How Wall Street Really Makes Its Money | with JPMorgan, Goldman Sachs & BlackRock

0:01Anthony Cheung: This episode is brought to you by Google Chrome. You think you know a browser, but Gemini and Chrome, that's new. It can help you with practically anything on the web, like restoring a vintage motorcycle from a 50-page restoration block, or finally break down that long article you've had open for weeks. Gemini and Chrome is here for it. Ready to make anything online make sense? There's no place like Chrome. Check responses set up required, compatibility and availability varies 18+. Hello and welcome back to the Market Maker podcast and forget standard earnings spreadsheets and boring quarterly tables.

0:33Anthony Cheung: Today, we are looking under the hood of global finance to answer one simple question. How does Wall Street really make its money right now in 2026 from BlackRock's record$15.5 trillion fee machine we saw in their quarterly earnings just this week, to Goldman Sachs' secret SpaceX paydays. We're going to break down who's winning, who's losing. And yeah, big shout out to everyone who watched last episode. We broke 100 ,000 views on YouTube first time for the show. And Piers, I said to you, literally just before I clicked record, like, is there anything that you want me to do, specifically go into some point of the research we've done and just to let our community know how diligent you are?

1:20Anthony Cheung: I think you said, no, it's all good. Let's just freestyle it like normal.

1:24Piers Curran: That's right. Let's go. Let's see what happens. Yeah, I can't tell you what we're going to talk about yet. Let's find out. Right.

1:31Anthony Cheung: Well, look, before we go into, as I said, sort of under the bonnet of some of these quarterly earnings, so kind of catalyst for this is we've had all the big major Wall Street banks report, as well as some of the big asset managers, indeed the world's largest, BlackRock. Before that, let's set the scene. what's the sort of macro setup that this particular Q3 earnings round has come into

1:55Piers Curran: yeah I mean well hang on can I just qualify that macro setup specifically for banks or you mean broadly for the whole economy set it up for banks okay good so there's an important it's important difference I think um so we come into this earnings season if you look back over the last three months, I think for sure, the biggest sort of headline of the quarter, if you like, is bond yields. You know, we've been as guilty as everyone else banging on about bond yields to a blue in the face. We've had a really, really big move to the upside in government bond yields, particularly, but you know, across the spectrum, right?

2:42Piers Curran: So this is interesting for banks and it's perhaps not immediately obvious, but we'll dive into some numbers in a second. But ultimately, if you're thinking about big Wall Street banks, their fixed income trading desks have underperformed in this quarter. So we'll talk about why. Because at the same time, when I say that, you switch over to the other side of the kind of open plan trading floor and you've got your equities team and they're smashing it, right? They're going great guns and delivering some really strong numbers. On the trading side, I think it's interesting that you've got a difference in performance, and we'll explain why in a sec.

3:22Piers Curran: But broadly, look, we've got this situation where inflation just won't go away as a problem. It's just nagging and nagging. And just to add salt to the wounds, we had US inflation data announced earlier today. And it's higher than expected, I'm afraid, ladies and gents. When you look on a year-on-year basis, inflation was 3.7%. Now, the problem with that, well, A, it's obviously a long way above 2%, which is the Fed's target. But the problem, we thought we peaked for this year. We thought we peaked back in May. Obviously, this is mainly driven by the Straits of Hormuz. US, Iran, you know, we've talked about this a lot, right?

4:11Piers Curran: Oil prices moving up, feeding through into broader economic corners, and this is leading to inflation, right? It spiked, and we hit 4.2 % in May. Then it dropped off 3.5 % in June, 3.4 % in July, 3.4 % in August. We thought, right, it's just settling back down, fine, great, great. but bang, it's gone from 3.4 back up. So this is the first move to the upside we've seen in inflation since May. We're not at that May peak, but obviously it's the direction, right? We were hoping that we were trending back down. We're not. So that's quite a kind of significant directional shift there. And this is feeding through into interest rate expectations.

4:53Piers Curran: The Fed have two more meetings left this year. Give me the stats. What's the chances of a hike in October. So we've got a meeting in two weeks time, two weeks today, and then they'll have a final meeting in December. Yeah.

5:07Anthony Cheung: So there's been a bit of a knee-jerk reaction looking at the FedWatch tracking tool, which is just looking at short-term interest rate futures to look at the implied probability of rate hikes. And that has changed. So it was looking quite favorable, priced in to remain on hold at that meeting on 28th of October. That's now at 56%, 56.3, with a hike of 25 basis points now priced at 43.7%. So yeah, the hike probability has increased. And for December, so there's only two more meetings of the year. That would be the final one on the 9th of deck. That's now 55 % for a hike of 25 with 40 % or 38.4 allocated to two rate hikes.

5:56Anthony Cheung: So 50 basis points worth of hike priced at.

5:59Piers Curran: Yeah, so this is a problem. This rate hike expectation thing, it's been really up and down over the weeks as we've been just getting data. Is the oil price going up? Is it going down? What's going on geopolitically over there? What's happening with everything else? The consumer stays crazy strong in the US, so that's kind of helping to keep inflation levels high. right? And so, yeah, back to your original question, what's the macro drop? Yields are going higher, right? So from a trading desk point of view, it's not good for their fixed income desks. But then if you think more broadly, inflation and interest rate expectations are king.

6:39Piers Curran: And so you've seen today that actually off the back of these numbers, let me just check, Nasdaq's down just over 1 % at the moment. As a result of this, the S &P's down 0.8%. So stocks don't like the idea the Fed might continue to hike. But with that, with the geopolitical issues, with inflation being stubborn and actually now going back up, with therefore interest rate expectations on the upside, this is all bad news, but the counterbalance is the AI boom, and how that's still driving, in the US especially, a really strong economic situation. We even had was it the IMF or the OECD, one of those upgraded UK GDP growth because of AI, if you can believe that.

7:32Piers Curran: So, you know, I think that's the counterbalance, right? And obviously, that is heavily reliant, that AI boom part is heavily reliant on the super, you know, the hyperscalers, I should call them, in terms of their spend on data center build-out and so on. So what's really important about this earnings season? Yeah, fine. Revenue numbers. How much profit did you make? Fine. You know, is that met expectations or not? Fine. And by the way, expectations are really high and we're expecting corporate America to be smashing it still. Yes, it's important that, okay, well, what's your guidance? You know, there's three more months left of 26.

8:12Piers Curran: What's your guidance into year end? And indeed, what any kind of early indications as to how you might perform in 2027? There's all that good stuff. That's always there, right? But really, what anybody cares about, really, I mean, literally, forget everything else. What is the capex spend at Microsoft? What's the capex spend at Amazon, at Meta, at Google? You know, those four, are they still going to spend like they have said they were going to spend? What are they going to say about 2027? Because up until now, this AI boom has been fed by an ever-increasing spend on CapEx, that data sendability.

8:57Piers Curran: Will we see the increasing trajectory continuing or not? Are we going to get early signs on that? That's all I care about, to be quite frank. And that could, like worst case scenario, if you want to be super pessimistic, you're going into this earning season really worried. that it'll only take one, one of those big four, it'll only take one of them to go, you know what? I'm just going to trim back our spend for now. That one line, the pin will just prick the bubble and we might get not an ideal kind of setup moving into your end.

9:41Anthony Cheung: Also, it seems like Zuck has been juicing the narrative as well since they brought out their new models which they're saying on certain benchmarks outperforms the frontier labs in astro open ai and opus 5.5 so it's almost i i guess he's trying to somewhat it's like a game of poker isn't it high stakes of course but he's kind of saying well all that spend so one would think reading between the lines of what he's saying is that there's going to be a heck of a lot of meta spending ongoing but he's drip feeding in that look we are hitting certain technical benchmarks where we're no longer a mega cap tech stock we're a frontier abilities on top of that he's trying to convince the street and the share price is up like well they've gone up 10 % or something since he announced uh what was it muse in the last two weeks or so yeah that's right i mean i remember

10:45Piers Curran: for meta they're they're kind of falling more on the open source side of the fence so they think about it right so that just means that should force the cost to the consumer and to businesses the cost so you know how much you pay anthropic you know for claude right the cost of that stuff should come down. This is good for the consumer. Therefore, that should feed into more people using it, which therefore feeds into an increase, an ever accelerating increase in compute demand. Because the number of people using this stuff means you need more compute power, which of course means you need more data centers.

11:30Piers Curran: One of the bottlenecks is a lack of compute power. So everything you've just said there really should still feed the whole narrative. And this AI spend should continue. Should, should, should. And that's what we're expecting them to say. It's just, what if one of them suddenly changes strategy and says, we're going to slow down spending? And then that's a real risk.

11:54Anthony Cheung: So from what you've described, then, it sounds like if you're an equities trader, as we're going to unpack, it's been great for them, stocks traders and the divisions within these investment banks. So AI hype that play in all its different verticals of the supply chain or the ecosystem, if you like. Then you've got geopolitical shifts, the ebb and flow of US-Iran and so forth. And that volatility is good almost for the equity teams. You said, though, that higher yield is bad for bonds. Just explain to me why that is. Bad for bond trading desks.

12:33Piers Curran: at investment banks. Well, to be honest, bad for bond investors who hold bonds, right? Because when yields go up, will prices go down? Now, there's two problems for that, for an investment bank trading floor. Remember, partially, and as you just mentioned with equities there, the way they make money is on the spread or through commission when they are facilitating their clients' trades, right? So this is what an investment bank does. They service financial institution clients, that is your hedge funds, your asset managers, your pension funds, your insurance companies. These are all buy-side entities investing money.

13:15Piers Curran: When you invest or trade money, you need to execute trades. And when you're a big player and you're executing massive trades, then you tend to do this over the counter with an investment bank rather than going through the exchange where you have horrible market impact problems, right? So you'll tend to execute your trades through investment banks like JP Morgan, for example. Now, the investment bank will facilitate that trade. They'll make a market and facilitate the trade for their client and they'll get paid for that. Okay. So really for the trading desks at investment banks, it's just a volume game.

13:54Piers Curran: So if there's more trading volume, they make more money. forget about where the markets are going up or down. That's actually not relevant if they're good at doing their job. It's just volume, okay? Now, with fixed income yields trending higher for the whole quarter, so we're talking about quarterly earnings here, right? So it's pretty unusual. In fact, you could almost say unprecedented to the quarter we've just had, where it's just been unidirectional, bond yields to the upside, and just accelerating to the upside as we went through September, right? So yields up, prices down nonstop. Now, that actually, in those kind of, think price now, price has trended down for the whole quarter.

14:38Piers Curran: In that type of market, your big holders of massive fixed income inventory, so pension funds and insurance, they tend to not be buyers of more in a downward trending market. and so volumes have dropped as a result. Think about on the other side for a bank like JP Morgan, they also hold a lot of bonds on their balance sheet. So from their inventory point of view that they're holding as well, the prices of that has also dropped. So the whole fixed income setup here is not very good. It's not conducive for strong kind of performance, right? So that's what we've seen reflected in the numbers with a lot of these.

15:25Piers Curran: Well, what was it for JP Morgan? Their fixed income trading revenues were down, which you virtually hardly ever see. So actually, in fact, it was the first year over year decline in more than two years. All right. I'll take back that comment. You hardly ever see. We saw it two years ago. But yeah, it's very unusual. So that's the setup. not good days for the fixed income desk.

15:52Anthony Cheung: Yeah, but to be put into context though, as you said, that has happened before, two years ago. But one would imagine though that that continuous direction of travel and yields, it can't go on permanently and therefore the fixed division will always return at some point. It's kind of just for making it clear, the flow or direction of flow within what part of a bank ebbs and flows, right? With the macroeconomic environment.

16:21Piers Curran: Yeah. Well, that's right. When the fixed income trading desk isn't performing well, well, if you switch, if you're a universal bank, like JP Morgan, Bank of America, Citigroup, you know, Barclays, HSBC, UBS, these are the banks that do everything. so everything just meaning they have a retail bank right so they they they service retail customers they service corporate customers and then they surface service financial institutions right that's your full universal bank if you think about goldman sachs or morgan stanley not so much considered universal banks they don't have particularly have the retail part of the equation, right?

17:07Piers Curran: They're the old inter-dealer brokers, okay? So you think about your universal banks. When JP Morgan's fixed income trading desk is underperforming, it's fine because, you know, getting the elevator up to a different floor, different department, and this is perfect. So if you talk about something called their net interest income, so this is on the retail side of the bank, they did something quite extraordinary. in the quarter that's just gone. that this episode is brought to you by google chrome you think you know a browser but gemini

17:44Anthony Cheung: and chrome that's new it can help you with practically anything on the web like restoring a vintage motorcycle from a 50 page restoration block or finally break down that long article you've had open for weeks gemini and chrome is here for it ready to make anything online make sense there's no place like chrome check responses set up required compatibility and availability Varys 18+.

18:03Piers Curran: Net interest income was above, broke the$100 billion mark for the first time ever in their history. And in fact, for any bank ever on the planet in the history of banking, no one has ever topped the$100 billion net interest income ceiling. So it's phenomenal. So what is this? this is on your retail side. It's the spread between what you pay your depositors. So like us lot, we have bank accounts with money in it. We get an interest rate on that account, super low. But that's what the bank pays to us. But then the bank takes that money and lends it. I think mortgages is the obvious example. And they'll lend it on the longer term for a higher interest rate.

18:54Piers Curran: And that's their spread. That's their profit margin. It's the difference between short-term and long-term rates. There's a famous, like way, way, way back in the good old days, the kind of saying on the street, the old bankers used to use the 3-6-3 rule. You ever heard about this? No. This is where you borrow at 3%, you lend at 6%, and then you're on the golf course by 3 p.m. That's your 3-6-3 rule. Of course. So here we are. This is perfect, right? So point being, as yields rise, interest rates rise, interest rate expectations rise, this means that they can lend at higher rates. And in fact, if you go and check out mortgage rates in the US right now, if you want to get, and it's a bit different if you're a UK listener or if you're a non-US listener, you might be surprised at how the housing market works in the US from a mortgage perspective.

19:57Piers Curran: So when you buy a house in the US, you take on a 30-year mortgage and you lock in the rate at the point of purchase, you lock in that rate for the whole 30 years. It's a fixed rate 30-year loan. So it's very, very different to like here in the UK, where we tend to have, we lock in a fixed rate for like two years or five years, right? And then And once that elapses, we have to roll and find a new mortgage. In the US, you lock it in for the full 30 years. The problem being you cannot port that mortgage if you move house. So in the US, if you move house, you've got to scrap the mortgage you're on and get a new one.

20:37Piers Curran: Why do you think the US housing market is absolutely frozen? It's because everyone's sat there, or not everyone, but a lot of people are sat there having bought houses and arranged mortgages when rates were zero. So an example, I was listening to something, someone bought a house in 2021 and they got a mortgage rate of 1.46 % for 30 years, 1.46%. If they now decide to move house today, they would have to scrap that mortgage at 1.46 % and get a new one at 7.4%. That's not going to happen. You are never going to move house.

21:17Anthony Cheung: These mortgages then all have like a fixed term like that, say 30 years. What happens to the US economy in housing market in 2038? So let's say from 2008, when we went to ZERP, so zero interest rate policy for a decade. So what's going to happen from 2038 to 2048?

21:41Piers Curran: Well, that's right. I think you're probably thinking rather than 2038, don't forget. From 2008, you are basically zero. Let's just put it all the way through to like 2022. Lots of action in the housing market. People very happy to move house because yeah, okay, I'll lose the mortgage I got, but I can get a new one. It's basically the same rate. Super cheap, happy days. It's only since 2022 that people have gone stop. Now there'll be a bit of a legacy there, but you're right to think like, let's say, I would say from 2045, you're going to start to get people rolling off a 30-year mortgage. But the idea is, if you've stayed in your house for 30 years, the idea is you pay it off.

22:26Piers Curran: So by the time that, you know, by the time you get to 2045, we don't have a loan anymore. But people that, the problem is, it's got such, you know, quite profound implications. Mobility has just frozen, right? But people often want to move to find work in different states and different locations. So it is a real problem, the housing market in the US. And this is why, because the mortgage rate has suddenly jumped.

22:53Anthony Cheung: So as you've been describing then, so the net interest income has dramatically inclined for the likes of JP Morgan post-COVID, so the inflation situation of the supply chain shock from COVID and rates then going up from zero bound levels. So is it right to assume then that the net interest income for JP over the periods we've just been discussing then you'd expect this number to get way bigger?

23:23Piers Curran: Yeah. I mean, well, I would say, well, it depends. What's your view on inflation and interest rates? What's your view on bond yields? They've been going up but are they going to forever go up of course not but so right now yeah i mean so that is entirely your call on inflation bond yields and interest rates so a lot of people think this may be the top but maybe we thought that a few months back and here we are the fed are hiking and the mortgage rates are a new high again right so and and in any way the problem is if this does continue to climb. Ultimately, if JP Morgan's net interest income continues to climb, at some point, everything becomes unaffordable and everything collapses.

24:14Piers Curran: So, you know, in the end, that ends up being bad news, right? So you've got this not too hot, not too cold. It's the Goldilocks sweet spot. And for JP Morgan, we are bang in the middle of that honeypot right now with$100 billion in net interest income. And look, they are the behemoth of the US and in some ways, the global banking industry, right? And ultimately, they're the safest hands on the street. And so, if you're a punter, if you're a company, where are you going to put your money?

24:51Anthony Cheung: So when you hear from someone who is very well followed, Jamie Dimon, who's the CEO of JP Morgan, And he says something along the lines of warning about sticky inflation and geopolitical risks. Those two things, well, not so much sticky inflation, but certainly changing of our perception of interest rates in the future and geopolitical uncertainty. I mean, we had record stock trading. It was up 49 % year on year. So in one way, what he's saying is a good thing for part of the bank. but I mean extrapolating out the last quarter you're looking at what 20 billion revenue from stocks but that would be if it could track at records each time which is probably unlikely but your net interest income is far bigger yeah so does he just kind of play that balancing game where he can't be outright super bullish because again it's to the detriment of a sizable part of

25:49Piers Curran: his business yeah it's it's you know that net interest income it's the engine of the whole bank it's the boring dull stuff yeah people want to hear about sexy spacex ipos for you know the ibd division or they want to hear about you know market volatility that's all over the place right you don't want to hear about oh what's the deposit rate on a savings account you know so but for the bank is absolutely the foundation of the whole thing. But when he says, hey, you know, warnings of geopolitical risks, you know, in some ways that's him trying to, I would say, possibly speak to the government. Whereas to say, hey, you know, be careful here.

26:34Piers Curran: This geopolitical thing, if it goes on for too much longer, it's really going to start to come back in your face in terms of negative impact on the economy. And ultimately, that's not good for JP Morgan, right? If we have a recession, that's bad news. So whilst we're in the sweet spot now, he obviously wants to try and maintain that sweet spot. And a couple of warning shots across the bowels of the Trump administration's ship is just trying to just have an influence, I would say.

27:05Anthony Cheung: Okay. Well, while we're on JP Morgan, before we jump to some of the asset and wealth managers, let's talk about Goldman Sachs because their equity trading team very much in a similar vein beat estimates at 6.44 billion so that number even even bigger fixed income did fall but just 1 % that was 3.47 billion but what was the the comment about SpaceX which I mentioned is the top of the show how did that factor into this particular quarter well of course just aside quickly, that bond yield's going up and inflation going up and interest rates may be going up. For the investment banking division, that's not good because the cost of borrowing is going up.

27:54Piers Curran: And generally speaking, if you're thinking about M &A and IPOs and you need a lot of funding, companies need a lot of financing to buy other companies, right? And so when rates are high, you tend to get a drop-off in deal flow. However, this year we had a stonking beginning to 2026, right? It's really started to dry up though. However, at least we've had the mega gang-busting SpaceX IPO, which is just kind of, I guess, hidden the fact that underneath that we've got a slowing deal flow market but they you know goldman's banked 587 million dollars in incentive fees from arranging private spacex share vehicles for high net worth clients so you know their m &a advisory fees are unusually healthy because of a one-off event now you could say well is it one-off aren't we going to get anthropic ipoing in which case yeah maybe so that might just continue to kind of carry the can but right now we're in a condition where they're reliant on these mega mega mega ipos um and there's only so many of those in the pipe and so if yields stay high and the fed keep hiking then it and then it will negatively impact deal flow you know when you're

29:22Anthony Cheung: looking out into 2027 for example but i guess that with these scenarios it's not just that big payday on the listing they then become a client pretty much for life then right beyond that in terms of future raising of funds or other private placements whatever they're doing yep absolutely so it's a

29:43Piers Curran: gravy train especially someone the size of spacex then yeah if you do a good job on the ipo of course you're very well i mean spacex did a corporate bond issuance i think it was like two weeks after the IPO. Again, almost like unprecedented, a$25 billion corporate bond issuance. So who gets that gig, right? I mean, that's the point here. But look, it's not, you know, they haven't cornered the SpaceX market. It's not just Goldman's who are advising SpaceX. It's, you know, Morgan Stanley are right in the mix as well, and others. It's such a massive organization, but there's a lot, there's a big enough pie to kind of spread it around, right?

30:25Anthony Cheung: just as you were talking then i was like oh what's happened to anthropic because remember they were due to list and then they did that kind of semi-disclosing of their prospectus and then nothing actually really happened i just had a look yesterday anthropic plans to disclose its q3 financials for the first time at a meeting with potential investors on wednesday so today we're recording this as the ai giant prepares what could be the largest public offering in history so So yeah, those numbers apparently are going to a group of institutional investors, according to sources, CNBC and Bloomberg have been commenting on.

31:01Anthony Cheung: So actually, by the time we get this show out, there could be a little drip feed out, I'm sure, of some of that information. But yeah, it seems strange. It looks like the kind of the hesitancy and the nature of the way that the anthropic numbers have been coming out and not just a bold bosh. Here it's going to happen here and then. kind of rubs off a little lack of confidence here over this i wonder if it's just going to get pop

31:27Piers Curran: i just think i don't know they keep just scoring own goals you know when you're trying to sell your business or part of it when you're trying to ask and convince investors to buy a whole chunk of the business but then on the other side you're saying this is the company themselves saying that, you know, their models will lead to the end of mankind. You know, so think about it. This is like from a lawsuit liability perspective, right? This is product liability 101. So if your product does something to someone that it shouldn't have done and it causes them harm or loss, well, then they'll sue you.

32:17Piers Curran: So if Anthropic is saying, you know, our models are going to break out and, you know, the whole doomsday, doomsayer sort of narrative, which has been coming from within Anthropic, there is a reason why they're kind of spinning that. because they want to encourage a regulatory environment to come in that then prevents other competitors or slows everyone down meaning the moat they've created gets protected so there is a kind of angle here but the point is when you're trying to sell shares in your business but then on the other hand you're saying there's a monster potential product liability it's like what do you do don't get me wrong people are going to buy anthropic shares at the ipo they're not going to suffer from a demand problem but how do you price it now you know we're talking two plus trillion right i don't know where that's at now and it will very much depend on when whatever these numbers they reveal to investors today what you know what's the revenue growth trajectory are we still on the 10x um revenue growth trajectory they grew 10x last year and they were forecasting to grow 10x this year.

33:28Piers Curran: So they went, start 2025, they were 10 billion. Hang on, sorry, 1 billion. Then they grew to 10 billion by the end of 2025. And then they're expecting to go from 10 to 100 billion by the end of 2026. Can you get your head around that? Hang on. January 2025, they got 1 billion of revenue, ARR. 24 months later from 1 billion to 100 billion that that's i mean that is well that's the

34:05Anthony Cheung: accounting financial engineering going on here these numbers shouldn't take them at face value but yeah it's interesting to see how you go from exciting it's kind of i guess it's that normal hype cycle right of yeah if you're going to list publicly now you bring in you know your accountant lawyer mates and it starts to get real and this goes beyond like all the agents have escaped the sandbox to isn't that cool to oh this is actually a problem yeah yeah uh yeah so back to banks this

34:40Piers Curran: Yeah, that was, you know, whilst they've enjoyed SpaceX bumper fees, and we may well get another massive bumper fee payday from Anthropic, there's maybe one more in the pipe, which is OpenAI, who are also queuing up and trying to decide when to go or not. So, you know, that can only paper over the cracks of what is broadly a weakening kind of deal flow market underneath all of that.

35:07Anthony Cheung: Well, look, let's go in a different direction. let's talk about some of these fee and wealth powerhouses, namely the world's largest asset manager, BlackRock. So they had a record$15.5 trillion of assets under management, 205 billion of net Q3 inflows. I mean, these numbers are crazy. Their revenue is up 19%. So yeah, what should we read into this and maybe a little bit about some of the other facets of someone like BlackRock that perhaps people are not so familiar with, like the private credit expansion that we've seen, their platform, which is used by everyone in the industry, but no one probably on Main Street has ever heard of as well.

35:54Anthony Cheung: That's quite a moat to their ecosystem.

35:58Piers Curran: Yeah. I mean, this is an entirely different model, of course, to a universal bank like JP Morgan. and this is an asset management company. So they are on the buy side, as we say. And so generally speaking, this is about fee generation, where you basically get paid a percentage per year. You charge your clients a percentage of the fees that you have under management. So with BlackRock, it is quite extraordinary, isn't it? they got$15.5 trillion under management. So you even take a fraction of a tiny fraction, fraction percentage fee, and you're talking mega money. So the asset management game partially is about increasing assets under management, AUM.

36:47Piers Curran: And you can do that in two ways.

36:58Anthony Cheung: restoring a vintage motorcycle from a 50-page restoration block, or finally break down that long article you've had open for weeks. Gemini and Chrome is here for it. Ready to make anything online make sense? There's no place like Chrome. Check responses set up required compatibility and availability varies 18 plus. Number one, inflows.

37:18Piers Curran: This is where new customers or existing customers pass over more money for you to manage, right? Now, how good are you at inflows? Well, of course, it depends a lot on things like your track record. How good are you at managing money? And obviously, this feeds into your sales pitch when all of your people out on the road trying to sell the asset management firm to prospective clients, they're in the sales, you're going through the track record, right? So obviously, you need to be good at your job to attract inflows. But whilst that is, of course, important and long-term, we need inflows and inflows.

38:00Piers Curran: And by the way, for quarter three, BlackRock had$205 billion of net new inflows. So that's net inflows. So you've got some coming out and some coming in. Net$205 billion in, which is, again, just a staggering number. The interesting split on that,$135 billion of it has gone into ETFs. That's exchange-traded funds. These are tracker funds, passive, if you like. So BlackRock will charge a lower fee to a client if their money is just going into an S &P 500 tracker because it's not actively managed, right? You just bang it in there and you just follow the S &P. So 135 billion of that 205 went into ETFs.

38:53Piers Curran: The other one third went into actively managed funds. There, BlackRock charged more money, of course, for that. So huge numbers, right? That's fine. But most of the revenue comes from that fee. It's the fees, it's the charging a percentage of the total 15.5 trillion under management. Now that is a function of, well, how valuable are the financial assets that you're managing? And that's obviously a function of markets. So when you look at stock markets and if they go up, then this is good news for asset management firms because it inflates the value of the assets they already own in their portfolios.

39:32Piers Curran: It means the assets under management number goes up. It means then when you charge a fixed percentage fee on those assets under management that are now larger, you get more fees, which is more revenue. So 19 % revenue growth for BlackRock is because markets have gone up. And don't get me wrong, also incredibly healthy inflows to boot.

39:53Anthony Cheung: And the fee structure around private credit, I'm assuming that that's higher. That's right. of yeah so part of their plan has been an acquisition strategy right with hps the global infrastructure partners data side i think the more fintech wasn't it prequin was that what it was called yeah so what's the strategy there is it to diversify definitely a great diversification

40:24Piers Curran: strategy that's gone incredibly well this is where they're essentially lending money to private companies generally, or not just private companies, to be honest, but your lender, it's a money lending. So I guess in some ways, this is kind of stepping on the toes of JP Morgan's loan book. But JP Morgan are in the business of mass loans to the whole retail market, right? Back to the mortgages point. Private credit's much more niche, where you're lending to a very, not consumers at all, you're lending to the corporates, but again, actually quite a narrow slice of that corporate world where it's a lot around infrastructure, where infrastructure, if you're lending a company to build an infrastructure piece, then they'll be able to charge a toll for, let's say you lend a company money to build a bridge and then they put a toll on it.

41:22Piers Curran: So for drivers to go across, they have to pay a bit of money. that's a great income asset um so it's it's just safer if the loan is underpinned by a physical piece of infrastructure that can't be ai'd by the way that that has an income aspect to it okay so that's kind of their play that's been a really great hedge um and then the other piece of their jigsaw is aladdin um this is their sas product that is used by most of the financial industry but yeah main street won't have heard of it it's his enterprise software um and basically this is linking up the institutional clients into kind of blackrock's ecosystem again a big portion of that is about risk management and actually here's an interesting story so larry fink he's the boss of BlackRock, pre-BlackRock.

42:19Piers Curran: He was a trader on the mortgage desk at First Boston, who, by the way, then got bought by Credit Suisse. Credit Suisse First Boston, you might remember if you're old enough. But anyway, First Boston was a US bank. Larry Fink was on the mortgage desk. He had a really bad period over weeks, and I'm not quite sure how long it was, but weeks and maybe months, where I ultimately ended up losing$100 million on a trade. And basically he did that because he got the interest rate risk wrong. The desk calculated the risk of that trade incorrectly. So BlackRock and then Aladdin, or the product within, is essentially his answer to that loss.

43:05Piers Curran: He was like, I'm never again going to trade without understanding the real risk. so that's your kind of backstory of the aladdin product but now it's become the default sas product for asset management firms around the world um and it's a great again great diversifier right it's a great sas enterprise sas you know arr annual recurring revenue story um that sits nicely alongside you know that that fee generation in terms of assets under management which can go up and down right because if we go into recession blackrock's 15.5 trillion under management it's going to go down as if stock markets dump it's going to go down and their fees will reduce but there's your your hedge on that is your aladdin sas ecosystem product which is is kind of there with you know which is more which is a safer income stream what was interesting i know there's a

44:03Anthony Cheung: obviously a sizable portion of our community of students thinking of roles in finance i put together a slide about roles in asset management. We're going to be at Warwick University tomorrow talking to some of them about just the industry at large. And given what you've just been explaining, it's funny, there's like eight major areas of which I'd say probably most of them students don't think about. And BlackRock's a really good example of that where people think BlackRock and they think investment and portfolio management. They might think research and analysis and they might think trading execution and then risk and compliance.

44:35Anthony Cheung: It's kind of everything that's quite market-orientated front office type scenario. But as you said, there's been a record$205 billion of inflows in just three months. And so sales and distribution, you know, that building out maintenance of relationships with clients. So, you know, who are these clients, pension funds, insurers, whilst managers, they've got to raise and retain capital all of the time. you've got to have a phenomenal sales team in order to do that. And that's got to be supported as always with the marketing team and the communications team, positioning the firm's investment capabilities, campaigns that they're running, insights.

45:18Anthony Cheung: When the investment research team produce ideas and views on the world, I think her name's Wei Li. If you look on LinkedIn, in she's the main uh i guess macro strategist that they have you know she puts out content on the daily uh you know why is someone like that in that position doing that well it's all part of the marketing engine you know she's a face of that business and promoting their ideas then as you said you've got product and strategy so managing investment products coming up with new investment products and then you've got technology and operations you know software engineers the ops people that make all of this connect all of these together trade analytics trade data fund operations so it's amazing actually a company like that just opening the mind to there's many avenues to work in a lot of these firms many of which when uh grads are kind of hearing the noises of 500 ,000 job applications for certain jobs, they're always just concentrating on the PM seat in the investments team at BlackRock, which is fine.

46:35Anthony Cheung: There's many ways to skin a cat. It's just a beast of a company, you know, 15.5 trillion under management.

46:43Piers Curran: And actually on that, do you know where it came from, BlackRock? You know BlackRock? Or you know Blackstone, the financial institution more like on the private equity side founder steve schwarzman or black rock i mean black obviously is in both names right that is because black rock started in 1988 as a unit inside blackstone and it was called blackstone financial management then they had some arguments steve schwarzman basically had some arguments around the equity ownership of this internal unit and got fed up with it it was just too much of a pain and he just said look i'm just going to exit i'll spin it out so he sold his stake in 994 for 240 million dollars ouch he calls it his heroic mistake because that that holding now is worth 100 billion or would be worth 100 billion if he hadn't sold it but well i like his comment i like his comment

47:43Anthony Cheung: yeah a bit of humility there um but let's move it on let's finally talk about Morgan Stanley because I saw an absolute whopper of a figure related to one part of their business which I guess that it does exist in some of the others you know like JP and GS but maybe not to the extent or the capabilities of what MS are trying to grow and have been for some time so what's the

48:09Piers Curran: wealth side look like for ms well it's a mega it's just gone gangbusters over the last few years they're now so think about it on the wealth side so we've just been talking it's almost akin to asset management right um like so think about blackrock in a way when you're thinking about morgan stanley's wealth management in so much as we talk about assets under management all right and And they generate fees by charging their clients, who are wealthy people, and charge them for managing their money and their estate and all that kind of stuff, right? So Morgan Stanley's wealth machine now is actually up to$8.4 trillion, which is a crazy figure.

48:55Piers Curran: If you think BlackRock's inflows of$205 billion was good, Morgan Stanley's net inflows for the quarter was$232 billion. I don't think there's ever been a quarter, and you might have to fact check this, I don't think there's ever been a quarter where you've had a wealth manager getting net new inflows that have a larger monetary value than the big asset managers like BlackRock. now there is a little one-off booster that they got booster excuse the pun because SpaceX and the IPO around SpaceX here has been phenomenal for Morgan Stanley because obviously the SpaceX IPO meant that lots of people within SpaceX SpaceX employees who were holding shares were able to sell their shares.

49:49Piers Curran: Of course, now they become really wealthy. And so Morgan Stanley were there hoovering up all of these newly minted SpaceX employees and signing them up to become, you know, Morgan Stanley to Morgan Stanley wealth, right? So they've had a huge flow of money coming in, particularly from the SpaceX thing. And look, it's like having a bank account, right? If you're not a high net worth individual, then how can you think about this? So think about your bank account who do you bank with Anthony Barclays how long have you banked with Barclays since I was 16 bingo right so when you win new customers generally speaking you have them for life unless you do something really stupid okay so if you can win them at the start these people who have just become mega wealthy SpaceX employee getting into bed with Morgan Stanley's wealth team that's it you've gotten and then it's very very unlikely they're going to then pivot and switch somewhere else so that that winning that acquisition of a new high net worth customer right from the access key and they've hoovered these lot up and it's been a real that'll be a that'll be a win that just carries on paying out for morgan stanley year after year after year after

51:08Anthony Cheung: year two interesting details i just opened up the ms earnings report from their wealth management section so just to give an extra layer that record new net or net new assets 232 billion dollars just over half was associated with ipo related flow yeah it does give you some context there you're probably right this is a record-breaking number but over half was ipo related so yeah i

51:37Piers Curran: would say like stepping out of organ soundly a bit like this whole wealth there's one more

51:42Anthony Cheung: with MS just to finish. Sorry, go on. Fee-based flows were 80 billion. And what they're saying is that's based on the strength of advisor-led channel. And interestingly, it included a new corporate retirement mandate. So that's probably, again, you think about different mechanisms to attract more flow. So corporate retirement mandates they're moving into. Okay, there you go.

52:10Piers Curran: um i was going to say stepping out of just ms but still on the wealth management it's becoming a really big if you morgan sandler is i got such it's such a great jewel of an asset in their sort of makeup as as a as a financial institution the wealth management divisions of these big banks generally speaking are really really strongly outperforming from again back to from a careers perspective. You know, net-net, you're seeing actually an increase in employment within wealth management at a graduate level compared to the other divisions because the rate of growth of that division is actually a lot faster than the other divisions, generally speaking.

52:53Piers Curran: And that's because they're gearing up for what will be considered to be the greatest ever transition of wealth in the history of mankind. And that's because baby boomers are unfortunately, you know, beginning to die. Don't want to get too morbid here, but the baby boomers were the big spike in the birth rate following the Second World War. Right, a really unusually large spike. So you've got that age pocket within the population that are outsized compared to pretty much every other age. And actually, as we go on, of course, birth rates are declining. So really, the baby boomer spike will be, you know, you're never going to see the like of that again, right?

53:38Piers Curran: Now, they're all retiring or dying. So there's going to be a transfer of wealth to their kids. And so now you're going to get new wealthy people. And like they're talking about, the kind of transfer of wealth is going to be of the order of, I think it's like$120 trillion will get transferred over the next couple of decades. But actually, half of that is within the top 2 % of the wealth bracket. So even though it's a huge amount of money, it's actually quite concentrated in terms of households. So again, it's back to that point. If you've got a mega wealthy person who's got four kids well for morgan stanley that are that's four new customers that are just sat there you can turn one customer into four and then ultimately you're trying to kind of extend the lifetime you know of that money in terms of you managing it generating fees from it so this big wealth wealth transfer that's coming you're definitely going to most see these wealth management divisions continue to grow nicely and become an ever bigger portion of the mix with these big global banks.

54:54Anthony Cheung: Maybe to close then, I feel like you're quite bullish on your view of Morgan Stanley. I was going to run a poll with our listeners and I was going to do a two-horse race, which I thought was, let's get some decisive outcomes here. And I was going to ask you to put forward a case then for our audience for why BlackRock or why JP Morgan? And just thinking about it from its business model and not just how it's performing now, but just for the longer term, what's to summarize the difference between the two and maybe how they're different all the same?

55:37Piers Curran: It's a very difficult. If you had to choose one or the other... like everything else is off the table, it's difficult. So BlackRock, you're looking at asset light scalability, might be a way of describing it. Obviously, that's that asset light part, I mean like physical asset light, that's your assets under management, which is money, 15.4 trillion. And if you think, generally speaking, the global economy will, generally speaking, grow, which it has done for the entire history, fine, you're going to get your ups and downs, obviously, recession here, recession there, whatever. But as long as that keeps growing, then, and with this wealth transfer that I've talked about, you know, these assets under management figures should climb.

56:27Piers Curran: And that is just, that's a printing machine, right? That's a money printing machine. So obviously that's great.

56:35Anthony Cheung: I'll show you a quick question. What do you reckon the number of employees? So talking of like resourcing to run those organizations, what do you reckon JP Morgan is and what do you reckon BlackRock is?

56:46Piers Curran: okay well it's probably 10x difference so a rough guy i would say jp morgan uh i mean i don't know but i'm gonna guess that i'm gonna guess that i want to say like 65 000 employees that's a super rough guess for jp for jp and then i say blackrock is

57:14Anthony Cheung: 10%. 6 ,500. So you said 10 times when you were starting your process there. Yeah. You weren't far off. 13 times.

57:24Piers Curran: Okay. But the numbers are a bit different.

57:26Anthony Cheung: I've got the figures wrong. Okay. The BlackRock is 25 ,000.

57:30Piers Curran: Okay. Oh, wow. JP's, wow. 150? 300K plus.

57:35Anthony Cheung: Yeah. What? Don't forget, the technology team of JP Morgan is, last time I looked was 48 ,000 or something like that, just for the technology team. Wow, I got that big time wrong. I'm happy I got the relation. I'll edit out the last bit, and I'll just crop it 10 times. Don't worry if you don't mind.

57:55Piers Curran: So anyway, that's the point, right? Asset light, I mean, like, you know, your cost base from a BlackRock point of view is obviously tiny, tiny, tiny. So you get a higher valuation as a result. BlackRock trades at 25 times PE multiple, for example, whereas banks tend to, well, maybe be around 14 times. But then also they've got that diversity play and that Aladdin product, that SaaS product, which is just almost cornered the market. is such a great, stable, annual recurring revenue kind of foundation that sits along the more volatile, but generally trending higher fee income that they get from their assets under management.

58:40Piers Curran: So that's that. JPMorgan is a different beast. I mean, it's the biggest bank on the planet. It gets called the all-weather balance sheet, and it's its balance sheet that is its moat. A great example is when Silicon Valley Bank went tits up a couple of like two and a half years ago, there was a big inflow of money into JP Morgan. Because a lot of people that had their money deposited in SVP, or maybe they couldn't get their money out, but other banks similar, they started pulling their money out of these other challenger banks. And where are you going to put it when you're worried about its safety?

59:20Piers Curran: Well, here you go, the biggest person on the street, can you take that? so the biggest wins so they've certainly got that nailed down obviously the net interest income therefore becomes the biggest on the street and i talked about 100 billion and this is where they position themselves so amazingly if you go back 10 years right go back to 2026 and jp morgan bank Bank of America, Citigroup and Wells Fargo were about neck and neck for net interest income. The big four banks, right, in the US, about neck and neck 10 years ago. Now you fast forward, JP have just broken 100 billion, whereas none of the rest are above 60.

1:00:06Piers Curran: So they have really, really, really smashed the competition in the last decade. So that's obviously great. and look, monopoly on capital, you know, is basically the way to say it, right? And then look, they've got interesting, other than the net interest income, which is the big foundation, obviously they've got their fingers in all the pies, the trading desks, the IBD division, which are also leaders, you know, in their fields at the same time. So it's an awesome operation it's just they've got a succession problem big Jamie D you know he's been at the helm for over 20 years now he can't last much longer so it'll be interesting to see how he manages that alright

1:00:59Anthony Cheung: well let us know we'll put the poll either on YouTube on the show up here or on Spotify app or wherever you're listening in the actual platform in itself. But any questions, any comments, as per usual, let us know. We'd love to hear your thoughts, what you think. But yeah, drop us a vote and we can let you know who came out on top next week. So thanks as always, Piers, for your insights. No worries. Mr. Monopoly here. Miss me? Monopoly is back at McDonald's with millions of prizes. A 2027 cheap charity. A Carnival Cruise vacation. Gift cards from DoorDash and Best Buy. He'll then play in the McDonald's app Get your bag

1:01:39Piers Curran: No purchase necessary 50 US in DC age 18 plus See play at mcd.com for rules And play at mcd.com slash AMOE For info on playing without purchase by mail by November 2nd Chance card game ends November 8th Game ends November 22nd, 2026 See rules for prize details Monopoly is a registered trademark of Hasbro See you later