00:00 Speaker A
Morgan Stanley is downgrading some names in the banking sector ahead of bank earnings kicking off on Friday. Joining us for more, Yahoo finance banking reporter, David Hollerith, and the analyst behind this Betsy Graseck, over at Morgan Stanley, is pretty widely followed. So what did she capture about sort of what people are are buckling up for for earnings season?
00:25 David Hollerith
Well, so a lot of it is what we already have been tracking, the capital markets specifically, IPOs, uh bond issuance, it’s all sort of on pause right now. Um and then if you just take in the recession factors, or just the idea that a lot of people are talking about just the the the fact of slower growth for the rest of the year, um they’re adjusting their credit loss expectations up for the banks, and kind of taking down revenue to deal flow. So that’s really what’s going on here. And they moved from uh being uh seeing the big banks or large cap banks as from attractive to in line. So they’re not downgrading them to sell or anything like that, but they’re definitely taking away a more optimistic view on these banks.
01:21 Speaker B
So I think you know, we’re going to get earnings starting on Friday with JP Morgan and Citibank. The thing that I always like to look at, and we’ll look at a lot this time round, is what they do with the loan loss reserves. Now you already said they’re going to start to raise that, because what that tells me is it gives me a sense of what the CEOs of these banks are seeing, and where they think maybe there’s going to be some defaults, whether it’s credit card defaults, mortgage defaults, because if they raise their uh the loan loss reserve account significantly, that to me suggests we’re preparing.
02:11 David Hollerith
Well, unfortunately, I I think the only thing there is that we still might be too early for banks to be significantly raising their provisions for loan losses. That might be more like a Q2 thing. So we might really be paying attention to delinquencies, so even still, like the consumer for instance, we might not really have much info or details in in terms of like what to expect, so.
02:55 Speaker A
And then there’s an interesting view. Devin Ryan was on our uh air earlier this morning, where he talked about um maybe earnings won’t even matter this time as much. Listen to what he said.
03:12 Devin Ryan
My view is earnings, I hate to say they don’t matter, but right now we are in a macro market, macro first, meaning, you know, what happens with tariffs and really the the ultimate economy is what’s going to drive sentiment in these stocks.
03:53 Speaker A
And and you know, to that point of this sort of macro point, um we got Jamie Dimon’s letter this morning, the annual letter from JP Morgan, and he weighed in on some of those sort of bigger picture issues as he tends to do.
04:14 David Hollerith
Yeah, I mean, Diamond go, he takes a very long view. And we kind of saw a similar thing from uh Larry Fink too, also today speaking at the Economic Club of New York. And you know, their take is it’s going to be a lot more inflationary and painful in the short term, um and at least Diamond was saying, in in the longer term, he hopes things will be good, but you know, we’re not really getting much confidence from him that he thinks things will be or could be, but obviously he’s he’s known to be a worrier across Wall Street.
05:02 Speaker A
Yes, he is, and his prior comments. All right, thanks Dave. Really appreciate it.
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