JPMorgan Investment-Banking Fees Drop on Underwriting Miss

0:00Donald Trump is rewriting the Washington rulebook and reshaping the global economy. If you're trying to connect the dots behind the headlines, Bloomberg's Trumponomics podcast is here to help. I'm Stephanie Flanders, head of government and economics at Bloomberg. Every week, I'll bring you a smart, focused conversation with reporters and experts from Washington, Wall Street and beyond. Listen to new episodes every Wednesday and follow Trumponomics wherever you listen. Today's show is brought to you by Vanguard. To all the financial advisors listening, let's talk bonds for a minute. Capturing value and fixed income is not easy.

0:38Bond markets are massive, murky, and let's be real, lots of firms throw a couple flashy funds your way and call it a day. But not Vanguard. At Vanguard, institutional quality isn't a tagline. It's a commitment to your clients. We're talking top-grade products across the board of over 80 bond funds, actively managed by a 200-person global squad of sector specialists, analysts, and traders. These folks live and breathe fixed income. So if you're looking to give your clients consistent results year in and year out, go see the record for yourself at vanguard.com slash audio. That's vanguard.com slash audio.

1:14All investing is subject to risk, Vanguard Marketing Corporation Distributor. Bloomberg Audio Studios. Podcasts, radio, news. You're listening to the Bloomberg Intelligence Podcast. Catch us live weekdays at 10 a.m. Eastern on Apple CarPlay and Android Auto with the Bloomberg Business app. Listen on demand wherever you get your podcasts or watch us live on YouTube. Herman Chan has a CFA. He's also been monitoring the bank earnings. And JPMorgan got us started today, although the stock, as John mentioned, is off by 2.5%, and banks are the worst-performing group in the S &P 500. So, Herman, a big takeaway for JPMorgan's latest results.

1:59Yeah, takeaways is that the performance was strong. So we're talking about really strong markets, trading revenue year over year. Investment began with so little lights. And then the balance sheet lending growth was really good. So solid quarter all around. Guidance was in line with what they had expected heading into the quarter. But a couple lingering things, higher expenses for 2026 as they continue to invest for growth. We're talking about$9 billion increase in expenses. And then the credit card cap is still lingering across J.P. Morgan and the large banks. Herman, since everyone's been talking about the proposed cap by President Trump on credit card fees, what was the messaging from J.P.

2:41Morgan on the impact of that? Yeah, the messaging was that this would have drastic repercussions not only for J.P. Morgan, the banking industry, consumers, and overall GDP growth. So you think of credit as being the lubricator for economic activity. and when you slash card rates, that really will reduce the credit availability for a lot of J.P. Morgan's customers. So you can think of a large swath of them just not having credit card usage going forward under a 10 % rate cap. And J.P. Morgan is obviously a lot more sensitive to a potential cap on credit card and interest rates than some of the other big banks.

3:23I mean, This is a bank that just purchased the Apple credit card business or is taking on that Apple credit card business that Goldman Sachs gave up. That's right. So that's adding about two point. That's adding 20 billion imbalances, give or take. So that's something that will will be helpful for them. But really, J.P. Morgan's one of the more active credit card issuers in our large cap bank coverage. Citi is the first, followed by J.P. Morgan, and then Bank of America, Citi, and U.S. Bank lag after that. What's the thing, Herman, that stood out most to you today from J.P. Morgan's results? Was there anything significant compared to prior quarters?

4:02Yeah, really the takeaways were just how forceful they were on the credit card rate cap issue. Just reminding everybody that this is not just the J.P. Morgan and banks issue. This is going to have really big repercussions for economic activity in the United States and really will hurt some of the less advantaged consumers that I think really this rate cap would intend to help. And then the second one is really just they double down on the expense outlook, which surprised some folks when they unveiled that late last year. So$9 billion in higher expenses really driven by growth, inflation, health care costs, etc.

4:49I want to go back to the president's effort to cap credit card interest rates, because from what I understand, it's not something that he has the authority to do. This is something that Congress has to pass. Yet he's talking about this January 20th deadline. How does that work? I mean, he's calling for it, but calling for it doesn't mean that he can do it. Right. So a lot of it seems to be posturing at this point, just pushing himself to address some of the broader affordability issues heading into midterm elections is how I view it. So why don't the banks point that out or not point that part out, but call them out on the fact that this would take an act of Congress to do anything about it?

5:29Right. Well, they're not. There was a question posed during the earnings call if somebody from the administration had reached out to J.P. Morgan and they said that as far as they know, nobody has. So a lot of it seems to be just tweeting by edicts at this point. So we'll see if that shakes out to be something else more definitive. But we would expect the banks to push back and really wait for any congressional legislation to come in to really cap the rates. Herman, this slowdown in investment banking revenue down 5 % from a year earlier, do you expect that to pick up later this year, given the expectation for more dealmaking?

6:13Yeah, that's right. The fourth quarter seems to be more of a blip to us. Fourth quarter, investment banking usually is seasonally soft, given the holiday season. Sounds like, from their comments, that a few deals were pushed out into the first quarter. So these deals didn't go away. They were just delayed. And looking ahead into 2026, we see robust activity in investment banking. You can just think about the IPO calendar. That's really firming up. And then for M &A activity, we think lower rates will help. where this deregulation effort by the administration is helping increase consolidation, not only in banks, but in other industries as well.

6:57And then we've seen the sponsor activity of private equity players really jump back in. So those are really strong factors for improving investment banking activity next year. So Herman, how does this set us up for the other big bank earnings, which we'll be reporting over the next day or two? How is this changing expectations for, say, Citi, Bank of America, Goldman Sachs, Morgan Stanley? That's right. So, J.P. Morgan really set a high bar for markets in trading. So, about 17 % year over year. That's going to be tough for others to meet, but that's where the bogey is at this point. And in terms of investment banking, we'd probably expect some others to do a bit better than the year over year decline for J.P.

7:39Morgan. So, more to come on that front. Stay with us. More from Bloomberg Intelligence coming up after this.

8:11over 80 bond funds, actively managed by a 200-person global squad of sector specialists, analysts, and traders. These folks live and breathe fixed income. So if you're looking to give your clients consistent results year in and year out, go see the record for yourself at vanguard.com slash audio. That's vanguard.com slash audio. All investing and subject to risk Vanguard Marketing Corporation Distributor. Hello, I'm Stephen Carroll. I'm in Brussels, where many of Europe's biggest decisions get made. And I'm Caroline Hepker in London. We're the hosts of the Bloomberg Daybreak Europe podcast. We're up early every weekday, keeping an eye on what's happening across Europe and around the world.

8:50We do it early so the news is fresh, not 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 On Apple, Spotify, YouTube or wherever you get your podcasts

9:37to the Bloomberg Intelligence Podcast. Catch us live weekdays at 10 a.m. Eastern on Apple CarPlay and Android Auto with the Bloomberg Business App. Listen on demand wherever you get your podcasts or watch us live on YouTube. Let's shift gears and talk about big tech because the news this week is that Apple is partnering up with Google, Alphabet, the parent company, to power the iPhone's AI technology using Gemini. Gemini, of course, has become kind of the software that everyone's looking at right now is a big winner in the whole AI battle. So let's bring in Anurag Rana, our Bloomberg Intelligence Technology Analyst on this.

10:18And Anurag, you know, people are already crowning Google as a winner here in the AI battleground. And it definitely looks like Gemini is picking up momentum, picking up market share. What specific advantages does Google bring with Gemini to Apple? So, you know, we'll give first of all credit to Mark Gurman from breaking this back in November when he said, you know, Google will work closely with Apple on this model. Now, we go back in history. You know, Apple doesn't have that big of their own foundational model on which it's running or it's supposed to run some of these technologies. But Apple and Google go back a long way.

11:00They have a very, very good agreement on search, which pays Apple billions of dollars. So, you know, there was some legal issue around it. So we always knew that once that legal issue goes away, Apple may be working closely with Google to basically outsource a lot of their foundational models into the technology that they have. they have. Now, it's possible that the next CD upgrade, which is most likely going to be the March-April timeframe, could be that one big moment that we are all looking for Apple to finally come out and say that, OK, you know, we are not laggard in AI, that they also have a product that's pretty good.

11:38Anurag, I saw a tweet actually from the official Google account announcing this deal, and Elon Musk replied. He said that this seems like an unreasonable concentration of power for Google. Obviously, he has a vested interest here, given his participation in XAI. But does he have a point? What are the regulatory risks around this deal? Yeah, I mean, he won't have a point if his model was being used at that point. So, I mean, everybody's trying to pitch Apple to use that model. But, you know, at the end of the day, Apple actually for the first time, if you go back a year and a half ago, they used OpenAI.

12:14I mean, you can still use OpenAI when you go to Siri and ask a question, and it can take you out of there. But for Apple, it has to be integrated within the iOS, within the software. But they won't do it to an outside vendor where they don't control the data. So what Apple's going to do here, they're going to use the foundational models from Google, but they're going to run a lot of that either on their device or their own private cloud data centers, which means they will still protect the privacy of that question and not let it have access to other players as well. Yeah, the privacy angle is really big for Apple.

12:50It's kind of its mark of distinction here among the big tech players. Anurag, Apple has seen this exodus of talent, AI talent, going to other big tech companies in recent months. Does this multi-year deal with Alphabet, with Google, change any of that? Does that stanch the bleeding at all? Yeah, for me, it does, only because I am now buying the model outright from somebody who's doing all the hard work. So I'm not in the business of model development. If I can use the best model that's out there into my product and I pay them some money and, you know, the rumored amount is about a billion dollars a year, which is, to be honest, nothing compared to how many billions these companies are spending to come up with their own large language model.

13:33And that's what actually Apple said in the search case and says, I'm not in the search business. If Google has the best search, I will outsource that technology into my products from them. Stay with us. More from Bloomberg Intelligence coming up after this. I'm Barry Ritholtz, inviting you to join me for the Masters in Business podcast. Every week, we bring you fascinating conversations with the people who shape markets, investing, and business. CEOs, fund managers, billionaires, Nobel laureates, traders, analysts, economists, everybody that affects what's going on in the market, whether you own stocks, bonds, real estate, commodities, crypto, you really need to hear these conversations.

14:20Sometimes it's behaviorists like Dick Thaler or Bob Schiller. Sometimes it's fund managers like Peter Lynch, Bill Miller, Ray Dalio. Sometimes it's authors, Michael Lewis, author of The Big Short and Moneyball. Regardless of the conversation, these are the folks that move markets each week. That's the Masters in Business podcast with me, Barry Ritholtz. Listen on Apple, Spotify, or wherever you get your podcasts.

14:50You're listening to the Bloomberg Intelligence Podcast. Catch us live weekdays at 10 a.m. Eastern on Apple CarPlay and Android Auto with the Bloomberg Business app. Listen on demand wherever you get your podcasts or watch us live on YouTube. Scarlett Fu and Alex Seminova in for Paul Sweeney. I'm kind of tired of shopping. I've done so much of it in the past month or so. I've been so overwhelmed. I don't believe that for a second, by the way. I'm not into it. It's very overwhelming to walk into a store these days. Yeah, price points are way too high And then also I'm just tired of it because I did so much of it in the last couple of weeks.

15:27But maybe technology will help me. Maybe it'll make it easier. It'll take some of the friction out. We want to bring in Travis Hess. He is CEO of Commerce, which is traded on the NASDAQ under the ticker CMRC. Travis, you're going to tell us how AI is changing shopping. But in particular, this has to do with what Google has been doing with this thing called the Universal Commerce Protocol. Explain how that will make my shopping needs easier. Well, given the extent to which Google plays in all of our lives and how people think of them, it's essentially setting the foundation and the standard for brands and retailers and other organizations to be able to scale agentic commerce across all of the surfaces that Google AI would hit.

16:10So think of the contextualized conversations everyone's having through Answer Engines today. Those conversations are then dynamically recommending not only experiences and facts, but certainly shopping and brands based on the enrichment of data against those surfaces. And Google is enabling a standard by which consumers would be able to buy in a standardized, safe, secure way. As it serves up discovery, you'll be able to buy seamlessly across those surfaces. Travis, can you walk us through how AI will change the shopping experience in practical terms? Let's say I'm looking for a bag. How do I go about using your platform?

16:44The consumer behavior has changed more than anything. So the amount of eyeballs and behavior going to the answer engines is probably the fastest adopting technology we've seen. So because the consumers are going there and they're having these conversations, brands and retailers are having to respond in kind. And they tend to have a fair amount of brand ethos. So they're very concerned about where they show up, how they show up, and who they show up next to. So trust is at the cornerstone of this. So a lot of the foundational stuff you're hearing about now is to set up that trust. So when you're shopping for that bag, it's giving you a response that you can objectively trust.

17:17It's not serving up who paid the most to be listed or injected in that conversation. The thesis behind this is based on your own behavior within those answer engines and, of course, other behavior within Google, whether that's through Chrome or through other Google products. They have a unique advantage there because of the amount of surfaces an individual might use to synthesize that in a hyper-personalized way. So think of it as, I don't like shopping either, but think of it going in your favorite store and someone as you walk in can scan a code and immediately knows what you own, what you like, where you're going, what you're looking for.

17:50So they could curate something for you immediately where that friction is removed through the process. Think of that virtually in this particular capacity. That's the future state. So all the information that Google has on me, they are also selling. Who are they selling it to? That's not for me to opine on. I mean, the reason I ask is because it depends on me logging into Google for them to give me those personalized recommendations. If I don't choose to log in, then I end up with the equivalent of a Google search on a public computer. You do. I think the models are changing. Certainly the old model was you're searching for terms and certainly organizations are optimizing through SEO to be listed organically at the top or they're through paid search.

18:29There you go. That still exists today, certainly in his behavior that drives that. But where this is evolving to is called GEO. So generative optimization. which is really going to be a combination of structured data, which is like product catalog data, skew, color, size, all those dynamics, dimensions, coupled with unstructured data, which are brand guidelines, call center transcripts, blogs, articles, all the things that would contextualize that brand and that product, if you will, that's being enriched oftentimes by us on the feedonomic side, which is part of our portfolio, and then syndicated across these different services, be that Google or OpenAI or Microsoft or whomever.

19:08And it's going to continue to expand as the channels have expanded over the last several years. Travis, we have the National Retail Federation Conference underway. I believe today is the last day. What kind of AI trends and retail trends have you been monitoring out of it? It's all about AI this year. That's what's hot. Exactly this, right? I think there's a lot, there's two sides of the spectrum. There's a lot of buzz, which is exciting, but at the same time, it's confusing a lot of people because everyone is doing everything and it's it's hard to kind of reconcile like what's meaningful to the business i think for larger organizations that we work with brand manufacturers and retailers um trust brand ethos and security are top of mind so for them it's less about the sizzle it's more about the stake and the foundational elements i think the importance of the google announcement is they are taking a very pragmatic approach to this to lay the tracks so this can scale and scale properly with trust with security and most importantly, with a frictionless experience for customers because the brands don't want to lose that customer data.

20:05They still want to maintain that experience, even though they're not fully controlling the surface by which they're showing up against. It's not like they're showing up against their own website. So they're in a service they don't completely control. They're controlling part of it through the data enrichment and syndication, but they're not controlling all of it. So they're very, very concerned that that experience is a positive one and a frictionless one. Otherwise it has ramifications. It drives cost up in call centers. It drives maybe negative customer experience it drives returns exactly return turns bad things on the back end so that that's the the reconciliation people are trying to have but yes the ei has sucked all the all the oxygen out of the room at javis and it's a big room what what will ai not change for shoppers um what will it not change for shoppers um i think the behavior and the surfaces by which they're going to they're still going to go to right i think new ones are showing up i think the expectation personalization has been promised for a long time yep i think there's some um hesitancy there around the trust so i think overcoming the trust aspect of this and having that reinforced through continued behavior the shopping is very new there was a big rush to do this in holiday and the experiences weren't great so i think there's a little bit of hesitation i think you'll see a much more robust offering this holiday season stay with us more from Bloomberg Intelligence coming up after this.

21:28I'm Carol Masser. And I'm Tim Stenevec, inviting you to join us for the Bloomberg Business Week Daily Podcast. Now, every day we are bringing you reporting from the magazine that helps global leaders stay ahead. We've got insight on the people, the companies and trends that are shaping today's complex economy. That's right, Tim. We're all over global business, finance, tech news, all as it is happening in real time. And we've got complete coverage of the U.S. market close. Gotta say, basically, if it impacts financial markets, if it impacts companies, if it's impacting trends and narratives that are out there, we are on it.

21:58We also have a lot of fun doing it. Bloomberg Business Week also brings you the analysis behind the headlines through conversations with our expert guests. And we are doing this all live each weekday. And then we bring you the best analysis in our daily podcast. Search for Bloomberg Business Week on YouTube, Apple, Spotify, or anywhere else you listen. Check it out on your way home from work to catch up on the conversations that you miss during the business day. And on the weekend, check it out for a complete wrap-up of your Business Week. That's the Bloomberg Business Week Daily Podcast. I'm Carol Masser.

22:26And I'm Tim Stenevec. Subscribe today wherever you get your podcasts.

22:34You're listening to the Bloomberg Intelligence Podcast. Catch us live weekdays at 10 a.m. Eastern on Apple CarPlay and Android Auto with the Bloomberg Business App. Listen on demand wherever you get your podcasts or watch us live on YouTube. Delta is the first airline to report earnings as well. And according to the stock market reaction, investors not to impress. The shares of Delta are down about 2.8 % after its full year forecast came a little bit lighter than anticipated. Let's bring in George Ferguson right now. He is our senior aerospace defense and airlines analyst joining us from Princeton, New Jersey.

23:10George, you know, at the start of 2025, Delta sounded very optimistic about demand, about what pricing looked like. And the forecast that it gave today kind of stands in contrast to that. Yeah, I mean, Ed Bastian, I think, was a little reticent to get too deep into what he sees happening in 2026. He said, you know, there'll be surprises much like they received in 2025. And, you know, I just think as people look at the results, you know, really what we saw here from Delta was a continuation of the, you know, the premium and the loyalty revenue are rolling in strongly, rolling in, I think, sort of 5 % to 7%, if I recall correctly, you know, above sort of GDP growth rates.

24:00but the back of the airplane, they call it the main cabin or basic economy, that revenue was down 7 % and a quarter where Delta was growing a couple percent. And so I think we still see this premium trend, and I think we're going to see a lot of growth in premium seats this year. We've got Southwest converting to more of a full-service carrier premium. Delta plans to go premium. United plans to go premium. Alaska, JetBlue, everyone wants to go premium. So I think there's probably some concern in the marketplace that maybe premium gets crowded and pushes closer to that main cabin kind of fare rather than main cabin coming up.

24:44Maybe too much supply. We'll see. By the way, Bastien, the CEO of Delta Airlines, will be joining Bloomberg Television Surveillance on Wednesday. That is tomorrow, of course, at 8.15 a.m. Eastern Time for a live interview from Delta's headquarters in Atlanta. And something that stood out to me, Scarlett, was that Delta said they're bracing for risk to their forecast, noting the geopolitical environment, whether it's international or domestic policy. George, is this unusual for them to issue this kind of warning? I mean, again, I think we're at the beginning of the year and management teams like to caveat things, right?

25:20And so I guess what I would say is we had plenty of geopolitical challenges in 2025. You know, we were watching transatlantic demand closely because you've got a war raging in Ukraine. It's been doing that for a bunch of years now. Didn't seem to slow down that demand. That demand seemed to do OK. Some days I wonder if there maybe there's more risk domestically. Right. One of the other things we're watching is the president wants to cap interest rates for the credit card companies at 10 percent. Loyalty to the Amex program brings a lot of money in for Delta, definitely a source of their competitive advantage.

25:59And I think if you're capping interest rates, I think some of those credit card programs have to change and that would hurt some of those loyalty programs. So there's, I mean, there's risk all over the place all the time. But again, the geopolitical didn't seem to hurt demand as much as we would expect it in 2025. Right. It kind of always threatens to hurt demand. But in the end, people still prioritize traveling and paying for traveling. George, I'm looking at some headlines coming out on Delta at the start of this hour. And one of the comments from Delta was that the airline industry could see consolidation in 2026.