July 17, 2025 • 42 mins
Earnings season is here, and Wall Street’s heavyweights came out swinging. Anthony and Piers unpack how Goldman Sachs and Morgan Stanley crushed Q2, driven by record trading revenues and a surprise rebound in deal flow.
They explore Morgan Stanley’s booming wealth arm with $59 billion in fresh inflows, and how JP Morgan’s universal model is thriving, from trading floors to retail lending. Plus, BlackRock’s puzzling $52 billion client pullout, a bond ETF surge, and crypto ETFs making noise.
Also: inflation surprises in the UK and US, and Trump’s “Twaco” trade rakes in $64 billion in tariff revenue.
A easy to understand breakdown of the macro forces steering the summer markets.
(00:00) Intro & Themes in Focus
(01:30) Goldman Sachs, Morgan Stanley Earnings
(08:07) The Goldman Model Business Explained
(10:01) What is FICC and Equities in a Bank?
(16:18) Wealth Management and Its Importance
(20:46) J.P. Morgan: How a Universal Bank Works
(24:35) BlackRock Q2 earnings summary
(31:30) Inflation Trends in the UK and US
(39:44) Trump Tariff Revenues & TWACO
Mark as Played
Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
(00:00):
Hello and welcome back to the Market Maker Podcast.
And we have quite a busy episodeahead because we are going to
talk about bank earnings. Earning season in the US is
underway and traditionally always kicks off with the Big
Bold bracket banks, which I knowour audience are very keen to
hear the latest because a lot ofthem are thinking about
(00:21):
potentially working for these firms in the future.
And I think their earnings give a really good insight as to
what's below the bonnet. So you can really stand out when
you go through that application interview process.
So we'll break those down. We're also going to talk about
inflation, namely CPI unexpectedly rose in the UK
earlier today. What does that mean?
Does it complicate the picture for the Bank of England?
(00:43):
What was fueling no way of a hidden there.
What was fueling the inflation rise?
So amongst food prices, petrol prices, we'll we'll have a look
at. And then also we've had
inflation metrics out of the US as well.
So has the dial shifted and what's the macro and monetary
policy feed through effect in terms of what markets are
(01:03):
thinking with Fed rates? And then finally, Trump, I see
you've squeezed this one onto your notes again, Pierce, trying
to talk Trump's book about his successful escalate to negotiate
strategy, but we'll see. Maybe there's repercussions for
his uptick that he's had in terms of the amount of money the
(01:26):
US is generating here from custom duties.
But yeah, maybe we can start then.
Yeah, with the big banks. I know we've had JPGSMS City,
BlackRock, where do we start? Well, we start with just the
overall fact that they've absolutely smashed it.
These banks are delivering very,very Spacey numbers and you
(01:52):
know, predominantly. Well, let's talk like the the
kind of investment banks. Let's talk about let's say the
Goldmans and the Morgan Stanley's first like JP Morgan,
it's more of a universal bank, right?
The JP Morgan's I put slightly separate, but all of them have
done really well. There's a very common theme and
(02:13):
that is trading flaws of delivered record ever revenues.
And that's if you think about itin quarter 2, right.
This is a remember earnings for quarter 2 April, May, June 2025.
What happened in markets? Well, as some of your stats you
were throwing at me a few weeks back was about, ah, the biggest
(02:34):
ever sell off and recovery in a single quarter.
And I was making the point that that's because just
coincidentally, the timing of Trump's tariff war liberation
day was the 2nd of April, the 2nd day of the whole quarter,
which then triggered this monster sell off in markets, S&P
dumping 20%, but now it's rally 30%.
(02:56):
The point is, these kind of investment bank trading flaws,
their job is to help their buy side clients, hedge funds, asset
managers, whoever, right whoever's investing is to help
them facilitate trades. They then generate revenues from
providing that service. So the amount of revenues, the
fees and the commissions and thespreads that they earn is a
(03:20):
function of primarily the volumeof trades that comes through
their floor. That to an extent is to an
extent is out of their hands because it's about the macro
situation. And how active are these buy
side institutions being in the markets?
Is there a reason to be buying or selling?
(03:41):
Well, yeah, there was a massive reason to sell start of April
and then there was a massive reason to buy mid-May because of
the Taco trade. I'm going to introduce a new
concept in the second part of this part when we get on to
Trump, I'm going to introduce the twaco trade.
You've I. Thought you were going to say
something else there. I was like, wow, this is really
(04:03):
getting, as you said, a bit spicy, but.
OK, I've coined this to my side.Yes, it's so I'm confident
you're going to like it anyway just for now, right, Loads of
trading going on, perfect for trading flaws.
So when Goldman's deliver their top level numbers, they're like
profits jumped 22%, OK, obviously very strong beating
(04:27):
expectations primarily that's the trading arm of Goldman's
that's delivered here. So to throw some numbers, even
though they had a net income overall for the whole business
of 3.7 billion for that quarter,which is up from 3 billion in
the same quarter last year. But the equity traders,
particularly at Goldman's absolutely smashed it.
They generated 4.3 billion in revenues in three months.
(04:51):
In 90 trading days, they delivered 4.3 billion.
Their fixed income arm, they delivered 3.5 billion.
And so these are record ever numbers.
So the trading floor is is just having a whale of a time here.
Now you've got to think ahead though, because have things calm
down a little bit. Yes, you know this fine.
(05:13):
Obviously we'll talk about Trumpand doing deals with the likes
of Indonesia and so on. But look that that whole risk is
been punted into the long grass and so trading volumes have
slowed. So do understand these banks are
going to have a worse. Well, I mean, I don't know,
we're only halfway through the first month of the quarter.
(05:33):
I don't know yet. But at the moment it's looking
like the it's going to be a muchslower quarter for trade volume.
So we're going to probably see these record-breaking numbers
come off in quarter 3. So that's one reason why maybe
some of these share price reactions, I'm looking at Morgan
Stanley, they're down 4% today even though their earnings
report was awesome. So maybe people are just kind
(05:56):
of, this is all in the rear viewmirror obviously, but look back
to Goldman's obviously trading, the trading flow is not the only
part of the bank. So the other key piece and
historically, I would say the piece they're most famous for is
that investment banking division.
And that has been a real drag onthe bank performance over the
(06:16):
last couple of years, right? We had a mega monster year for
M&A deals, IPOs back in 2021 where the fees they generated
were well, just disgusting to behonest, but huge, right?
But ever since then, it's just been a kind of it's we've been
in the desert for deals and everyone was really confident
(06:39):
Trump's coming in, deregulation,let's go.
And everyone thought, right, deal flow is going to really
ramp up. It just didn't happen in quarter
one. And everyone's like, oh God, OK,
another whole year then of no deals, OK, let's like hunker
down. However, one of the key
surprises out of these earnings reports is actually deal flow,
particularly back in the quarter2, is actually starting to pick
(07:00):
up some momentum. So Goldman's delivered a really
surprising 2.2 billion in investment banking fees over the
quarter, which was much better than what was expected.
And you know some of the deals they've been involved with, I'll
just list out a few here that onthe M and A side, Abu Dhabi
National Oil Company and Carlisle 2.424 point 4 billion
(07:24):
takeover of Santos, OK, that wasa big deal.
They were involved with Blackstone acquiring company
called Air Truck. It was a 16 billion deals.
So these are some of the big M&Adeals.
On the IPO side, you know thingsare ticking along as well.
And actually, Goldman's was #1 in the APAC equity capital
markets, and that's actually APAC's been where the IPO ramp
(07:46):
has really kind of taken off. And so Goldman's positioning
themselves quite strongly in that region.
That's where they've kind of really benefited.
So yeah, for, for these kind of straight up investment banks
like Goldman's and Morgan Stanley, the trading flows
absolutely destroyed it. And a surprise pickup in deal
flow has just added to the coffers. 11 point then is the.
(08:09):
Just to add a bit of context when you, so there's three
major, the pillars of Goldman Sachs as an organization when
you're looking at by net revenues, by segment decoded the
company has three areas. And so these three areas are
global markets and banking, which is what you were
describing, trading and investment banking all housed in
(08:31):
one division. There's asset and wealth
management and then there's something called platform
solutions. To give some context here, they
made, I think you said 14 1/2 roughly billion in revenue for
Q2. About 3/4 of that revenue was
global banking and markets. That's tiniest Slither was
(08:52):
platform solutions and the rest was asset and wealth management.
So they really are a powerhouse really very much.
I guess we'll go on to talk about more diversified peers
within their class like JP. But one thing here is then let's
go down another layer. And so investment banking fees
(09:12):
were 2.2 billion, as you said, but with equities and thick, so
just to get some terminology, jargon down, you've got thick.
So what is thick? And then thick in itself was
almost, you know, we're almost double what investment banking
fees were, just thick equities was more than double what
(09:36):
invested banking fees were put together trading, you know,
you're talking almost 9 billion against 2.
So the banks, that's goes to show how much the revenue on the
trading side has dwarfed that. But my question as well is not
just explain what FIC and equities are and why they're
treated separately, but why is equities outperform revenues
(09:59):
against FIC as well, do you think?
Yeah, good question. So FIC then fixed income,
currencies and commodities, so they kind of, and then your
equity. So it's just kind of splitting
up the asset classes, right? So when you're thinking about a
trading division, so your job isto facilitate or help clients
trade, right? Well, who are the clients,
(10:19):
right? Let's maybe categorize them
because you know, you've got to divvy up responsibilities here.
You can't have just one person, you know, covering too many
clients otherwise the service you're going to be able to
provide will deteriorate. So you got to divvy them up.
So you would certainly do that geographically, of course, you'd
certainly then think about that from an asset class point of
(10:40):
view. And look, some of your clients
will be specialists in a certainsingular asset.
You might have a, a hedge fund that only trades fixed income,
for example. So, but obviously then you're
going to have other clients thatare monstrous in size.
You might have a big like BlackRock asset management firm
that's obviously trading everything.
(11:01):
But the second thing to say is how these assets trade varies.
So you got stuff like, you know,vanilla stuff like equities that
find trade on exchange. OK, That does mean, by the way,
that your client could trade directly on exchange.
You know, why come through me the investment bank to place
(11:21):
this trade when they've got a license for the the NASDAQ?
They can do it themselves on their computer screen, right?
But here it's about liquidity risk and it's about market
impact. And so if your clients are
making massive trades, yes, theycould do it themselves on the
exchange, but it would be a really expensive way to execute
that really big trade. So they're coming to us, the
investment bank to facilitate that trade off exchange.
(11:46):
It's called over the counter andthis is where us, the investment
bank are doing the trade. The investment bank's the
counterparty for your buy side client, the hedge fund.
And you're doing a trade that way, right?
But equities generally are exchanged, traded, order driven
markets. But then you've got other like
fixed income isn't you know, have you ever heard of a bond
exchange? Obviously there's the London
(12:07):
Stock Exchange, the London, the New York Stock Exchange.
There's no London bond exchange.It's because bonds and fixed
income, they don't trade on exchange.
So there's a different, it's just a different way market
structure that these get traded.So you'll have different
specialists on the Goldman's trading floor that are dealing
with a different assets. But also, you know, that idea
(12:28):
that the, the kind of functionality of the, the kind
of infrastructure of how these markets operate is different.
And why have equities smashed kind of the other side?
Well, to a degree it depends on the bank because Goldman's have
a just a bigger trade. Sorry, equity trading division.
(12:48):
I was looking at Morgan Stanley just as a slight comparison and
I had some stats. So Morgan Stanley, for example,
I've lost my numbers now, but their trading division, have you
got their, you got their equity or their fixed income trading
division fees? I can see their net income was
(13:09):
3.5 billion. I don't know if you can help me
out here, but Morgan Stanley, their fixed income division were
performed better from a fee generation point of view than
Goldman's. So I think Goldman's just have a
lean towards equities as a kind of focused sort of asset class
(13:30):
specialty I've. Got a few numbers here.
So I was looking, I just broughtup their their Q2 report just to
make sure. Definitely got the right one.
Yep. So investment banking revenues
were down 5% and their equity net revenues were up 23%.
Fixed income net revenues were up 9%.
(13:52):
So equity net revenues reflectedincreases from a year ago ago
across business lines and regions and higher, higher
client activity as you describedrobust results in prime
brokerage. Yeah.
So what's that that last component that they're talking?
About. Yeah.
So prime brokerage is normally, well, first, that's a division
(14:12):
that kind of sits within the kind of trading side of the
operation. And their sole job is to service
hedge fund clients and serve it and provide services right
across the whole spectrum. A lot of that is trade
facilitation. It's kind of lending stock so
that hedge funds can go short. It's financing kind of leverage.
(14:35):
So these hedge funds can take onleveraged positions.
But often certainly at Morgan Stanley, I think the prime
brokerage division sits within the equities side of the trading
division, for example. So yeah, look, I, I would say
it's probably fair to say that the equity markets were more
volatile in Q2 than the other asset classes.
(14:57):
And so as a function of that, trade volumes were bigger there,
which is why the fee generation has been bigger.
So I think that's the kind of overarching simple point.
But I will go back to say that these banks do specialize.
And so Goldman's have a particularly strong equity
trading presence. So is there any parallels, any
(15:18):
differences when we talk about the lives of JP Morgan and
BlackRock? Yeah.
Well, if we talk to JP Morgan 1st and actually go back to
investment banking, because it'squite a chord chart, you can
maybe throw up, which is just comparing the big banks.
And so like the top five American banks, JP Morgan,
Goldman's, Morgan Stanley, Bank of America, Citi, and looking at
their investment banking kind offees and looking at the actual
(15:41):
fees compared to what was estimated.
And they've all just smashed theestimates.
So they've all performed much better than expected.
But there's a big hierarchy where JP Morgan, you know, they
always sit top of the tree pretty much in terms of
investment bank fees generation with normally Goldman's two and
then Morgan Stanley normally three.
So the usual state of affairs isthe case.
(16:02):
Bank of America and then City round off that top five.
But it's always interesting, youknow, City produce like less
than half of the fees in investment banking than JP
Morgan do, for example. But JP Morgan, well, actually
maybe go back to Morgan Stanley for a SEC, because when you were
talking about Goldman's, you were saying, right, they've got
their investment banking side and then they've got their asset
(16:25):
management side, right? But asset management is very
small for Goldman's. Actually, Morgan Stanley are one
of the leading kind of big investment banks for their asset
and wealth management division, OK.
It's way more mature than Goldman's.
And actually what was interesting at the Morgan
Stanley report was just how wellthat part of their bank has
(16:46):
performed here. So for example, the bank's unit
serving high income clients pulled in $59 billion of net
inflows during the second quarter.
What does that mean? That means that their clients
have given them $59 billion extra money to manage on their
behalf. So this is assets under
(17:08):
management inflows is when your assets under management are
going up. Outflows is obviously when it
when it's when it's going the other way.
And so they've had some phenomenal inflows here.
And that part of their bank, Well, apparently there's yeah.
So the bank has said it's wealthmanagement business, which which
is, it's got about 6 trillion inassets under management now, by
(17:32):
the way, which is like seriouslygetting up the league table
here. And yeah, it was obviously
boosted by higher levels of client activity during the
quarter. But their revenues from that
division was up 14% to 7.8 billion for Morgan Stanley,
which is actually bigger than that.
Well, it's certainly comparable to their kind of trading
(17:53):
revenues. And yeah, destroys anything
Goldman's producing from that part of their bank.
Could I ask a question then because I think with wealth
management, perhaps that's a notas explored area of finance that
people might think of certainly in early careers.
So I'm assuming to initiate moreinflows is a combination of
(18:15):
research, sales relationships. What am I missing and are all
these individual roles that people could have within a
wealth management function? Yep.
I mean, this is the thing. It often gets overlooked, this
part of the bank from a sort of careers perspective.
But I think it's really cool andit's a growing, it's an ever
(18:36):
growing part. And Morgan Stanley, as I've
said, they've done this so well to now create an absolute huge
and it's like diversification, right?
It's diversifying your kind of business.
But yeah, roles, you know why roles within here are certainly
marketing. Obviously, you've got to have a
good performance as a wealth management operation if you're
(19:00):
delivering for your existing clients and you can then package
and mark, you know, get a marketing pack where you're
packaging up this performance right into some nice slick
visuals. Then you need an expert in all
of this, an expert in the bank'sproducts, an expert in markets
(19:21):
and macro and commercial awareness and an expert in
relationship management and talking and sales.
And they're the ones out on the road who are a serve going to
visit our existing clients saying, hey, you know, any more
spare change you found down the back of the sofa, sling it our
way because look how well we're doing for you with the money
(19:42):
you've given us already. But then obviously it's about
hitting up new targets. And so yeah, absolutely sales,
market marketing is a huge part of this, obviously.
Then there's the, you know, a big part of that is investment
management. So there's a whole you're,
you're managing their money now.So this is like a buy side
operation where you're now managing portfolios, investing
(20:03):
client money, maybe your big networths, maybe they're doing
their own trading. So you might provide a kind of
agency trading service where they'll have their money on
account with you, but they'll just call up when they want to
place a trade and they give you the instructions of what they
want to trade and then you execute it for them and so on.
But then there's like. Wealth management stuff around
(20:23):
estate planning, you know, tax efficiency around, you know,
inheritance and capital gains and and all the rest of it,
right? So that's also a kind of big
part of it. So one thing we haven't touched
on yet, so you kind of that was cool because we got to mention
Welsh management a little bit more which we've, you know, we
probably could do with talking about more often to shine a bit
(20:44):
more of a light. But we haven't talked about more
like commercial banking, corporate banking.
So is this when we start to bring in JP then?
Absolutely. And so JP Morgan, that kind of
big universal bank, meaning theyservice individual retail
customers. So retail banking.
(21:04):
So that's just your everyday Joeon the street who's got a bank
account or a credit card or, or a mortgage, right?
So that's, that's your consumer banking or your retail banking.
Then you've got commercial banking.
This is then servicing companiesas a as your client base.
And that can be both from that same stuff, bank accounts, you
(21:26):
know, payment cards, credit cards and so on.
But it's also then about financing, so overdraft
facilities, revolving finance facilities and so on.
But then it's about when your clients are getting a bit
bigger, it's about right helpingthem raise capital.
And that can be through bond andshare issuance.
And this is where you're gettinginto then your ECM and your DCM,
(21:47):
your equity and debt capital markets.
And this kind of moves into the investment bank part, right?
So you've got your, yeah, you'vegot your retail bank, you've got
your commercial bank. And then you've got your global
markets division, which is then what we've been talking about
with all the trading stuff whereyour clients, financial
institutions, JP Morgan, do the whole lot.
And they're the biggest on the planet.
(22:09):
Now, the thing about JP Morgan, obviously they've benefited from
this spike in trade volume. Their trading floor smashed it.
They've begun to really nicely start to benefit from the pick
up in deal flow on the M&A and IPO side.
What they're also benefiting from is on their loan book.
So their net interest income because interest rates have
(22:29):
stayed relatively high with still a resilient economy.
And so this is perfect if you'rein the business of lending money
because you're able to charge higher rates and your customers
are still able to afford the higher rates.
That's proven by the fact the economy is still resilient.
(22:51):
And so they're still profiting from their loan book in this
high interest rate environment on top of the smashing it on the
trading floor and now a nice little pick up on the deal flow
side. So for JP, yeah, this is
starting to really look pretty spicy on all fronts.
Just before we move on to BlackRock, so you said Universal
(23:13):
Bank and JP is one of those. Who else would you put in that
bucket of familiar names that people might resonate with
people? So who would be your more
pureplay markets banking? Who's in universal Bank status?
Yep. So universal banks would be the
big guns like JP Morgan, Bank ofAmerica, Citigroup, you got to
(23:35):
think about it. So they're obviously the
American ones. So here in the UK, it'd be
Barclays be HSBC, although HSBC are really pulling back from the
kind of investment banking piece.
But HSBC and Barclays historically have a kind of big,
big 2 here in the UK. So is anybody like one way of
thinking it, which of these big banks that you know are from an
investment point of view, which ones do you see have High Street
(23:59):
outlets, because they're the ones that have a retail banking
arm. And obviously here in the UK we
don't see so much a JP Morgan, you know, High Street banking
outlet, but you know, over, overin the US you, you obviously.
Do, OK. So it's a little bit different
then is asset management and BlackRock.
So you were talking about inflows flushing into sloshing
(24:23):
into the Ms. account. What what's happening because I
know obviously assets under management is a key component of
managing management fees at BlackRock.
What did that look like in Q2? A bit of a roller coaster
because the assets they have under management, yes, are a
function of inflows and outflows, right, which is how
(24:45):
good your performance is and howgood your marketing and sales
is. But it's then also a function of
what's the value of the assets that you've got under management
already. And the value of those goes up
and down with the markets. And they've got a huge amount of
like stock ETFs, for example. So stock indexes go up and down.
Well, they're the value of theirassets under management goes up
and down, which of course has a direct impact on their revenue
(25:08):
and their fees because their feegeneration as a company is a
percentage of their assets undermanagement.
So obviously, if you think aboutquarter 2, markets collapsed at
the start so that the value of assets under management dropped
sharply. But then obviously it's all
recovered and now upper you knownew all time highs, right.
(25:28):
So I've been it's been a real roller coaster what I was
reading which was a bit more interesting than the usual.
They actually had to come out and say, look, our assets under
management are worse than maybe what you'd expect because we had
a one off situation where we hadone single client based in Asia
(25:49):
that withdrew $52 billion duringthat quarter.
They were quick to point out because then you think, well,
why hang on, why are they withdrawing 53 billion?
The BlackRock were quick to point out that even after that
withdrawal, they're still managing hundreds of billions of
dollars from that same client. But still, and and they were
(26:11):
saying that actually most of that money they withdrew was
coming out of the lower fee paying index investments.
Exactly. So they're like ETF sort of
products that generate the lowest fees.
Apparently most of it came out and then you got to start to
think they didn't say who it was, but you got to start to
think, well, they calling the top here.
(26:33):
Are they? Are they?
That's interesting. Isn't it ETF positions because
they think it's the top. I mean, I don't.
Know that's a scenario where a lack of visibility on who that
is can quickly start the rumour mill flowing, which can manifest
and human behaviour would dictate that when something like
that's happened, we side on the we are on the side of caution.
(26:55):
But an interesting lesson there as you're describing it as the
way the Black Rock have tried tocommunicate, which is the other
part I think of people don't necessarily think about because
we're sitting here talking aboutnumbers of what happens in Q2 or
Black Rock are trying to do hereis massage the future and manage
their outward looking guidance as to get ahead of this rumour
(27:15):
mill and be as clear as possible.
And again, from a role perspective, you would have
advisers for this type of stuff.I would imagine people who are
strategically placed on the comms side to help support the
CFO, the management team, to convey and alleviate any
tensions or anxieties that mightcome from a a moment like this.
(27:37):
They would have known that clients done that.
I'd imagine they would have spent a few weeks trying to
engineer the best guidance around it.
So, yeah, interesting. Yeah.
And one other couple other points, just just we always
often just just bang on about equities.
But so BlackRock, it was actually their inflows were
strongest across their bond ETFs.
(27:59):
So actually that attracted in just a tad under $44 billion in
the quarter. I got a friend who runs, I mean
like you do a friend who runs anasset management firm, who's a
fixed income asset management firm.
I was talking to him over the weekend and he was saying that
they're so they have a, so the way these businesses operate,
(28:20):
they have their targets each month are right.
We target to try and attract in X amount of inflows this month
and that's our marketing and sales strategy is to generate
that amount. And so that's how they benchmark
and measure themselves, how they're performing, right In
June, he was telling me they attracted in triple their
(28:42):
forecast. So they brought in like 750
million. It's obviously a much smaller
fund compared to obviously the Super giants of Black Rock, but
they attracted in 750 million. Their target for the month was
250. So something's going on here on
the fixed income side. And he was saying that
basically, well, A, you've stillgot high interest rates.
(29:04):
B, you've still got huge amountsof cash sat on the sidelines and
some of this really short term money market stuff.
And you know, he's and then maybe you've got concerns still
about sustainability, the economic momentum and obviously
Trump and all the rest of it, right?
So at the moment he's saying, actually no matter where you
(29:24):
look, there's an attractive story you can tell to, you know,
come and park some of that cash of yours over in the fixed
income space. So that was interesting that
that was their strongest sector for for their inflows finally.
Crypto 125 baby. Crypto and digital, digital
(29:45):
asset ETFs was another strong part.
So they attracted in 14 billion of inflows and that was pushing
Bitcoin obviously to record highs.
But yeah, that part of their, you know, 14 billion now, I
mean, fixed income was 44 billion of inflows, right?
So 14 is, is just from that crypto space, which is quickly
(30:07):
becoming, you know, it's, it's actually becoming a thing that
kind of moves the needle, which I thought was interesting.
And without going in too much detail, there were some
meaningful movement on Capitol Hill and it was the Clarity Act
and the Genius Act, the Clarity Act, Digital Asset Market
(30:28):
Clarity Act, aiming to resolve regulatory confusion, defining
whether digital assets are commodities and under whether
it's the CFTC or the C, the SEC.So a lot of this is to do with
oversight. And then the Genius Act is
guiding and establishing national innovation for US
(30:48):
Stable Coins Act. So it's really interesting
because I was this the FT talking about this, They were
talking about what's fuelling the leg higher is legitimacy
coming from it being more actually involved into the
traditional system, which is more oversight rather than it's
perhaps the initial, I, I guess the, the people who were
(31:11):
involved a few years ago and what their initial mission
statement might have entailed. So it's getting that second leg
now of legitimacy. And that's definitely evident
from that 14 billion inflows that you you mentioned.
Well, look, we've done half an hour of Deeping deep diving.
Let's come up for air and let's let's do a bit of a summary then
of the inflationary situation inthe UK and the US and then touch
(31:35):
on Trump. Yeah, well, UK, don't you want
to start UKI mean you're no morethan me here, but the headline
is that inflation went up 3.6% in the month of June, which was
higher than expected. We're expecting it at 3.4%.
This Now if you look at a chart of UKCPI sort of annualised, you
know, we've got like, I mean, it's get it's getting on for
(31:58):
almost 12 months of uptrend. Now.
We kind of hit a low sort of quarter three of last year below
2%, like super briefly for one month.
But ever since then sub two, ever since then it's just been
trending higher and now we're upto 3.6.
Obviously it's nothing like the 10 plus percent we had during
(32:21):
the inflation spike that topped out in 2022.
So we're obviously not going back there that that inflation
crisis post COVID isn't going tohappen again.
But it's just this is a real pain in the ass for the central
bank because they want to cut rates, but they kind of well,
(32:42):
can they? I mean, we're expecting them to
cut rates. That's the Bank of England now
at the next meeting. But this this data again, just
makes it more difficult for themto get away with it.
Now, that said, it's food and fuel that is responsible and you
could certainly put forward a really strong argument to say,
well, central bank interest rates pretty much have zero
(33:05):
effect on fuel and food prices. You know, if you've been
watching Clarkson's Farm Season 4, then you'll know the harvest
last year was shocking. So, oh, surprise, there's not
enough wheat knocking about. South bread prices have gone up,
right? So, you know, this is what
(33:26):
happens, you know, and so fuel prices have crept higher in the
in the month as well. So if the if the central bank
cut or hike rates, it's not going to impact the weather and
it's not going to impact, you know, the supply of oil.
So you could you could say that this stuff that's driving it
higher. Maybe the Bank of England should
look through, which is why we often look at the core inflation
(33:48):
reading instead. That takes out food and energy
there though that was up as well.
So here was the kind of the mainpoint, core inflation was at
3.7% up from the previous month 3.5.
And this is because services inflation crept higher and well
remained actually growing at 4.7%.
(34:11):
So that services inflation component of the basket is still
staying stubbornly high. So, yeah, I mean, what do you
think? Are they, can the Bank of
England hike? Can the Bank of England cut
here? Well, First things first, I'm
certainly not going to shed a tear for Jeremy Clarkson.
That's first thing. Perhaps look, let let let me put
(34:33):
a couple of things on the table then and then we can we can work
through it. So the economy has been slowing
right in the UK, inflation is going up.
Echo activity is slowing the likelihood it looks like that
the Labour Party are going to have to increase taxes.
So let's what we've had two months of negative growth, she
(34:55):
is forced to raise taxes. What does that mean then for
economic growth probably slows? What does that mean for
inflation? Yeah, well, so here, here it is.
You're you're you're kind of getting right to the meat of it
here. So the economy is slowing,
right. And look, you could even argue
(35:17):
part of the slowing growth is because of the risk that labour
might increase taxes in the future.
So it already influences behaviour around spending.
If you're worried taxes are going to go up, right?
And whether they hike taxes, well, that looks like they're
going to have to. So that will just double down on
(35:37):
being a negative effect. Why?
Why is that negative? Well, well, the connection of
course, is that if you're taxed more, well, then you have
obviously less disposable income.
Less disposable income means consumption drops and 75% of GDP
is consumption. So that's the kind of
connection, right? So, but you're right to say,
well, if then consumption is going to drop, well, isn't that
(35:58):
disinflationary because the demand for goods and services
drops? And so yes, you would expect
inflation to dampen if economic momentum slows, except for the
stuff in the basket where it's more about supply that is
controlling price. So food and energy is the supply
(36:22):
side, which isn't really connected with economics.
It's connected with things like the weather, as I was just
discussing, right? So there's that caveat.
So at the moment it's hard to really know what, how and why is
this services inflation staying stubborn now feed in tariffs is
(36:43):
the tariff situation with the US, is that now feeding into
companies having to put their prices up?
This is your worst case scenariococktail where companies are
forced to put their prices up because of things like tariffs.
You got food and energy costs rising because of supply, you've
(37:04):
got taxes going up, weakening the economic situation even
more. The Bank of England stuck in the
middle because, well, hang on, do we cut rates to try and
stimulate growth and and get people spending more?
But hang on, inflation is already too high.
So if we if we stimulate the economy, is that going to create
another inflation crisis? So they're kind of just wedged a
(37:26):
rock between a rock and a hard place here, which is why I think
the odds on a rate cut, which was really nailed on the odds on
a rate cut at their next meeting, that is actually crept
a little lower now. OK.
And then what? And so let's move to the US.
Is it same or different? What's going on?
(37:46):
Well, it's inflation went up, soit was 2.9% on the headline, so
it's lower than the UK, right? But actually that's been the way
of things throughout this whole inflation crisis.
UK inflation has generally been slightly higher than the US
situation. So it's 2.9%, up from 2.8% the
(38:08):
previous month. OK.
What's interesting about this report, you're starting to see
some evidence that tariffs will impact inflation.
That's been one of the positive things that's led to some of
this rebound rally in May and June.
It's like, well, look, tariffs aren't producing any
inflationary problems. You're just seeing this report,
(38:28):
some signs of that happening now.
So though, so some of those products like household
appliances, you know, your what,how much does a washing machine
cost or your clothing, you know,we all furnishing stuff that
generally most of it is imported.
So any goods, the majority of the supply is imported.
(38:49):
Those goods are the inflation rates are going up faster than
the the goods that aren't so reliant on imports.
So there's but it's really small, but it's there.
There is now a little divergent.So that is to say that maybe
this tariff thing could lead to a more meaningful positive input
(39:10):
to inflation, which is obviouslynot a good thing.
But luckily to counterbalance all of that, one of the stubborn
elements of the basket that stayed really high, it's been
shelter costs that's continued to drop quite sharply.
So that's why the the inflation situation in the US is much
better than it is in the UK, I would say, generally speaking.
(39:32):
So, you know, can the Fed cut? Well, obviously it just comes
back to the same old stuff, politics, tariffs, all the rest
of it. Right.
But I'll finish with twaco. Yeah, you heard that correctly.
So Taco is something everyone's familiar with.
(39:53):
Trump always chickens out. But actually, here we've got now
twaco, the world always chickensout.
You see what I've done there? For the world, because actually
it's everyone else chickening out, not Trump.
Indonesia being quite salient point here.
So they've just done a deal withIndonesia where they've agreed
(40:15):
tariffs at 19%. So on that liberation day back
at the start of April, Trump threatened 32% tariffs unless
you come to the table and negotiate.
Well, they've come to the table and negotiated and they've got
it to 19. It basically was 0 before.
Right now it's 19% on all goods from Indonesia, and Indonesia
(40:35):
have agreed to buy more Americanoil, more American airplanes,
and more American farm goods. So I mean, come on.
Can I get? That's just pretty damn good
deal that Trump done there. Let me just double check
something just because, you know, like a verification check.
So at the weekend you were having dinner with this fixed
(40:55):
income hedge fund, this asset management guy, and Trump?
Or was it 1 of Trump's advisors?Look, I've look being Donald,
I'm not going to, I don't want to talk about our personal
relationship, but look, that stuff's happening.
And actually I mentioned a couple of weeks ago just about
(41:16):
tariff revenues. So now we've had a full quarter
since Liberation Day. So actually it's quite
interesting. Their tariff revenues for the
quarter were were 20 or sorry for June alone was 26.6 billion
for the quarter is 64 billion revenue from tariffs same
quarter previous year. Guess how much so 64 billion
(41:38):
this year. What do you think it was in
2020? Four.
Yeah, like a fraction 1/4 of that. 17 billion.
Yeah. So look, they're 47 billion
better off. That's going straight into the
Treasury now. It's small fry when you look at
their debt levels, which are whatever they are now, I lose
count 38 or 36 or $7 trillion. So 47 billion doesn't touch the
(42:05):
sides, right. But if you have that amount of
tariff revenue increase, then you kind of extrapolate that out
across a decade. Well, then actually it does
start adding up to something that's interesting.
So can they get out of their debt problem through increasing
revenues from tariffs without kind of derailing the global
(42:25):
economy in the process? Is the economic experiment
that's playing out in front of our eyes.
OK, man. On that conclusion, we'll wrap
it up. So please do let us know.
Did you have any questions, comments, agreements,
disagreements on the show? If it's on YouTube or Spotify,
and now you can leave a comment.If you're new and you enjoy the
(42:47):
conversation, remember to subscribe, hit the bell icon to
be notified of future episodes come out.
Thank you as always Piers, and thanks everyone for listening.
See you later.
Hello and welcome back to the Market Maker Podcast.
And we have quite a busy episodeahead because we are going to
talk about bank earnings. Earning season in the US is
underway and traditionally always kicks off with the Big
Bold bracket banks, which I knowour audience are very keen to
hear the latest because a lot ofthem are thinking about
(00:21):
potentially working for these firms in the future.
And I think their earnings give a really good insight as to
what's below the bonnet. So you can really stand out when
you go through that application interview process.
So we'll break those down. We're also going to talk about
inflation, namely CPI unexpectedly rose in the UK
earlier today. What does that mean?
Does it complicate the picture for the Bank of England?
(00:43):
What was fueling no way of a hidden there.
What was fueling the inflation rise?
So amongst food prices, petrol prices, we'll we'll have a look
at. And then also we've had
inflation metrics out of the US as well.
So has the dial shifted and what's the macro and monetary
policy feed through effect in terms of what markets are
(01:03):
thinking with Fed rates? And then finally, Trump, I see
you've squeezed this one onto your notes again, Pierce, trying
to talk Trump's book about his successful escalate to negotiate
strategy, but we'll see. Maybe there's repercussions for
his uptick that he's had in terms of the amount of money the
(01:26):
US is generating here from custom duties.
But yeah, maybe we can start then.
Yeah, with the big banks. I know we've had JPGSMS City,
BlackRock, where do we start? Well, we start with just the
overall fact that they've absolutely smashed it.
These banks are delivering very,very Spacey numbers and you
(01:52):
know, predominantly. Well, let's talk like the the
kind of investment banks. Let's talk about let's say the
Goldmans and the Morgan Stanley's first like JP Morgan,
it's more of a universal bank, right?
The JP Morgan's I put slightly separate, but all of them have
done really well. There's a very common theme and
(02:13):
that is trading flaws of delivered record ever revenues.
And that's if you think about itin quarter 2, right.
This is a remember earnings for quarter 2 April, May, June 2025.
What happened in markets? Well, as some of your stats you
were throwing at me a few weeks back was about, ah, the biggest
(02:34):
ever sell off and recovery in a single quarter.
And I was making the point that that's because just
coincidentally, the timing of Trump's tariff war liberation
day was the 2nd of April, the 2nd day of the whole quarter,
which then triggered this monster sell off in markets, S&P
dumping 20%, but now it's rally 30%.
(02:56):
The point is, these kind of investment bank trading flaws,
their job is to help their buy side clients, hedge funds, asset
managers, whoever, right whoever's investing is to help
them facilitate trades. They then generate revenues from
providing that service. So the amount of revenues, the
fees and the commissions and thespreads that they earn is a
(03:20):
function of primarily the volumeof trades that comes through
their floor. That to an extent is to an
extent is out of their hands because it's about the macro
situation. And how active are these buy
side institutions being in the markets?
Is there a reason to be buying or selling?
(03:41):
Well, yeah, there was a massive reason to sell start of April
and then there was a massive reason to buy mid-May because of
the Taco trade. I'm going to introduce a new
concept in the second part of this part when we get on to
Trump, I'm going to introduce the twaco trade.
You've I. Thought you were going to say
something else there. I was like, wow, this is really
(04:03):
getting, as you said, a bit spicy, but.
OK, I've coined this to my side.Yes, it's so I'm confident
you're going to like it anyway just for now, right, Loads of
trading going on, perfect for trading flaws.
So when Goldman's deliver their top level numbers, they're like
profits jumped 22%, OK, obviously very strong beating
(04:27):
expectations primarily that's the trading arm of Goldman's
that's delivered here. So to throw some numbers, even
though they had a net income overall for the whole business
of 3.7 billion for that quarter,which is up from 3 billion in
the same quarter last year. But the equity traders,
particularly at Goldman's absolutely smashed it.
They generated 4.3 billion in revenues in three months.
(04:51):
In 90 trading days, they delivered 4.3 billion.
Their fixed income arm, they delivered 3.5 billion.
And so these are record ever numbers.
So the trading floor is is just having a whale of a time here.
Now you've got to think ahead though, because have things calm
down a little bit. Yes, you know this fine.
(05:13):
Obviously we'll talk about Trumpand doing deals with the likes
of Indonesia and so on. But look that that whole risk is
been punted into the long grass and so trading volumes have
slowed. So do understand these banks are
going to have a worse. Well, I mean, I don't know,
we're only halfway through the first month of the quarter.
(05:33):
I don't know yet. But at the moment it's looking
like the it's going to be a muchslower quarter for trade volume.
So we're going to probably see these record-breaking numbers
come off in quarter 3. So that's one reason why maybe
some of these share price reactions, I'm looking at Morgan
Stanley, they're down 4% today even though their earnings
report was awesome. So maybe people are just kind
(05:56):
of, this is all in the rear viewmirror obviously, but look back
to Goldman's obviously trading, the trading flow is not the only
part of the bank. So the other key piece and
historically, I would say the piece they're most famous for is
that investment banking division.
And that has been a real drag onthe bank performance over the
(06:16):
last couple of years, right? We had a mega monster year for
M&A deals, IPOs back in 2021 where the fees they generated
were well, just disgusting to behonest, but huge, right?
But ever since then, it's just been a kind of it's we've been
in the desert for deals and everyone was really confident
(06:39):
Trump's coming in, deregulation,let's go.
And everyone thought, right, deal flow is going to really
ramp up. It just didn't happen in quarter
one. And everyone's like, oh God, OK,
another whole year then of no deals, OK, let's like hunker
down. However, one of the key
surprises out of these earnings reports is actually deal flow,
particularly back in the quarter2, is actually starting to pick
(07:00):
up some momentum. So Goldman's delivered a really
surprising 2.2 billion in investment banking fees over the
quarter, which was much better than what was expected.
And you know some of the deals they've been involved with, I'll
just list out a few here that onthe M and A side, Abu Dhabi
National Oil Company and Carlisle 2.424 point 4 billion
(07:24):
takeover of Santos, OK, that wasa big deal.
They were involved with Blackstone acquiring company
called Air Truck. It was a 16 billion deals.
So these are some of the big M&Adeals.
On the IPO side, you know thingsare ticking along as well.
And actually, Goldman's was #1 in the APAC equity capital
markets, and that's actually APAC's been where the IPO ramp
(07:46):
has really kind of taken off. And so Goldman's positioning
themselves quite strongly in that region.
That's where they've kind of really benefited.
So yeah, for, for these kind of straight up investment banks
like Goldman's and Morgan Stanley, the trading flows
absolutely destroyed it. And a surprise pickup in deal
flow has just added to the coffers. 11 point then is the.
(08:09):
Just to add a bit of context when you, so there's three
major, the pillars of Goldman Sachs as an organization when
you're looking at by net revenues, by segment decoded the
company has three areas. And so these three areas are
global markets and banking, which is what you were
describing, trading and investment banking all housed in
(08:31):
one division. There's asset and wealth
management and then there's something called platform
solutions. To give some context here, they
made, I think you said 14 1/2 roughly billion in revenue for
Q2. About 3/4 of that revenue was
global banking and markets. That's tiniest Slither was
(08:52):
platform solutions and the rest was asset and wealth management.
So they really are a powerhouse really very much.
I guess we'll go on to talk about more diversified peers
within their class like JP. But one thing here is then let's
go down another layer. And so investment banking fees
(09:12):
were 2.2 billion, as you said, but with equities and thick, so
just to get some terminology, jargon down, you've got thick.
So what is thick? And then thick in itself was
almost, you know, we're almost double what investment banking
fees were, just thick equities was more than double what
(09:36):
invested banking fees were put together trading, you know,
you're talking almost 9 billion against 2.
So the banks, that's goes to show how much the revenue on the
trading side has dwarfed that. But my question as well is not
just explain what FIC and equities are and why they're
treated separately, but why is equities outperform revenues
(09:59):
against FIC as well, do you think?
Yeah, good question. So FIC then fixed income,
currencies and commodities, so they kind of, and then your
equity. So it's just kind of splitting
up the asset classes, right? So when you're thinking about a
trading division, so your job isto facilitate or help clients
trade, right? Well, who are the clients,
(10:19):
right? Let's maybe categorize them
because you know, you've got to divvy up responsibilities here.
You can't have just one person, you know, covering too many
clients otherwise the service you're going to be able to
provide will deteriorate. So you got to divvy them up.
So you would certainly do that geographically, of course, you'd
certainly then think about that from an asset class point of
(10:40):
view. And look, some of your clients
will be specialists in a certainsingular asset.
You might have a, a hedge fund that only trades fixed income,
for example. So, but obviously then you're
going to have other clients thatare monstrous in size.
You might have a big like BlackRock asset management firm
that's obviously trading everything.
(11:01):
But the second thing to say is how these assets trade varies.
So you got stuff like, you know,vanilla stuff like equities that
find trade on exchange. OK, That does mean, by the way,
that your client could trade directly on exchange.
You know, why come through me the investment bank to place
(11:21):
this trade when they've got a license for the the NASDAQ?
They can do it themselves on their computer screen, right?
But here it's about liquidity risk and it's about market
impact. And so if your clients are
making massive trades, yes, theycould do it themselves on the
exchange, but it would be a really expensive way to execute
that really big trade. So they're coming to us, the
investment bank to facilitate that trade off exchange.
(11:46):
It's called over the counter andthis is where us, the investment
bank are doing the trade. The investment bank's the
counterparty for your buy side client, the hedge fund.
And you're doing a trade that way, right?
But equities generally are exchanged, traded, order driven
markets. But then you've got other like
fixed income isn't you know, have you ever heard of a bond
exchange? Obviously there's the London
(12:07):
Stock Exchange, the London, the New York Stock Exchange.
There's no London bond exchange.It's because bonds and fixed
income, they don't trade on exchange.
So there's a different, it's just a different way market
structure that these get traded.So you'll have different
specialists on the Goldman's trading floor that are dealing
with a different assets. But also, you know, that idea
(12:28):
that the, the kind of functionality of the, the kind
of infrastructure of how these markets operate is different.
And why have equities smashed kind of the other side?
Well, to a degree it depends on the bank because Goldman's have
a just a bigger trade. Sorry, equity trading division.
(12:48):
I was looking at Morgan Stanley just as a slight comparison and
I had some stats. So Morgan Stanley, for example,
I've lost my numbers now, but their trading division, have you
got their, you got their equity or their fixed income trading
division fees? I can see their net income was
(13:09):
3.5 billion. I don't know if you can help me
out here, but Morgan Stanley, their fixed income division were
performed better from a fee generation point of view than
Goldman's. So I think Goldman's just have a
lean towards equities as a kind of focused sort of asset class
(13:30):
specialty I've. Got a few numbers here.
So I was looking, I just broughtup their their Q2 report just to
make sure. Definitely got the right one.
Yep. So investment banking revenues
were down 5% and their equity net revenues were up 23%.
Fixed income net revenues were up 9%.
(13:52):
So equity net revenues reflectedincreases from a year ago ago
across business lines and regions and higher, higher
client activity as you describedrobust results in prime
brokerage. Yeah.
So what's that that last component that they're talking?
About. Yeah.
So prime brokerage is normally, well, first, that's a division
(14:12):
that kind of sits within the kind of trading side of the
operation. And their sole job is to service
hedge fund clients and serve it and provide services right
across the whole spectrum. A lot of that is trade
facilitation. It's kind of lending stock so
that hedge funds can go short. It's financing kind of leverage.
(14:35):
So these hedge funds can take onleveraged positions.
But often certainly at Morgan Stanley, I think the prime
brokerage division sits within the equities side of the trading
division, for example. So yeah, look, I, I would say
it's probably fair to say that the equity markets were more
volatile in Q2 than the other asset classes.
(14:57):
And so as a function of that, trade volumes were bigger there,
which is why the fee generation has been bigger.
So I think that's the kind of overarching simple point.
But I will go back to say that these banks do specialize.
And so Goldman's have a particularly strong equity
trading presence. So is there any parallels, any
(15:18):
differences when we talk about the lives of JP Morgan and
BlackRock? Yeah.
Well, if we talk to JP Morgan 1st and actually go back to
investment banking, because it'squite a chord chart, you can
maybe throw up, which is just comparing the big banks.
And so like the top five American banks, JP Morgan,
Goldman's, Morgan Stanley, Bank of America, Citi, and looking at
their investment banking kind offees and looking at the actual
(15:41):
fees compared to what was estimated.
And they've all just smashed theestimates.
So they've all performed much better than expected.
But there's a big hierarchy where JP Morgan, you know, they
always sit top of the tree pretty much in terms of
investment bank fees generation with normally Goldman's two and
then Morgan Stanley normally three.
So the usual state of affairs isthe case.
(16:02):
Bank of America and then City round off that top five.
But it's always interesting, youknow, City produce like less
than half of the fees in investment banking than JP
Morgan do, for example. But JP Morgan, well, actually
maybe go back to Morgan Stanley for a SEC, because when you were
talking about Goldman's, you were saying, right, they've got
their investment banking side and then they've got their asset
(16:25):
management side, right? But asset management is very
small for Goldman's. Actually, Morgan Stanley are one
of the leading kind of big investment banks for their asset
and wealth management division, OK.
It's way more mature than Goldman's.
And actually what was interesting at the Morgan
Stanley report was just how wellthat part of their bank has
(16:46):
performed here. So for example, the bank's unit
serving high income clients pulled in $59 billion of net
inflows during the second quarter.
What does that mean? That means that their clients
have given them $59 billion extra money to manage on their
behalf. So this is assets under
(17:08):
management inflows is when your assets under management are
going up. Outflows is obviously when it
when it's when it's going the other way.
And so they've had some phenomenal inflows here.
And that part of their bank, Well, apparently there's yeah.
So the bank has said it's wealthmanagement business, which which
is, it's got about 6 trillion inassets under management now, by
(17:32):
the way, which is like seriouslygetting up the league table
here. And yeah, it was obviously
boosted by higher levels of client activity during the
quarter. But their revenues from that
division was up 14% to 7.8 billion for Morgan Stanley,
which is actually bigger than that.
Well, it's certainly comparable to their kind of trading
(17:53):
revenues. And yeah, destroys anything
Goldman's producing from that part of their bank.
Could I ask a question then because I think with wealth
management, perhaps that's a notas explored area of finance that
people might think of certainly in early careers.
So I'm assuming to initiate moreinflows is a combination of
(18:15):
research, sales relationships. What am I missing and are all
these individual roles that people could have within a
wealth management function? Yep.
I mean, this is the thing. It often gets overlooked, this
part of the bank from a sort of careers perspective.
But I think it's really cool andit's a growing, it's an ever
(18:36):
growing part. And Morgan Stanley, as I've
said, they've done this so well to now create an absolute huge
and it's like diversification, right?
It's diversifying your kind of business.
But yeah, roles, you know why roles within here are certainly
marketing. Obviously, you've got to have a
good performance as a wealth management operation if you're
(19:00):
delivering for your existing clients and you can then package
and mark, you know, get a marketing pack where you're
packaging up this performance right into some nice slick
visuals. Then you need an expert in all
of this, an expert in the bank'sproducts, an expert in markets
(19:21):
and macro and commercial awareness and an expert in
relationship management and talking and sales.
And they're the ones out on the road who are a serve going to
visit our existing clients saying, hey, you know, any more
spare change you found down the back of the sofa, sling it our
way because look how well we're doing for you with the money
(19:42):
you've given us already. But then obviously it's about
hitting up new targets. And so yeah, absolutely sales,
market marketing is a huge part of this, obviously.
Then there's the, you know, a big part of that is investment
management. So there's a whole you're,
you're managing their money now.So this is like a buy side
operation where you're now managing portfolios, investing
(20:03):
client money, maybe your big networths, maybe they're doing
their own trading. So you might provide a kind of
agency trading service where they'll have their money on
account with you, but they'll just call up when they want to
place a trade and they give you the instructions of what they
want to trade and then you execute it for them and so on.
But then there's like. Wealth management stuff around
(20:23):
estate planning, you know, tax efficiency around, you know,
inheritance and capital gains and and all the rest of it,
right? So that's also a kind of big
part of it. So one thing we haven't touched
on yet, so you kind of that was cool because we got to mention
Welsh management a little bit more which we've, you know, we
probably could do with talking about more often to shine a bit
(20:44):
more of a light. But we haven't talked about more
like commercial banking, corporate banking.
So is this when we start to bring in JP then?
Absolutely. And so JP Morgan, that kind of
big universal bank, meaning theyservice individual retail
customers. So retail banking.
(21:04):
So that's just your everyday Joeon the street who's got a bank
account or a credit card or, or a mortgage, right?
So that's, that's your consumer banking or your retail banking.
Then you've got commercial banking.
This is then servicing companiesas a as your client base.
And that can be both from that same stuff, bank accounts, you
(21:26):
know, payment cards, credit cards and so on.
But it's also then about financing, so overdraft
facilities, revolving finance facilities and so on.
But then it's about when your clients are getting a bit
bigger, it's about right helpingthem raise capital.
And that can be through bond andshare issuance.
And this is where you're gettinginto then your ECM and your DCM,
(21:47):
your equity and debt capital markets.
And this kind of moves into the investment bank part, right?
So you've got your, yeah, you'vegot your retail bank, you've got
your commercial bank. And then you've got your global
markets division, which is then what we've been talking about
with all the trading stuff whereyour clients, financial
institutions, JP Morgan, do the whole lot.
And they're the biggest on the planet.
(22:09):
Now, the thing about JP Morgan, obviously they've benefited from
this spike in trade volume. Their trading floor smashed it.
They've begun to really nicely start to benefit from the pick
up in deal flow on the M&A and IPO side.
What they're also benefiting from is on their loan book.
So their net interest income because interest rates have
(22:29):
stayed relatively high with still a resilient economy.
And so this is perfect if you'rein the business of lending money
because you're able to charge higher rates and your customers
are still able to afford the higher rates.
That's proven by the fact the economy is still resilient.
(22:51):
And so they're still profiting from their loan book in this
high interest rate environment on top of the smashing it on the
trading floor and now a nice little pick up on the deal flow
side. So for JP, yeah, this is
starting to really look pretty spicy on all fronts.
Just before we move on to BlackRock, so you said Universal
(23:13):
Bank and JP is one of those. Who else would you put in that
bucket of familiar names that people might resonate with
people? So who would be your more
pureplay markets banking? Who's in universal Bank status?
Yep. So universal banks would be the
big guns like JP Morgan, Bank ofAmerica, Citigroup, you got to
(23:35):
think about it. So they're obviously the
American ones. So here in the UK, it'd be
Barclays be HSBC, although HSBC are really pulling back from the
kind of investment banking piece.
But HSBC and Barclays historically have a kind of big,
big 2 here in the UK. So is anybody like one way of
thinking it, which of these big banks that you know are from an
investment point of view, which ones do you see have High Street
(23:59):
outlets, because they're the ones that have a retail banking
arm. And obviously here in the UK we
don't see so much a JP Morgan, you know, High Street banking
outlet, but you know, over, overin the US you, you obviously.
Do, OK. So it's a little bit different
then is asset management and BlackRock.
So you were talking about inflows flushing into sloshing
(24:23):
into the Ms. account. What what's happening because I
know obviously assets under management is a key component of
managing management fees at BlackRock.
What did that look like in Q2? A bit of a roller coaster
because the assets they have under management, yes, are a
function of inflows and outflows, right, which is how
(24:45):
good your performance is and howgood your marketing and sales
is. But it's then also a function of
what's the value of the assets that you've got under management
already. And the value of those goes up
and down with the markets. And they've got a huge amount of
like stock ETFs, for example. So stock indexes go up and down.
Well, they're the value of theirassets under management goes up
and down, which of course has a direct impact on their revenue
(25:08):
and their fees because their feegeneration as a company is a
percentage of their assets undermanagement.
So obviously, if you think aboutquarter 2, markets collapsed at
the start so that the value of assets under management dropped
sharply. But then obviously it's all
recovered and now upper you knownew all time highs, right.
(25:28):
So I've been it's been a real roller coaster what I was
reading which was a bit more interesting than the usual.
They actually had to come out and say, look, our assets under
management are worse than maybe what you'd expect because we had
a one off situation where we hadone single client based in Asia
(25:49):
that withdrew $52 billion duringthat quarter.
They were quick to point out because then you think, well,
why hang on, why are they withdrawing 53 billion?
The BlackRock were quick to point out that even after that
withdrawal, they're still managing hundreds of billions of
dollars from that same client. But still, and and they were
(26:11):
saying that actually most of that money they withdrew was
coming out of the lower fee paying index investments.
Exactly. So they're like ETF sort of
products that generate the lowest fees.
Apparently most of it came out and then you got to start to
think they didn't say who it was, but you got to start to
think, well, they calling the top here.
(26:33):
Are they? Are they?
That's interesting. Isn't it ETF positions because
they think it's the top. I mean, I don't.
Know that's a scenario where a lack of visibility on who that
is can quickly start the rumour mill flowing, which can manifest
and human behaviour would dictate that when something like
that's happened, we side on the we are on the side of caution.
(26:55):
But an interesting lesson there as you're describing it as the
way the Black Rock have tried tocommunicate, which is the other
part I think of people don't necessarily think about because
we're sitting here talking aboutnumbers of what happens in Q2 or
Black Rock are trying to do hereis massage the future and manage
their outward looking guidance as to get ahead of this rumour
(27:15):
mill and be as clear as possible.
And again, from a role perspective, you would have
advisers for this type of stuff.I would imagine people who are
strategically placed on the comms side to help support the
CFO, the management team, to convey and alleviate any
tensions or anxieties that mightcome from a a moment like this.
(27:37):
They would have known that clients done that.
I'd imagine they would have spent a few weeks trying to
engineer the best guidance around it.
So, yeah, interesting. Yeah.
And one other couple other points, just just we always
often just just bang on about equities.
But so BlackRock, it was actually their inflows were
strongest across their bond ETFs.
(27:59):
So actually that attracted in just a tad under $44 billion in
the quarter. I got a friend who runs, I mean
like you do a friend who runs anasset management firm, who's a
fixed income asset management firm.
I was talking to him over the weekend and he was saying that
they're so they have a, so the way these businesses operate,
(28:20):
they have their targets each month are right.
We target to try and attract in X amount of inflows this month
and that's our marketing and sales strategy is to generate
that amount. And so that's how they benchmark
and measure themselves, how they're performing, right In
June, he was telling me they attracted in triple their
(28:42):
forecast. So they brought in like 750
million. It's obviously a much smaller
fund compared to obviously the Super giants of Black Rock, but
they attracted in 750 million. Their target for the month was
250. So something's going on here on
the fixed income side. And he was saying that
basically, well, A, you've stillgot high interest rates.
(29:04):
B, you've still got huge amountsof cash sat on the sidelines and
some of this really short term money market stuff.
And you know, he's and then maybe you've got concerns still
about sustainability, the economic momentum and obviously
Trump and all the rest of it, right?
So at the moment he's saying, actually no matter where you
(29:24):
look, there's an attractive story you can tell to, you know,
come and park some of that cash of yours over in the fixed
income space. So that was interesting that
that was their strongest sector for for their inflows finally.
Crypto 125 baby. Crypto and digital, digital
(29:45):
asset ETFs was another strong part.
So they attracted in 14 billion of inflows and that was pushing
Bitcoin obviously to record highs.
But yeah, that part of their, you know, 14 billion now, I
mean, fixed income was 44 billion of inflows, right?
So 14 is, is just from that crypto space, which is quickly
(30:07):
becoming, you know, it's, it's actually becoming a thing that
kind of moves the needle, which I thought was interesting.
And without going in too much detail, there were some
meaningful movement on Capitol Hill and it was the Clarity Act
and the Genius Act, the Clarity Act, Digital Asset Market
(30:28):
Clarity Act, aiming to resolve regulatory confusion, defining
whether digital assets are commodities and under whether
it's the CFTC or the C, the SEC.So a lot of this is to do with
oversight. And then the Genius Act is
guiding and establishing national innovation for US
(30:48):
Stable Coins Act. So it's really interesting
because I was this the FT talking about this, They were
talking about what's fuelling the leg higher is legitimacy
coming from it being more actually involved into the
traditional system, which is more oversight rather than it's
perhaps the initial, I, I guess the, the people who were
(31:11):
involved a few years ago and what their initial mission
statement might have entailed. So it's getting that second leg
now of legitimacy. And that's definitely evident
from that 14 billion inflows that you you mentioned.
Well, look, we've done half an hour of Deeping deep diving.
Let's come up for air and let's let's do a bit of a summary then
of the inflationary situation inthe UK and the US and then touch
(31:35):
on Trump. Yeah, well, UK, don't you want
to start UKI mean you're no morethan me here, but the headline
is that inflation went up 3.6% in the month of June, which was
higher than expected. We're expecting it at 3.4%.
This Now if you look at a chart of UKCPI sort of annualised, you
know, we've got like, I mean, it's get it's getting on for
(31:58):
almost 12 months of uptrend. Now.
We kind of hit a low sort of quarter three of last year below
2%, like super briefly for one month.
But ever since then sub two, ever since then it's just been
trending higher and now we're upto 3.6.
Obviously it's nothing like the 10 plus percent we had during
(32:21):
the inflation spike that topped out in 2022.
So we're obviously not going back there that that inflation
crisis post COVID isn't going tohappen again.
But it's just this is a real pain in the ass for the central
bank because they want to cut rates, but they kind of well,
(32:42):
can they? I mean, we're expecting them to
cut rates. That's the Bank of England now
at the next meeting. But this this data again, just
makes it more difficult for themto get away with it.
Now, that said, it's food and fuel that is responsible and you
could certainly put forward a really strong argument to say,
well, central bank interest rates pretty much have zero
(33:05):
effect on fuel and food prices. You know, if you've been
watching Clarkson's Farm Season 4, then you'll know the harvest
last year was shocking. So, oh, surprise, there's not
enough wheat knocking about. South bread prices have gone up,
right? So, you know, this is what
(33:26):
happens, you know, and so fuel prices have crept higher in the
in the month as well. So if the if the central bank
cut or hike rates, it's not going to impact the weather and
it's not going to impact, you know, the supply of oil.
So you could you could say that this stuff that's driving it
higher. Maybe the Bank of England should
look through, which is why we often look at the core inflation
(33:48):
reading instead. That takes out food and energy
there though that was up as well.
So here was the kind of the mainpoint, core inflation was at
3.7% up from the previous month 3.5.
And this is because services inflation crept higher and well
remained actually growing at 4.7%.
(34:11):
So that services inflation component of the basket is still
staying stubbornly high. So, yeah, I mean, what do you
think? Are they, can the Bank of
England hike? Can the Bank of England cut
here? Well, First things first, I'm
certainly not going to shed a tear for Jeremy Clarkson.
That's first thing. Perhaps look, let let let me put
(34:33):
a couple of things on the table then and then we can we can work
through it. So the economy has been slowing
right in the UK, inflation is going up.
Echo activity is slowing the likelihood it looks like that
the Labour Party are going to have to increase taxes.
So let's what we've had two months of negative growth, she
(34:55):
is forced to raise taxes. What does that mean then for
economic growth probably slows? What does that mean for
inflation? Yeah, well, so here, here it is.
You're you're you're kind of getting right to the meat of it
here. So the economy is slowing,
right. And look, you could even argue
(35:17):
part of the slowing growth is because of the risk that labour
might increase taxes in the future.
So it already influences behaviour around spending.
If you're worried taxes are going to go up, right?
And whether they hike taxes, well, that looks like they're
going to have to. So that will just double down on
(35:37):
being a negative effect. Why?
Why is that negative? Well, well, the connection of
course, is that if you're taxed more, well, then you have
obviously less disposable income.
Less disposable income means consumption drops and 75% of GDP
is consumption. So that's the kind of
connection, right? So, but you're right to say,
well, if then consumption is going to drop, well, isn't that
(35:58):
disinflationary because the demand for goods and services
drops? And so yes, you would expect
inflation to dampen if economic momentum slows, except for the
stuff in the basket where it's more about supply that is
controlling price. So food and energy is the supply
(36:22):
side, which isn't really connected with economics.
It's connected with things like the weather, as I was just
discussing, right? So there's that caveat.
So at the moment it's hard to really know what, how and why is
this services inflation staying stubborn now feed in tariffs is
(36:43):
the tariff situation with the US, is that now feeding into
companies having to put their prices up?
This is your worst case scenariococktail where companies are
forced to put their prices up because of things like tariffs.
You got food and energy costs rising because of supply, you've
(37:04):
got taxes going up, weakening the economic situation even
more. The Bank of England stuck in the
middle because, well, hang on, do we cut rates to try and
stimulate growth and and get people spending more?
But hang on, inflation is already too high.
So if we if we stimulate the economy, is that going to create
another inflation crisis? So they're kind of just wedged a
(37:26):
rock between a rock and a hard place here, which is why I think
the odds on a rate cut, which was really nailed on the odds on
a rate cut at their next meeting, that is actually crept
a little lower now. OK.
And then what? And so let's move to the US.
Is it same or different? What's going on?
(37:46):
Well, it's inflation went up, soit was 2.9% on the headline, so
it's lower than the UK, right? But actually that's been the way
of things throughout this whole inflation crisis.
UK inflation has generally been slightly higher than the US
situation. So it's 2.9%, up from 2.8% the
(38:08):
previous month. OK.
What's interesting about this report, you're starting to see
some evidence that tariffs will impact inflation.
That's been one of the positive things that's led to some of
this rebound rally in May and June.
It's like, well, look, tariffs aren't producing any
inflationary problems. You're just seeing this report,
(38:28):
some signs of that happening now.
So though, so some of those products like household
appliances, you know, your what,how much does a washing machine
cost or your clothing, you know,we all furnishing stuff that
generally most of it is imported.
So any goods, the majority of the supply is imported.
(38:49):
Those goods are the inflation rates are going up faster than
the the goods that aren't so reliant on imports.
So there's but it's really small, but it's there.
There is now a little divergent.So that is to say that maybe
this tariff thing could lead to a more meaningful positive input
(39:10):
to inflation, which is obviouslynot a good thing.
But luckily to counterbalance all of that, one of the stubborn
elements of the basket that stayed really high, it's been
shelter costs that's continued to drop quite sharply.
So that's why the the inflation situation in the US is much
better than it is in the UK, I would say, generally speaking.
(39:32):
So, you know, can the Fed cut? Well, obviously it just comes
back to the same old stuff, politics, tariffs, all the rest
of it. Right.
But I'll finish with twaco. Yeah, you heard that correctly.
So Taco is something everyone's familiar with.
(39:53):
Trump always chickens out. But actually, here we've got now
twaco, the world always chickensout.
You see what I've done there? For the world, because actually
it's everyone else chickening out, not Trump.
Indonesia being quite salient point here.
So they've just done a deal withIndonesia where they've agreed
(40:15):
tariffs at 19%. So on that liberation day back
at the start of April, Trump threatened 32% tariffs unless
you come to the table and negotiate.
Well, they've come to the table and negotiated and they've got
it to 19. It basically was 0 before.
Right now it's 19% on all goods from Indonesia, and Indonesia
(40:35):
have agreed to buy more Americanoil, more American airplanes,
and more American farm goods. So I mean, come on.
Can I get? That's just pretty damn good
deal that Trump done there. Let me just double check
something just because, you know, like a verification check.
So at the weekend you were having dinner with this fixed
(40:55):
income hedge fund, this asset management guy, and Trump?
Or was it 1 of Trump's advisors?Look, I've look being Donald,
I'm not going to, I don't want to talk about our personal
relationship, but look, that stuff's happening.
And actually I mentioned a couple of weeks ago just about
(41:16):
tariff revenues. So now we've had a full quarter
since Liberation Day. So actually it's quite
interesting. Their tariff revenues for the
quarter were were 20 or sorry for June alone was 26.6 billion
for the quarter is 64 billion revenue from tariffs same
quarter previous year. Guess how much so 64 billion
(41:38):
this year. What do you think it was in
2020? Four.
Yeah, like a fraction 1/4 of that. 17 billion.
Yeah. So look, they're 47 billion
better off. That's going straight into the
Treasury now. It's small fry when you look at
their debt levels, which are whatever they are now, I lose
count 38 or 36 or $7 trillion. So 47 billion doesn't touch the
(42:05):
sides, right. But if you have that amount of
tariff revenue increase, then you kind of extrapolate that out
across a decade. Well, then actually it does
start adding up to something that's interesting.
So can they get out of their debt problem through increasing
revenues from tariffs without kind of derailing the global
(42:25):
economy in the process? Is the economic experiment
that's playing out in front of our eyes.
OK, man. On that conclusion, we'll wrap
it up. So please do let us know.
Did you have any questions, comments, agreements,
disagreements on the show? If it's on YouTube or Spotify,
and now you can leave a comment.If you're new and you enjoy the
(42:47):
conversation, remember to subscribe, hit the bell icon to
be notified of future episodes come out.
Thank you as always Piers, and thanks everyone for listening.
See you later.
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