JPMorgan’s Surprise Dealmaking Gain Shows Tariff Fear Easing

0:00Some people treat ChatGPT like some kind of smart search engine, and some use it to get work done. ChatGPT Work is a new way of working in ChatGPT that can take action across your apps and files, stay with a project for hours if needed, and turn a goal into finished work. It's designed to help you move from a chaotic starting point to a reviewable first version. So all the source materials, briefs, and scattered information that you have to grind through to turn into something useful can just become something useful. Put ChatGPT to work on your most ambitious ideas and projects. Get started at ChatGPT.com by selecting Work Mode, available on Plus and Pro plans.

0:43With LPL Financial, we provide the services to help push you forward. When it comes to your finances, your business, your future, the only question should be, what if you could?

1:17and conversations with tech's biggest decision makers. Listen to Bloomberg Tech on your commute home and stay ahead of the news cycle. Subscribe today on Apple, Spotify or anywhere you listen. 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. Welcome back to Bloomberg Intelligence. I'm Lisa Mateo alongside Paul Sweeney. Big day for bank earnings. Some mixed reports, though.

2:00Taking a look at the stock, we have J.P. Morgan. Their share's down about 0.5%. Wells Fargo down 5%. We have Citi up about 1.5%. So here to break it all down for us and what happened with each bank is Alison Williams. Who else? Bloomberg Intelligence senior analyst, global banks and asset managers. Allison, thanks for joining us here in the studio. Good to see you. So let's start with J.P. Morgan, right? They had some surprise deal-making gains. I mean, is that a sign that tariff fears are easing, or how do you take it? I mean, they had a solid quarter. There's always a high bar for J.P. Morgan, but I think a really good quarter, strong returns, good organic growth, and I think, you know, about a billion dollars of upside with trading and fees.

2:42And so I think that we, you know, we did see that that fee pick up. We saw April stall, then we saw fees really did pick up in May and June. As you said, it really is the advisory business was big upside, you know, for both JP Morgan and Citi. And we also saw IPOs better. And so we have seen that improving sentiment. I think there is going to be a little bit of a lift in terms of some of the expectations for those banking fees going forward as well. Red headline crossing the Bloomberg Terminal. Tesla's top North America sales executive, Troy Jones, exits. That's according to the Wall Street Journal.

3:21So when it rains, it pours there. All right, here we go. So we had J.P. Morgan, Citigroup and Wells Report today. Guess what? I worked at all of those firms. Chase Manhattan Bank, now part of J.P. Morgan. Salomon Brothers, now part of Citigroup. And Wheat First Securities, which is now part of Wells Fargo. That's where Wells Fargo got its original broker-dealer license by acquiring my firm, Wheat First Securities, Richmond, Virginia. So I'm biased all over the place here. Let's start with Citigroup. I think that's got the most upside because I think it's underperformed for such a long time. It was just begging for really, really, really good management.

3:57Is this, I mean, the stock's hitting 52-week high today. Is this the turnaround that everybody's been waiting for, do you think? I think, yeah. Jane is getting it done, right? So and to be fair, you know, her predecessor has made some changes, but I think she's made some tough decisions, you know, especially the sale of the, you know, the Mexico business where she really cut her teeth. I think that is a sign that she can be objective in terms of deciding what's right for the business. and they are working their way up to some better returns. So there's a lot of talk about the evaluation for Citigroup.

4:37We know that they trade at a discount to their book value. They trade at a discount to their peers. That's what happens when you don't earn your cost of capital and your returns are below peers. But I think the changes that they're making are moving them in the right direction. So when I look at Wells Fargo, because I'm trying to go through the information, So the big thing that kind of stands out to me is that I crossed the$1.95 trillion asset mark. Is that a big milestone? Well, the removal of the asset cap, that is really, I think, the big structural benefit. And I think that goes to the number that you're talking about where, you know, for years they had to limit their balance sheet growth.

5:16They finally got the go ahead that, you know, we don't have to be so concerned about what that exact number is. I think the stock has really priced in a lot of the optimism around getting that asset cap removed. I mean, basically has been, you know, a huge gainer since the U.S. election. I think the shares are responding today to the lower net interest income outlook. And I think there's a couple of things there. The the core net interest income, that's what people focus on. because the income that you get from trading generally has an offset to fees. But if you're just focusing on top line, you're just focusing on that number, people are disappointed in that outlook for Wells Fargo.

6:00What are you hearing from these banks today and over the coming days about loan growth? Because it seems like with the yield curve steepening, it's a good time to be making loans. How's the demand out there? Because all they hear about is private credit here, private credit there. How about the banks? I mean, we are we did see like things a little bit better. I would say that, you know, the own growth, loan growth is still a bit modest. But the expectation in terms of reduced risk to the economy is really a positive for these banks going into the second half. And so I think there's there's certainly room for improvement in the loan growth.

6:37But I think things were fine. Well, there's been the loosening of regulations, capital requirements for the banks. I mean, did this show up in the results or when will it? I think that's that is something that is going to come over time. And we did see some some some good buybacks at Wells Fargo, for example. But I think the big news was the stress tests that we saw in June basically are signaling that their capital hurdles are going lower. further a proposal out there that, you know, they're, we're going to have sort of average results over time. So that for this year means that the, the, you know, the decreases might not be as much and they might come a little bit later, but we think that's positive over time, because what that means is that there'll be more stabilization and not sort of these ratios moving around a lot.

7:28So lots of excess capital at the banks, even more as those ratios go lower, That means more buybacks, especially since we expect that any further regulations are not going to be as drastic. Goldman Sachs, Morgan Stanley, they report tomorrow. I always love looking at the way you guys analyze kind of league tables and how people are doing competitively. What do you expect to hear from those two investment banks? I mean, so we expect strength. I mean, the results that we saw today in terms of fixed income trading better than expected, equities trading better than expected, fees almost across the board better than expected.

8:03We talked about the IPOs, like that's a really good sign for Morgan Stanley and Goldman, the M &A, you know, Goldman is typically an M &A leader there, although JP Morgan has really been catching up. So those are all very positive signals. I mean, 27 percent growth year over year in Citigroup's rates and currencies business. That is a really strong result. and Goldman and Morgan Stanley lead in the equities. They earn the most from these businesses. So I think that the bar is definitely higher for them tomorrow. All right, good stuff. We appreciate it. Alison Williams, senior analyst, Global Banks Asset Managers, Bloomberg Intelligence.

8:41She's been doing it for a long time. She worked on the buy side at Morgan Stanley Investment Management investing in these big banks. So she knows what she's doing. She's got a great team there at Bloomberg Intelligence on a global basis, looking at some of the big global banks around the world. So I appreciate getting a couple of minutes of her time. 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. I want to turn our attention to health care company, managed care company, United Health Group.

9:20It's a big company,$267 billion in market cap. It's down 40 % year to date, but it's had a distinction of having, I think, 60 consecutive quarters that kind of beat earnings estimates out there. But I think analysts are starting to take another look at some of those earnings numbers and taking a look at how this company put those numbers up. And I remember this kind of story back in the day from General Electric, where they would just beat by a couple of pennies every single quarter. But that turned out to be a little bit of a mirage when you go back and look at some of the data there. Michelle Davis joins us here, Bloomberg senior deals reporter.

9:57Michelle, what do you find when you're looking at UnitedHealthcare? How are they making some of those numbers recently? So, yeah, as you mentioned, they had kind of a pristine record for more than 60 quarters. They beat estimates. Analysts love them. And at the end of last year, that got a bit harder for them to keep up. You know, medical costs were rising. The government's been cracking down on reimbursements, and that was eating into profits. And so what we reported is that at the end of last year, they approached several private equity firms and asked them if they wanted to buy stakes off of them, of their businesses.

10:29And a couple interesting things happened here. Not only did they quietly do this, but the deals were structured such that UnitedHealth can be forced to buy the businesses back down the road. So it's temporary in nature. And United booked the gains in an interesting place. They booked them as part of operating earnings, which is adjusted earnings, which is normally where you look to see kind of how a business is doing, you know, excluding one off gains or one off events like this. And so it was just interesting to see not only the fact that they stealthily did this, but where they put them. And and without these gains, they would have missed estimates and profit would have dropped in the last quarter of last year.

11:08So as I'm going through this article, this this certain quote stands out for me from an analyst that you spoke to. is that if the company is manufacturing earnings by chopping up their furniture or selling their assets, that's not exactly a great business model. Okay. So is the risk that it might be kind of masking this weakness in the operations? That's the concern. And just to be clear, you know, there's nothing illegal about what they're doing per se. You know, they disclosed that they did this. Most people didn't see it. It was in a footnote in their 10K that kind of went under the radar and there are no details about what exactly they sold.

11:39That's what we're trying to, you know, report on here. But yeah, the concern is it clouds, you know, your ability to see how the business is actually performing. And we heard from sources that there's a culture inside UnitedHealth of, you know, kind of there being this pressure to do whatever you can to meet targets every quarter. Yep. So, I mean, again, the stock, it's a huge company, huge player in the managed care business, but stocks down 40%. What's the underlying concern for investors out there do you think around this company? UnitedHealth has been dealing with a lot of things. I mean, even before we knew about this, there was obviously the tragedy of, you know, one of their executives being murdered last year.

12:21And then, you know, there was a Wall Street Journal investigation this year about potential Medicare fraud, which they have denied. They also, in the first quarter, reported their first earnings miss in, you know, more than 60 quarters. So that shoe finally dropped, they ousted their CEO. So investors are just concerned about the story here. You know, what is the UnitedHealth story? I think that's what the big concern is. So are there any other companies, like maybe other health companies or something like that, where this same story that you've been talking about kind of plays out? Not that we could find.

12:54It seems like UnitedHealth is really, you know, unique in its ability and history of, you know, really carefully managing its reporting every quarter. So new management team here. What's kind of the focus now of the company? What's kind of the message to Wall Street about how they're, I guess, going to try to turn this thing around? So they brought in their former CEO, who is a accountant by nature, and it seems like the market's pretty, they've been put at ease by him. The view or the hope from analysts is that the last quarter was kind of an anomaly and they were just bleeding out all the bad stuff and now they'll have a lower base to kind of beat off of they report earnings later this month so so we'll see you know how the business is actually doing but the big surprise in the first quarter was that um you know medical costs were a lot higher than than they say they they anticipated that was confusing to people because their job is to anticipate that but that's what i when we were reporting on that story a couple weeks ago i said yeah isn't that the job of the company to know how that's going to go.

13:52All right, I'm looking at the ANR function on the Bloomberg terminal that tracks analyst recommendations. And for UnitedHealth, there are 21 buys, six holds, and two sells. So, you know, I think the street's still generally buying off on this, maybe this turnaround story, but maybe we'll take a look at your story here today. Michelle Davis, thank you so much for joining us. Michelle Davis is a senior deals reporter for Bloomberg News, joining us live here in our Bloomberg Interactive broker studio. But it's interesting to see on the healthcare space. And again, you come in here every Monday, Lisa, and it's like there's an M &A deal coming out of the healthcare space, which keeps the likes of Michelle Davis busy on the deal front.

14:32But it's, again, we see it time and time again in the healthcare space. If you can't come up with that next drug or that next procedure, whatever, in your R &D lab. You gotta join up. You gotta go buy somebody. You gotta go buy somebody. And that's how that business is played. The thing about AI for business, it may not automatically fit the way your business works. At IBM, we've seen this firsthand. But by embedding AI across HR, IT, and procurement processes, we've reduced costs by millions, slash repetitive tasks, and freed thousands of hours for strategic work. Now we're helping companies get smarter by putting AI where it actually pays off, deep in the work that moves the business.

15:14Let's create smarter business, IBM. What if you could have more wins? More support? More sound effects? At LPL Financial, we like the sound of that. Because LPL offers more. Advisors, what if you could have more ways to help your clients? Ready to invest? What if you could find an advisor that really understands you? When it comes to your finances, your business, your future, at LPL, we ask, what if you could? Paid advertisement. Investing involves risk, including potential loss of principal. LPL Financial LLC member FINRA SIPC. Hi, I'm David Weston. Join me every week for the Wall Street Week podcast to hear stories of capitalism from around the world.

15:56From geopolitical tensions and central bank decisions to artificial intelligence, energy, and infrastructure, we sit down with the CEOs, economists, policymakers, and thought leaders whose decisions are shaping markets everywhere we find them. Subscribe to the Wall Street Week podcast on Apple, Spotify, or anywhere you listen.

16:18You'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. All right, Lisa, Matteo, Paul Sweeney. We're live here in our Bloomberg Interactive Broker Studio streaming live on YouTube, so check us out there. You know, to the extent I've had any luck in meeting other people, it's been in a bar. No dating apps here. I know, I know. I met my husband at the grease trucks at Rutgers after already having burgers. There you go.

16:53Now, dating apps must evolve as Gen Z redefines romance. That's according to a Bloomberg Intelligence survey. We're going there, folks. We're going down that rabbit hole. Nicole D'Souza joins us here, internet and software equity analyst for Bloomberg Intelligence. Nicole, what's your survey? What are the questions it asked and what did you find? Yeah, so we at Bloomberg Intelligence conducted the survey to better understand how people are navigating dating, how they use dating apps, and then also how they feel about AI within dating apps. And so some really interesting findings. First, that specifically Gen Z tends to be single but not dating.

17:30Gen Z is what age again? 16 to 28. 16 to 28. All right, so I got two of my four into that one. Okay, go ahead. And so they're not using the apps? They're not even dating. Single and not dating. So this is, I mean, there's a few reasons. Studies have kind of shown they do have higher rates of loneliness, but they are also prioritizing independence. They are also, you know, feeling a reduced stigma around being single. So it could really change dating patterns generationally. I can kind of say my son was on a dating app and then he stopped because he got tired of it. And it just and he's in that Gen Z kind of group.

18:07And they're not going to pay for them, too. So how does that change for these different, you know, dating apps out there? How do they have to change their approach? So right now, a lot of what we're seeing from Gen Z is that even though they are dating less, they are looking for long term relationships. Those that are dating, they are looking to form meaningful connections. So, you know, some of the products we've seen from these dating apps that really introduce AI are more around how to create a profile, how to make it easier to talk to people, you know, using AI to generate prompts. That might not necessarily, you know, correlate with what Gen Z is looking for in terms of forming a meaningful connection.

18:45I'll tell you, Lisa, go to the Parker House in Seagirt, New Jersey on a summer Saturday. Thousands and thousands of kids of Gen Z type are there. where at like four o 'clock in the afternoon, they're not on the beach. They're all made up, dressed to the nines. I think they're looking to meet somebody. I know, I've been there. I had to wait on my kids. I mean, I don't know what's going on. How about millennials? How do they fare? So millennials are, they kind of came of age during the time of dating apps. So a lot of dating apps are really created to target dating patterns of millennials. So millennials have a more favorable relationship with dating apps.

19:24And they also are much more comfortable with AI in dating apps versus Gen Z, which was surprising to us. Now, what about, okay, people always forget about Gen X. The Gen X folks. Your Gen X. Yeah, so what about Gen X? And then, you know, my mom, you know, single, like she wants to find out about these apps. I'm telling you. What about the older generation? They're on dating apps. So they're on it. Yeah, there are a lot of Gen X and baby boomers on dating apps. And there are a wide variety of dating apps to kind of address different age groups, different things that people are looking for. So they're available.

20:01How does AI, I have to ask the AI question. Because we had a guest on earlier about it. I walked out of there thinking AI is going to take over Wall Street. How about AI and dating apps? That, I would think, could be helpful to better select somebody who might be a good match or something. So we've seen dating app companies roll out a lot of AI products. I would say right now, it seems at least based on our survey, that they haven't been that well received. It seems like people don't necessarily need AI to build a better profile. They don't need AI to help them engage in conversation. I think where it has been helpful is user safety.

20:37So to weed out profiles that are fake or, you know, potentially people who are sending harmful messages. And that is a common complaint. but as of right now it doesn't seem that you know at least Gen Z and even some Millennials are really really adopting these new AI products so there are certain dating apps that are more popular than others I mean which are the hot ones right now so right now at least by users tinder has by far the most users okay that's owned by match group and then hinge is actually one of the few dating apps that is continuing to grow users and that's probably because Hinge focuses a little bit more on kind of long-term relationships, building meaningful connections.

21:19Tinder still has a reputation of kind of a hookup app. Yes. Which one is that? Tinder. That's what my son was on. A hookup app. Oh my God. I mean, I'm looking at Nicole's research report. I mean, she's got graphs here of like, I'm in a monogamous relation. I'm single and currently dating. I'm in an open relationship. Single but not dating in a casual relationship by demo by baby boomers gen x millennials i mean who knew this is a lot of research here dudes on dating i mean go to a bar you know have a cocktail relax i don't know i don't know it's good stuff here but nicole thanks so much for joining us great research again a bi's cutting edge research bloomberg intelligence uh using some survey data here to go out and take a look at how some of these um these apps are working out there nicole de souza she covers all the internet stuff and all the software stuff for Bloomberg Intelligence.

22:15You'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. BlackRock, you know, the stock's down, but I mean, it's BlackRock. I mean,$12.5 trillion in assets under management. I can't get my mind around that. It's just an extraordinary story. And by the way, it's separated from Blackstone. I mean, imagine if those two work together. Holy cow. Anyway, I mean, it's got a market cap of$160 billion. BlackRock is down 6 % today, up about 1 % for the year.

22:57Neil Sipes is in studio. He's got to explain to us what's going on there. He covers all the asset managers for Bloomberg Intelligence. Neil, talk to us about BlackRock here. They never seem to have problems getting money in the past. What's going on? Yeah, and I think what you're seeing a little bit in the second quarter is the net inflow figure was about half the first quarter. So perhaps a little bit slower than the analysts were expecting. But what I think is encouraging and sort of what we're seeing with the transition, you even mentioned Blackstone. BlackRock is trying to enter some of those businesses in a more meaningful way that Blackstone is involved in the private markets.

23:31We saw the handful of transactions last year, global infrastructure partners, HPS. And what this is going to do is really sort of improve the organic base fee growth. So while we're seeing a little bit slower on the net inflow figure in terms of broader asset growth, what it means is as we push further into those private markets, those higher fee products, that organic growth is actually more meaningful to the fundamentals of the business. So we're going to see a little bit of a transition here. I think perhaps that's what you're seeing in the second quarter results today is that sort of slower inflow growth, but perhaps still pretty robust base fee growth.

24:10And let's not forget, the second quarter was really a tale of two stories, a rather unique quarter with a very challenging April and an incredible May and June. So that is also sort of balanced in the results. Now, a lot of investors look to what the executives are saying. So what kind of tone did CEO Larry Fink take? Yeah, I think he struck a generally positive tone, especially considering the sort of broader macro uncertainties that are still out there. It feels like we've certainly moved back from some of the more worst case scenarios, we'll call them. But there's still certainly quite a bit of uncertainty.

24:42But when you look at equity markets, you don't necessarily see it, right? All time highs pretty much in the global equities landscape. And so that's generally a positive for asset managers, particularly someone like BlackRock. and what they've talked about is they experience momentum exiting the second quarter and into the third quarter clients continue to remain engaged they haven't necessarily pulled away in sort of the volatility that we saw and some of the uncertainty that we talked about so that sort of creates a solid setup for BlackRock moving forward all right so for the asset managers if I like when I grew up in the business the biggest customers on Wall Street were the mutual funds and then hedge funds became big.

25:22Now it's ETFs. How do the asset managers that you deal with, you know, think about it just seems like all the money's going to ETFs. How do your asset managers deal with that? Yeah, well, there's the way you deal with it is enter the ETF space to sort of capture that flow. But that is a business where scale is paramount because you talk about ETFs, you're thinking about average 10 basis point fee rate, right? You're not going to earn quite a bit, the margins are going to be razor thin, unless you're the size of BlackRock, who garners 30 % of the market in US ETFs. That can be a profitable business.