Beating Goldman Sachs. Coming in atates 1. 5 billion. R. O. E. Over 9 . There with us to discuss is Alison Williams of Bloomberg Intelligence. Your take on the earnings . Too few things . Wealthover 9 and their margin coming in at 25 . We saw that strength at bank of america, we saw strength at wells fargo which was a precursor but those are key metrics. They focus on that r. O. E. And the margin is one of the goals they focus on to get there. Fixed debt in line, the banking fee is something we have seen. Alix what have we learned about Morgan Stanley on Goldman Sachs . Is it all about commodities . It is more execution. Alison it to be a little bit of both. Every quarter is going to be different in terms of where the strength of the overall business is and depending on where the strength in the industry is, that is going to impact who is doing better. And of it is just business product but goldman also says for a Second Quarter in a row they did not navigate markets well. That is what investors are focusing on. They are keen to say in the present the resilience in the environment. What does it say about the Morgan Stanley franchise that they are able to do that . Alison they are the leader in equities, a broadbased business. They had on its back. The fixed income, they made cuts some time ago but they sort of and therek over time is a lot of focus on the revenue for the first half as big of an Goldman Sachs who is no more who is more known for fixed income. Equities interest is more important and their equity revenue stream is bigger. Jonathan what was interesting with the earnings yesterday . Goldman sachs disappointed on fixed income trading but surprise people on the up side of things like lending. Bank of america is the opposite story. We are used to them performing but we wouldnt expect them to outperform and they outperformed. What does this say . Alison they are trading a little bit better. Mixas to do with business and comparisons over time. Bank of america talks about the fact that they had growth in the first half of their trading revenue for the first time in several years and that was driven by First Quarter strength. On the other hand, it was weaker for goldman so lets think about what is happening with the mix. Ess there is activity around shortterm rates and what the fed is going to do and that is what makes someone take bank of america and citigroup over Goldman Sachs. With Goldman Sachs investing in lending business they have diversified over the years. They have focused more on the lending business but a lot of gains go through that. Instead of the very strong equities that we saw we saw the benefit of that in that business line. Atn we saw great fees goldman, better than expected, and we are seeing that at Morgan Stanley and bank of america so that is really the scene. David you mentioned key indicators for james gorman, the margin and the Wealth Management and the other one is cost control. Id be curious to see whether they make at 1 billion target. Alison at first blush it does look like they are making it because cost looking to come in live revenue better, so the cost ratio is probably better. That was probably a great surprise we saw at bank of america for Goldman Sachs. Their comp rate showed the lowest in the first half of all of their years as a Public Company so costs are a great story as well, getting that operating leverage. We had several years of revenue pressure that forced the banks to become very efficient. We are seeing the benefit of technology as well and that is coming through. Now, we want to bring in p or shiro of green capital. Put that in the broader context. This is the last of five majors reporting. What do you make of Morgan Stanley . One thing we are seeing is product mix. That is one of the reasons the big banks are doing very well. They are managing to harness the lending relationships and get that new business. This was an investment rate quarter. I think Morgan Stanley has a better mix of Investment Grade and highyield. Now, the real test is going to be the slowdown involved in fixed income really started in june, so two of the three months in that quarter were probably ok but it is going to be hard to see how people make it through the next three months. Jonathan jamie dunn thinks the end ofou and at june. It is going to be quiet. Peter tchir starting out quiet. We saw the treasury equivalent of the s p vix. That is a multiyear low of 3. 75 last friday so you are seeing the same thing happen where volatility is striking and turnover is reducing. It has been a slow start. Alix and you plan this out that if you look at the risk parity atex, on stocks and bonds the same time, you see volatility pick up. Nowhere near where we were in august 2016 but that pickup, is that sustained and is it reflected in other parts of the market . It has not been sustained yet. Interests back and forth but it is a crucial element. When we get the risk parity index, youve got commodities moving and rates moving and equities moving so it is great for the Big Money Center banks. Alix that should be good for the likes of goldman. My question yesterday was are they going to have to dump out there commodities . Peter tchir thats, i dont know but we will see more of this cross asset correlation pick up again. Everything has been so muted in terms of volatility and lack of correlation. The big banks need that to fire on all cylinders. Jonathan we spend a lot of time talking about fixed income and trading and Investment Banking but when you talk ccos they want to talk about their big consumer facing side of the bank as well. What is happening with loan origination . Alison in general, the positive news is that credit is coming in betterthanexpected. To one area people are going focus on Going Forward is we have seen pickup in the charge rates for credit cards and that is an area that people are focusing on not necessarily because of the growth but because of excess supply. You have the biggest banks focusing on this business. It has been a huge profit center, hugely profitable for them, and the extent that you get excess supply, you can get issues even if employment stays healthy. That is something we are going to be watching. That was, perhaps, one of the negatives but overall, coming in and ithanexpected, think that is continuing to be mortgage. The tightest area of credit since the crisis. It remains so and we continue to see strength there. Jonathan in terms of banking basics, you borrow short and lend long and put the profit in between and the interest margin becomes important when you think about that. The session now, with the shape of the yield curve and what it means for banks and the future of their stocks, what do you say to that . Peter tchir when you look at the reports, it was about 3 billion in revenue for every basis point so people become way , tens,ated on the twos as it is meaningful for banks with 2 trillion balance sheets. We are looking at the Smaller Banks. We like the banks in the carolinas. We have blair brenly has ozark and some of the others down there but what we are seeing is every bit of deregulation that helps the , and banks exponentially as they can get back into their base to do some lending, there is real opportunity for Smaller Banks away from money center banks. David what about deregulation . If you got back from all of this, we have heard for years about how press the banks are by the regulation. They are making a lot of money. Goldman might be doing less well and Morgan Stanley little better , but there is a case in washington that you have to deregulate . David i dont know about the case in washington. Alison i do think that in terms of, hearing from jamie dimon talking about tax reform and deregulation, helping to the end consumer, that is the case they are making. We still have to stress test of the banks are being able to free up that excess capital so that cause for dividends positive for dividends and buybacks but also positive if they can get the demand. The bigngs us to story, going into earnings and coming out of earnings. Tax reform is what the banks are hoping for. That is the strongest investment you can make for the banks. That is why you are hearing that from jamie dimon. If you can do it better, that means investors are doing better for that leg in the stoxx but when you see how things are going, that is the bigger story. Jonathan Alison Williams of Bloomberg Intelligence, great to have you on the program and capitalhir of rebel will be here. If you want to follow the Political Action in the United Kingdom you can on the live go. With Prime Minister theresa may facing off with the leader of the opposition party. The labor party, jeremy corbyn. Alix is it wrong that i love this thing . I watch this all day. Jonathan a lot of people are entertained by it. A lot of people are frustrated by the fact that it is entertaining. Alix but at least they show up and debate. Much more next on stanley earnings. For the financials ahead, as Morgan Stanley is up in the premarket. This is bloomberg. Jonathan investors are awaiting hits from mario draghi on tapering in tomorrows policy meeting. The current expectation is for an announcement in september or october despite ecb staff reportedly evaluating options for winding down qe. They are said to have a limited appetite for policy line which change. Turning us now is january. Always great to catch up with you. Get a set up for the policy decision tomorrow and the News Conference that follows. We are expecting very little from the ecb tomorrow. You could leave the popcorn at home. To expectation is no change the wording, no change to any of the policy variables. Really, we are looking to september for announcements and we are expecting that announcement to be that tapering begins in 2018 and lasts around six months, in the qe program. So the real action is more of us news. Jonathan you use the word tank wearing tapering as if it will draw to a close. Is that something to set us up for in september . Or will they do what they did last time . Drop the 20 billion and say six to nine months. On this occasion, it will be an easier sell just to take for the program. The ecb is not in firefighting mode anymore. Talls been extraordinary with extraordinary circumstances. Weve seen domestic growth pick up as the economy continues to recover. There isnt any great need for additional stimulus. At is what is going on. Anytime they find more assets, it is additional stimulus. It is only natural they bring that to an end. They will be more cautious about withdrawing stimulus. We are not expecting to lift rates until 2019 just because we are not expecting inflation to resurface. Jonathan i know weve in the eyes of many people. Sinkure they would love to this will be gradual and we will do it by 20 billion every six months and wind things down slowly. But investors are not going to hang around. Best if you say it draws to a close, are they sensitive to what could happen in the bond market on the back of that change and how sensitive are they to Something Like the fx channel with eurodollar trading where it is in the last 24 hours . Moderately sensitive. We have seen them trade market reactions around policy meetings. They have been disasters at the time and have they had consequences in the euro area . Troubling not. They want to be cautious and they want to top some sort of bond crisis but it is not something that has to be overly concerning. Signaled, people are expecting it, there are not any major surprises here. I think it is probably going to run to a deeper chance. Jonathan great to catch up with you. Still with us here at of tomorrows ecb meeting is peter tchir of bring capital. Any steps we should worry about over at the ecb in the coming months . Peter tchir when i look at this i think the bond is most susceptible because it disproportionately benefits from the qe and purposes purchases. It has been left off the radar screen, the Corporate Bond purchases. That has been much more controversial, that ecb has been buying Corporate Bonds and caused its credit spread in europe to be very tight and it leaked over to the u. S. Where european demands and asian demands for u. S. Bonds. There could be a pick up where have to go back to the markets tomorrow. Now they are open but they should get over, especially the corporate, where you are creating winners and losers in an unfair way. Alix and in the lending survey, the banks are loosening restrictions in the Second Quarter. Are we going to see a flood of issuance . Is that in play . Peter tchir i think you will see continued issuance. Certainly in the u. S. It is well received. Yesterday two days ago, jpmorgan did his deal. Expectations are Morgan Stanley might do a deal tomorrow. They are not trading well in the secondary market so that is one trait in the scene. Six months ago, when people brought in a new or issue they would bring in five basis points to the secondary market and they would have room to trade up and generate some additional revenue. That is another thing that would really change. Deals come off of secondary and they trade for a little bit. That would affect earnings over time in the thick area and that is something to watch out for but it is a sign to worry about on the market. Alix who will become the marginal buyer of the peripheral debt . Peter tchir that is a question. I think like a lot of these things, once the ecb steps up, widespread in italy but once you realize it is a normalized market, it will come back. Greece is talking about an issuance, and so is argentina. People are rewarded for taking the weaker credit place. It is happening here where you still see loan flows so it is not going to be as bad for the periphery as possible. You will see spread compression where germany and france fall off after than italy and europe. Jonathan the interesting thing is not the spread between core and periphery but the spread between periphery and south. Looking at the talon the trading overar, spain, is that a problem for the ecb . We put it on a fiveyear chart and this is what we see in the past. Spain trades over italy. That is not the story anymore. That is a flashing light. Peter tchir it is, in that italy has become much more dangerous for the ecb in the long run. Italy is a much bigger economy. Spain just has a much smaller amount of debt so as the s p that as the ecb has been purchasing, we see countries with smaller debt with an outsized impact on it. That is why germany has rated the single largest ice coming into germany. Spain has less debt than italy so they have the proportion of the beneficiary of the ecb purchase so i would expect that to narrow. Jonathan it certainly is something the ecb is keen to emphasize in that the politics and the election should be overstated. Downcould be winding quantitative easing. Should that be a concern . You would like to think so, but for the past year and a half, any type of election type concern has been shortlived. Even in italy with the referendum last year, the outcome wasnt what the market was looking for and that lasted weston a day. Less than a day unless something changes, markets can ignore that. Alix we are trying to get people to care about politics and every investor is like, not anymore, dont care anymore. Brean capital, you are staying with us. We will bring you live coverage of that ecb decision and president Mario DraghisNews Conference following the announcement of that decision. Live from new york, this is bloomberg. David this is bloomberg. Major news coming out of turkey right now. The Prime Minister is shaking up his cabinet. He replaced deputy Prime Ministers, a lot of ministers in the government and now we will go to istanbul for our turkey bureau. Explain what has happened as far as you know it. Is right. Turkey has Just Announced a new cabinet reshuffle. We have been waiting for this meeting decision about an hour ago and it lasted longer than expected. The names investors were looking out for was that the Prime Minister and would he still retain his role in the government. He is usually respected by international investors. The answer is yes, he is still one of the deputy Prime Ministers. Right now, he looks after potential banks, the treasury, and state banks. Later today, we will they will announce if he is still in charge of those or if he is changing to different areas. The deputy Prime Ministers in turkey look after different areas. One name that was usually speculated about was the former secretary Prime Minister and would he come back . Investors love him, completely respect him but his name was not announced in the new cabinet reshuffle. David so how are investors in the markets reacting to this news as we speak . We have had Little Market reaction today. Of course, if you was not in the lineup we could have had it go lower but it is currently slightly lower against the dollar before the cabinet reshuffle. The stock market was hitting record highs. It has been hitting record highs for the past few days. And for the past few months. Ever since we have had the turkeydum result where is heading towards a president ial system. Of course, it has been struggling over the past 12 months. 13 against the dollar and it is the worst pe