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The Federal Reserve unveiling changes to its original plan on capital requirements for banks, scaling them back, Fed Vice Chair for Supervision, Michael Barr, saying the proposed changes would quote better balance the benefits and costs of capital in light of comments received. However, big banks we know came under pressure in today's trade, as JP Morgan voices a cautious outlook for next year. And joining me now is David Conrad, managing director at KBW, a Stifel company. David, you are just the man to talk to today because your coverage universe, David, is in focus, making a lot of headlines. You know, different threads. I actually wanted to want to start with with JP Morgan. So JP Morgan's president, David, he had a conference and he said, you know what, I think analysts might be just a bit too rosy here, I guess in their projections of next year's net interest income expenses. What did you make of those comments, David?

Yeah, well, we we are actually below the street for for 2025 and and NII. But but basically what's going on here is, first of all, JP Morgan's one of the top financials globally, um, and getting really stronger almost every day. But what happened this past year is their guidance, um, kept being raised because they're asset sensitive. The forward curve didn't materialize and the Fed really didn't cut rates yet, obviously this year. So their estimates this year beat expectations. But now as we're looking, you know, going forward, you know, we're expecting three to four cuts perhaps in this fourth quarter and then cuts next year as well. So some of the asset sensitive names will feel some pressure as we go into next year on on their NII.

Let me get your take on another name, David. So I know JP Morgan, I believe you're on the sidelines, but another name you cover also made news. Goldman, that's a name you like. Uh, Goldman's chief also making comments, um, saying, listen, maybe trading revenue could fall 10% in Q3. Your reaction to those comments, David.

Yeah, there's a couple things there. Um, that would that was a little bit disappointing. Obviously, trading is a little more of a volatile number and they're coming off of a really difficult comp in the prior year. But there's a lot of volatility in August and it seasonally, you know, also a slow volume period as well. And so, you know, we think that's that's a little bit not necessarily a trend line, but but a tough quarter there. The other thing they announced was, uh, a $400 million charge on a contra revenue as they prepare to sell the, uh, the GM credit card portfolio. Um, although that was a a negative headline, we actually think that's good news for the stock.

Broader question, David. Uh, this morning, uh, new proposed capital requirements, um, when you saw those numbers, was that was that basically in line with your expectations, David? Were you think it was going to be lower? What did you make of it?

No, I think they're largely in line. I mean, it took away a a a negative scenario, but, you know, reducing the capital requirements by 50% was kind of in in the market a little bit. Um, and that that's really basically where it came into. So, you know, I think, um, you know, vice chairman Barr said that, you know, he expects capital to go up around 9% for the G-SIBS. Uh, we're currently 11% in our model. Um, and that feels about right because, you know, the banks calculation has historically been a little bit higher than the Fed's calculation. So largely in line, and then the other move there was the RW inflation won't apply to the category four banks. So that's the banks between 100 and 250 million. Um, that's really a non-event. The RW inflation wasn't that high for them anyway. The big issue for them is the mark-to-market of the bonds, which still does stay in the capital. So kind of a non-event for that.

And and does it mean, David, would you expect banks now accept that proposal, think this is as good as it's going to get, or would you expect them to fight?

Oh, they'll be a little bit of a fight, right? But I think this is broadly, you know, what they were looking for. I mean, I think what happened is, you know, the Fed typically gold plates the international standards, and then they took it a step further with this proposal. So what ended up happening is you had the US banks holding a lot more capital than the global banks. And so I think this largely adjusts that.

David, a quick question here, last one. I look through your coverage universe. I only see one sell, one lonely underperform, and that is PNC. How come?

Well, it's one of the more expensive names out there. It is a quality name. Um, they have their kind of outlook is for a very strong 2025 NII, um, a record number, but we think that's largely embedded in the numbers. And so it's trading roughly at a two-turn premium to the group with relatively inline returns. So we just think as as numbers come in as its peers recovering capital, uh, we think there'll just be a mean reversion of those PEs closer to the peer levels.

David, appreciate you coming on the show and thank you for those stock picks.

You bet. Thank you.