valuation multiple that has the currency to really do deals. Another bank based in Buffalo, New York, M &T Bank, also has a track record of doing deals and has a strong currency to do deals. So those are the ones that I think the market's going to focus on in terms of they're going to be next to potentially be acquisitive. You mentioned one earlier, PNC Financial, talking about their expansion plans in the Southwest in particular.

11:10Do you expect that to show up in the results and bolster the balance sheet? At this point, that deal needs to be closed. But I think the next question for PNC in particular is what's next for them? They've been vocal about potentially doubling their balance sheet to over a trillion dollars in assets. And this deal, while helpful, it's not going to get them there anytime soon. So there's going to be some organic growth, but really there's going to be more consolidation over the next several years. Where do they go next? They've done the deal with First Bank. They've acquired BBVA USA, which really is the jumpstart for their Southwest and Sunbelt expansion into California as well.

11:57And now it's a coast-to-coast lender. So where do they grow from here? That's going to be the next question. Interesting. Now, one other bank I mentioned earlier, has been coming off its own deals as well. What are you looking for from Citizens? Yeah, Citizens has done a string of deals over the past few years. They really filled in their market footprint, which was missing in the New York City metro area with Investors, Bancorp, and New Jersey. And then they acquired the branches from HSBC in the New York City metro area. So that really fills out their traditional Northeast New England footprint with the mid-Atlantic footprint.

12:40So they're comfortably ensconced in the Northeast, and do they expand more outside where a lot of its large competitors have moved into the Southeast as well? So that's going to be a top of mind and a good question for them. There's some scuttlebutt in the investor community if citizens is going to be a seller or a buyer. So that's an ongoing question, particularly as larger banks try to get bigger to compete with the likes of J.P. Morgan and B of A. All right. Well, looking forward to regional bank earnings season. Thank you for this, Herman. Thank you. That's Herman Chan, Senior Analyst for U.S.

13:19Regional Banks at Bloomberg Intelligence. Coming up on Bloomberg Daybreak Weekend, we look at how climate change is hitting Europe the hardest. I'm Nathan Hager and this is Bloomberg.

13:56not recycled and so you know what actually matters as the day gets going. From Brussels, I'm following the politics, policy and the people shaping the European Union right now. And from London, I'm looking at what all that means for markets, money and the wider economy. We've got reporters across Europe and around the globe feeding in as stories break. So whether it's geopolitics, energy, tech or markets, you're hearing it while it happens. It's smart, calm and to the point. And it fits into your morning. You can find new episodes of the Bloomberg Daybreak Europe podcast by 7am in Dublin or 8am in Brussels, Berlin and Paris.

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14:41This is Bloomberg Daybreak Week and our global look ahead at the top stories for investors in the coming week. I'm Nathan Hager in Washington. Up later in our program, after a fresh record for gold, what's ahead for bullion heading into November? But first, in the coming days, global climate bankers, forecasters and government ministers will gather in London for the annual New Energy Finance Summit. The number of extreme weather events keeps rising and the economic damage they cause is going up too. With the U.S. pushing the EU to stop buying Russian gas and to cut back on green regulation, many are asking if the continent's green plans for the future are still intact.

15:19For more, let's go to London and bring in Bloomberg Daybreak Europe anchor Caroline Hepger. Nathan, Europe is getting hotter, 2.4 degrees Celsius hotter than before the Industrial Revolution. That's four and a half degrees Fahrenheit for our US listeners. That means the continent is warming faster than any other region on Earth, which in turn is disrupting the continent's weather. It's also getting harder to predict when power grids need more energy to cope. That hasn't stopped some European politicians from calling for the rollback of green pledges as they grapple with high costs of living. Greg Jackson is chief executive officer of the UK's largest energy retailer, Octopus Energy.

16:05He told us that's a knock-on effect of the shift in America. You can't ignore what happened in the US. You went from an administration that passed the IRA, one of the biggest commitments to government support for a specific set of industries in history, world changing, to an administration that used the phrase drill baby drill. I think that has really set the tone in a bunch of European countries, including the UK, where there is now an intense debate about our future of energy. That was Octopus Energy CEO Greg Jackson there on this week's Zero podcast. So what does the future of power look like?

16:47Well, in the next few days, the European Union's Energy Commissioner and Portugal's Energy Minister will be joining executives right here in London for the annual BNEF Summit. Joining me now is Ben Vickers, who is our chief editor of Bloomberg NEF, and Joe Wurtz, our weather and climate reporter here in London. Welcome to both of you. Hey. Joe, can I start with you firstly? We're thinking about climate change. Summers in Europe have seen record-breaking heatwaves with really serious consequences. I wonder when you think about your work, your job as a weather and climate reporter, how has that changed?

17:25Well, I mean, isn't that the joke, right? That the weather is always changing? You know, my job has changed quite a bit. You know, really, I started as a climate and environment reporter. And increasingly, that became more and more about extreme weather. And, you know, extreme weather really shapes how people, businesses, you know, power, energy move across the world. It dictates trade, economy and people's lives. And that's increasingly, you know, the story that we're focusing on. Ben, how are Bloomberg's NEF teams looking at this changing world, the impact of climate change? A kind of big, big thought.

18:05Yeah, I was going to say that's a very, very big question. So, I mean, basically what we do, we're a data supplier and we do analysis on the back of that. And we're looking at the shift in the economies worldwide to basically a lower carbon economy for everyone. Now, climate adaptation and climate risk have come to the fore. So we're adding new areas of research to help companies and policymakers sort of navigate not just the climate risk and the need for climate adaptation, but also how to keep businesses going, keep them profitable as we go down the route to energy transition, really. Energy transition, yeah, exactly.

18:41It's very much a changing picture as well. It's not as bad as the weather, but yeah, it's shifting. Well, thinking about that weather element, Joe, in the winter months, Europe has had in the past fears that a sudden cold snap would cause gas prices to spike this in amidst all of the other kind of energy challenges that we have. Is there also a similar concern about that this year? Yes, absolutely. We've already seen, you know, a early season cold snap. We had a big one in Eastern Europe already. And, you know, traders and governments are really locked in right now. This is basically like a cold snap hunting season for governments and traders.

19:19Their eyes are on the forecast. They're watching for any sign that a drop in temperatures could really throw off balance the sort of fragile state of the energy markets right now. You know, increased competition for gas. And so, you know, any deviation there, any cold snap can really raise demand and create ripple effects. And gas storage has also been an issue. It's been an issue in the UK and across Europe in past winters. Is it equally bad this time around? So, you know, Europe did a good job stockpiling gas over the summer. It's still that stockpiling was below what is historically the summer norm for stockpiling.

19:58But it did beat some expectations for that stockpiling. So, you know, we started the natural gas winter, essentially, which starts in October. So started that season with about 83 percent of the stockpiles full, which was better than a lot of people expected, but still not as good as it could be. But we've already seen with that first cold snap we had recently in Eastern Europe that some European countries are already having to tap into that gas supply. Absolutely. Now, of course, there have been incidents of blackouts in Europe. And I think this is going to be quite crucial when you speak to Portugal's energy minister, who is speaking actually at the Bloomberg NEF summit just in the next few days.

20:41I'm sure there'll be a lot of interest in understanding what she has to say about how the country dealt with that blackout. It has been blamed both on the power grid and also on renewable energy. And Ben, you're going to be interviewing her. What are you going to try to ask and find out? Well, there's a couple of things. There's obviously the human side to this, because being an energy minister and waking up one morning with the lights off, not just in your house or down the street, but across the country, it's probably a nightmare. So there's that personal experience of finding yourself in the hot seat.

21:11And, well, three months after that April 28th blackout, the minister presented 31 measures to basically address all the problems they'd been able to identify. And some of those are obviously within her remit. Those are the ones she's trying to address. But there's a bigger issue of interconnections basically between European power markets. And for a long time, Spain and Portugal have been asking France to improve the connections between those countries. and there's a little bit of a tiff between them and allegations that there are interests for the nuclear power plants to be able to sell their power rather than allowing solar from Spain to come in really cheaply and so on.

21:45So there's a little bit of EU negotiation to go on there as well. But they're investing$137 million in their grid to upgrade that. They're putting in a couple of new power stations that are going to light up in January, which are what they call Black Start stations, which is basically when everything goes off, these switch on automatically and sort of a first line of defense. but there's actually quite a you know 31 of these measures so we're going to be talking to her a lot about what the plans are what the plans are what she's delivering and how quickly and so on yes i think that will be really fascinating um in terms of though the other major theme surely is about the backlash against green energy i mean a little bit of that comes through in the discussion around portugal and the spending required joe for climate adaptation this is a significant issue in the u.s It has also rippled across Europe.

22:33Is it gaining traction in particular parts of Europe or for particular areas in the energy space? You know, it really seems to be gaining traction in all sorts of different corners across Europe. The context here is that Europe's energy grid, energy markets are increasingly renewable and increasingly rely on the weather. They're dependent on how much sun is shining, how much wind is blowing. And also comes with all the international competition for gas and other factors. Geopolitics can influence the supply side of that equation. So, you know, increased pressure on all those markets are definitely raising the stakes.

23:13And in each of these countries, you know, these ambitious climate targets that they set up have really been challenged. You know, last month was supposed to be a big milestone, right? Europe was supposed to get together and come to this big agreement, this final agreement on their long-term 2040 targets, and they kicked that can down the road. And now those countries are fighting about that. There's more domestic spending demands on each of these countries. In some cases, these countries are wanting to siphon off more money for defense spending and things like that. and more political unease with some of the ambitious spending targets that go along with these green goals.

23:53And if that wasn't enough, you just have to throw in artificial intelligence, which we have spent months thinking about, you know, the big build-out of artificial intelligence, the energy demand. Ben, that is going to also really underline some of the difficulties in the energy space. How do you think that the impact of AI is going to affect your forecast when it comes to power demand? How are you thinking about this oncoming technology? So there's a massive amount of interest in the impact that AI is going to have on power demand, on prices, more generally as well for consumers. Yeah, we've been looking at what the likely development of AI data centers, basically, the hyperscalers.

24:33But we're looking at, out to 2035, the power demand from data centers. we're expected to have quadrupled from where it is right now. That's only actually 4.4 % of all the electricity demand worldwide. So it's a small proportion of the electricity worldwide. But it's where it happens and when it happens, I suppose, which is really important. Now, if in 2035 you put all the data centers together, they would be, and look at them as if they were a country, they would be the fourth largest country in the world behind the US, China, India. Then there's data centers as a sort of a demand center. So it is going to be very big.

25:10That said, as one of the senior executives in one of the AI companies was saying this week, you know, there's only one thing you really need to know about AI, which is it's changing so fast and we don't quite know what's going to happen. So the forecasting here is obviously going to be quite tricky. Yeah, short term, we expect the demand for power to be supplied by rather traditional sources. So it is going to be coal and gas coming in. That's in the short term because the build out is so rapid. So places in the U.S. like Virginia and Oregon, Texas and Ohio, which have classically been able to supply, are going to benefit from the immediate demand.

25:43But longer term, then renewables have an opportunity to move in here. Yeah, and that's a term that we see generally in such a tight market like Europe, is that not just with data centers, but just traditional sources of demand for electricity. When the demand gets high and the prices spike or maybe the supply is constrained, trained they switch on the traditional sources of power to supplement that grid. That means switching on a gas plant and using what can be switched on more reliably than maybe the wind or the solar which might not be coming in the middle of a cold dark day. BNEF's Ben Vickers and Bloomberg's Jay Wurtz thank you so much.