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LIZ: CREDIT CARD GIANT VISA ALSO
ON DECK TO REPORT FOURTH QUARTER
EARNINGS AFTER THE BELL.
LET’S TAKE A LOOK AT THE STOCK
AHEAD OF THE NEWS.
THE THINKING ON WALL STREET AS
VISA MOVES HIGHER BY JUST ABOUT
A QUARTER OF A PERCENT IS THAT
ANYTHING WITH AN INTEREST RATE
COULD DO WELL IN A RISING RATE
ENVIRONMENT, AND THAT’S WHAT THE
FUTURES MARKETS ARE BETTING ON.
NOT THREE, NOT FOUR, BUT NOW FED
FUNDS FUTURES TRADERS INDICATE
THE ODDS ARE NOW IN FAVOR OF
FIVE RATE HIKES THIS YEAR.
KBW PRESIDENT AND CEO JOINS US
NOW ON THE NAMES HE EXPECTS TO
BENEFIT, AND BEFORE YOU GET TO
THAT, FIRST, TOM, JAY POWELL
LEFT A LOT UP TO INTERPRETATION,
BUT THIS IS YOUR BAILIWICK.
DID YOU HEAR A 100% CHANCE OF A
RATE HIKE COMING IN MARCH?
>> WE DID.
WE HI IT’S VERY LIKELY.
WE HAVE -- WE THINK IT’S VERY
LIKELY.
WE HAVE NOT MODELED THAT IN OUR
EARNINGS ESTIMATES.
WE ACTUALLY, PREVIOUS TO THIS
FED MEETING, WERE USING JUNE FOR
WHEN WE THOUGHT WE WERE GOING TO
GET LIFTOFF.
BUT WE THOUGHT HE WAS PRETTY
CLEAR IN CONDITIONING THE MARKET
TO GET READY FOR MARCH.
SO WE HAVEN’T CHANGED ESTIMATES
YET FOR THAT, I THINK WE’LL WAIT
FOR IT TO HAPPEN, BUT THAT’S A
POSSIBILITY FOR A POSITIVE
SUPPLY FOR -- SURPRISE FOR OUR
EARNINGS ESTIMATES.
LIZ: AND HOW CAN THE MARKETS
ABSORB THAT?
I THINK THERE’S AN INCORRECT
BELIEF THAT STOCKS CANNOT DO
WELL IN A RISING RATE
ENVIRONMENT.
I MEAN, DOES A QUARTER OF A
PERCENT RATE HIKE REALLY MAKE
THE COST OF CAPITAL SO EXPENSIVE
THAT IT COULD SOMEHOW DERAIL THE
ECONOMY?
I WOULDN’T THINK SO.
>> NO.
AND I’M A BELIEVER IN THE
DISCOUNTED CASH FLOW MODEL FOR
PICKING OUT STOCK PRICES OVER
THE LONG TERM, AND COLORLY AS
RATES -- CLEARLY AS RATES GO
HIGHER, THAT’LL IMPACT THE
MODEL, BUT A QUARTER POINT
SHOULDN’T DRIVE SOME OF THE
VOLATILITY WE’VE HAD.
I THINK IT’S MORE BIG PICTURE
WHICH IS WE JUST WENT THROUGH
PROBABLY ONE OF THE MOST
UNPRECEDENTED STIMULUS MOMENTS
OF OUR LIFETIME BOTH FROM A
MONETARY POLICY PERSPECTIVE AND
A FISCAL POLICY PERSPECTIVE.
AND NOW IT’S BEHIND US.
SO THE MARKET HAS TO ADJUST TO
THAT NEW ENVIRONMENT.
AND REMEMBER, OF COURSE WE’RE
TALKING ABOUT RATES GOING
HIGHER, BUT WITH WE’RE TALKING
ABOUT RATES GOING HIGHER FROM
ZERO, AND WE’RE ALSO TALKING
ABOUT REMOVING EXTRAORDINARY
MEASURES.
AND SO I DON’T THINK IT SHOULD
BE UNREASONABLE TO, FOR THAT TO
HAPPEN, AND I THINK INVESTORS
SHOULD HAVE KNOWN THAT WE
WEREN’T GOING TO CONTINUE TO GET
THOSE EMERGENCY MEASURES
FOREVER.
LIZ: OKAY.
ALL RIGHT.
SO THAT IN PLAY, IF THAT IS THE
SCENARIO, WHAT DOES WELL IN THIS
ENVIRONMENT?
PEOPLE SAY, OH, WELL, THE
MORTGAGE LENDERS WOULD DO WELL
BECAUSE THEY WILL BE REAPING
MORE WHEN IT COMES TO HIGHER
INTEREST RATES, SOME OF THE
FINANCIALS.
WHAT DO YOU SEE AHEAD THAT COULD
REALLY --
>> SO COMPANIES THAT ARE
SPREAD-DEPENDENT ARE BEGINNING A
PERIOD NOW WHERE THEY’RE GOING
TO SEE ACCELERATING REVENUE
GROWTH.
I HEARD YOU SPEAK IN A PRIOR
SEGMENT ABOUT HOW EARNINGS HAVE
BEEN STRONG, REVENUES HAVE BEEN
STRONG.
BANKS ARE GOING TO START TO SEE
ACCELERATED REVENUE GROWTH
BECAUSE, GENERALLY, THE BANKING
INDUSTRY WAS NOT BUILT FOR ZERO
INTEREST RATES.
SO AS INTEREST RATES GO UP,
THEY’RE GOING TO HAVE AN
OPPORTUNITY TO EARN MORE TYPICAL
SPREADS.
AND SO WE BELIEVE AS WE GO INTO
2023, YOU’RE GOING TO START TO
SEE DOUBLE-DIGIT REVENUE GROWTH
OUT OF THE BANKS.
AND SO WE LIKE THE BANKS THAT
HAVE MORE SPREAD LENDING AND A
LITTLE BIT LESS NONINTEREST
INCOME INVESTMENT OR BANKING, SO
THAT’S WHY WE’RE EMPHASIZING THE
REGIONAL BANK THAN WE ARE THE
BIG MONEY CENTER BANKS.
BUT I DO WANT TO TELL YOU THERE
IS SOME CONCERN IN THE MARKET,
AND HERE WE ARE THE FED HASN’T
EVEN STARTED YET, BUT THERE’S
CONCERN THAT THE FED’S GOING TO
GO TOO FAST, GO TOO FAR, WE’RE
GOING TO HAVE A RECESSION.
WELL, CREDIT QUALITY’S ALWAYS
SOMETHING THAT IS A BIG CONCERN
FOR BANKS.
IT’S OUR OPINION THAT WE’RE
NOWHERE NEAR THAT, AND I’D ALSO
CALL OUT TO THE MARKET THAT THE
SHADOW BANKING INDUSTRY HAS
TAKEN A LOT OR MONEY -- A LOT
MORE OF THE RISKIEST ASSETS THAN
IN PRIOR CYCLES.
SO I THINK THE BIG STORY OF
COVID IS HOW GOOD THE CREDIT
QUALITY WAS.
SO THE INDUSTRY ENTERS THIS
MOMENT IN REALLY GOOD SHAPE FROM
A BALANCE SHEET PERSPECTIVE, AND
WE THINK THEY’RE GOING TO HAVE
STRONG EARNINGS PER SHARE.
LIZ: WHAT WOULD THAT MEAN FOR
THE CREDIT CARD COMPANIES?
YOU KNOW, WE’RE GETTING VISA
AFTER THE BELL, BUT THERE ARE A
BUNCH OF OTHERS, OBVIOUSLY,
DISCOVERY, APPLE, IT HAS IT OWN
CREDIT CARD.
YOU’VE GOT MASTERCARD, FOR
EXAMPLE.
>> YEAH.
SO WE DO LIKE THE CREDIT CARD
COMPANIES, BUT I’LL TELL YOU, SO
RIGHT NOW KBW PROBABLY HAS A
GREATER PERCENTAGE OF BANKS WITH
A BUY RATING ON IT THAN EVER --
THAN I CAN EVER REMEMBER.
LIZ: REALLY?
>> IF I WERE TO PRIORITIZE, I’D
TELL YOU THE BANK TO WATCH ON
THE CLOSE TODAY IS WESTERN
ALLIANCE.
THIS COMPANY HAS BEAT
EXPECTATIONS 17 OF 19 QUARTERS
IN A ROW, TRADES AT 9 TIMES
EARNINGS, AND IT’S HAD ONE OF
THE BETTER GROWTH PATHS OF ANY
BANK IN TERMS OF GROWTH ON THE
BALANCE SHEET AND EARNINGS AND
PROFITABILITY.
IT’S MORE OF A TRADITIONAL A
LENDER. -- TRADITIONAL LENDER.
I WOULD FOCUS MORE THERE ON THE
CREDIT CARD COMPANIES.
DOESN’T MEAN WE’RE NEGATIVE ON
THE CREDIT CARD COMPANIES, BUT
IT’S MORE OF A TRADITIONAL
SPREAD LENDER.
A COMPANY LIKE THAT OR CAY
CADENCE -- CADENCE BANK CORP.
OUT OF MISSISSIPPI, THESE ARE
DOUBLE-DIGIT GROWERS.
STOCKS HAVE COME OFF A BUNCH
WITH THE BANKS IN THE MARKET.
THE MORE TRADITIONAL COMMERCIAL
BANKS.
AND WE WOULD SAY IN THE WHEEL,
THAT’S A GOOD PLACE TO BE.
WITH REGARDS TO VISA HOE --
VISA, THOUGH, WE THINK THE
PAYMENT SPOTS ARE A GOOD --
THEY’RE NOT BALANCE SHEET
LENDERS.
VISA AND MASTERCARD RUN THE
NETWORKS IN THE COUNTRY, WE LIKE
THEM FOR DIFFERENT REASONS
BECAUSE WE THINK THAT THIS MOVE
TO DIGITAL IS NOT GOING BACK.
SO WE BELIEVE THAT YOU HAD FIVE
YEARS OF PROGRESS IN JUST TWO
YEARS ON THE DIGITAL UPTAKE, AND
THAT’S THE PLAY FOR THOSE
STOCKS.
LIZ: THOMAS MICHAUD, IT’S GREAT
TO HAVE YOU.
I THINK WHAT I’M REALLY GETTING
OUT OF THIS IS THAT YOU HAVE A
LOT OF BUYS ON THE MOST BANKS
YOU’VE HAD IN A LONG TIME, AT
LEAST THAT YOU CAN REMEMBER, SO
WE’LL BE WATCHING ALL OF THOSE.
AND WESTERN ALLIANCE ARE, BY THE
WAY, DOWN 2.8%, STILL UP ABOUT