Podcast Summary: Thoughts on the Market Episode: U.S. Financials Conference: Three Key Themes to Watch Host: Morgan Stanley Release Date: June 9, 2025
Introduction
In the June 9, 2025 episode of "Thoughts on the Market," hosted by Betsy Grasic, Morgan Stanley delves into the pressing themes set to shape the upcoming U.S. Financials Conference. Grasic, alongside colleagues Manon Gosalia and Ryan Kenney, provides a comprehensive overview of the key debates and trends influencing the U.S. financial sector. This episode offers valuable insights for investors and industry professionals seeking to navigate the evolving financial landscape.
Economic Landscape and Regulatory Shifts
The episode opens with an analysis of the current economic uncertainties facing the financial sector. Grasic highlights factors such as new tariff policies, inflation concerns, and immigration challenges that are impacting financial growth and credit quality. Despite these challenges, there is a silver lining in the form of potential regulatory shifts under the Trump administration, which could ease banking regulations for the first time since the Great Financial Crisis.
"Investors are grappling with navigating economic uncertainty from new tariff policies, inflation concerns, and immigration challenges, all of which impacts financial growth and credit quality."
— Betsy Grasic [00:54]
Mid Cap Banks: Loan Growth, Net Interest Margins, and Capital
Manon Gosalia outlines three pivotal themes for mid cap banks: loan growth, net interest margins, and capital.
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Loan Growth: Gosalia notes that loan growth for regional banks has been modest, around 2-3% year-over-year. Initial uncertainty following tariff announcements in April led to mixed borrowing activities. However, with recent positive developments in tariff negotiations, management teams are expected to adopt a more optimistic stance, emphasizing sustained loan growth with robust pipelines.
"We expect that the tone from bank management teams will be more positive. Now we don't expect them to say growth is accelerating, but we do expect that they will say loan growth is holding up with strong pipelines."
— Manon Gosalia [01:30] -
Net Interest Margins: There is potential for margin expansion driven by lower repricing of bank term deposits and the rollover of fixed-rate loans and securities at higher current rates.
"We expect there is still room for margin expansion as we go through this year... as bank term deposits continue to reprice lower and the back book of fixed rate loans and securities... are now rolling over at today's higher rates."
— Manon Gosalia [02:18] -
Capital: While the rise in the 10-year yield poses a slight negative for bank capital due to higher negative marks on securities, regional banks remain in a stronger capital position compared to two years ago. Gosalia emphasizes that accumulated higher capital levels will mitigate the impact of increased yields on capital plans.
"We believe that higher capital levels that regional banks have accumulated over the past couple of years will help cushion some of these negative marks."
— Manon Gosalia [03:28]
M&A Trends and Private Capital Advisory
Ryan Kenney shifts the focus to merger and acquisition (M&A) activities, anticipating a cautious yet gradually improving environment. Following a period of subdued deal-making due to tariff uncertainties, Kenney expects increased confidence and a resurgence in M&A activities fueled by pent-up demand and structural corporate needs such as AI capabilities and biotech consolidation.
"There is tremendous pent up demand for corporate activity over the last three years... Structural themes for corporates like the need for AI capabilities, energy and biotech consolidation and reshoring that should fuel mergers as the cycle gets going."
— Ryan Kenney [05:05]
Additionally, Kenney highlights the significant growth in private capital advisory, where investment banks advise private equity firms and other entities on capital raising and liquidation strategies. This sector is poised for expansion, driven by increasing demand from diverse clients like universities and local governments seeking liquidity solutions.
"Private capital advisory is a major growth area for the boutique investment banks that I cover."
— Ryan Kenney [06:18]
Large Cap Banks and Capital Markets Activity
Betsy Grasic transitions to discussing large cap banks, projecting a robust performance in initial public offerings (IPOs) and overall capital market activities. With IPO numbers rising—26 in the past week compared to an average of 22 year-to-date—Grasic is optimistic about continued momentum in equity markets, provided volatility remains contained.
"We look at IPOs where we had 26 IPOs in the past week alone. That's up from 22 on average year to date in 2025."
— Betsy Grasic [07:17]
Grasic also connects increased capital market activity to enhanced lending, particularly in corporate and investment (C&I) loans driven by M&A financing. She forecasts a significant uptick in C&I loan growth from the current 2% to 5% over the next year as M&A activities ramp up.
"C and I loan growth we do think will be moving from current levels of about 2% year on year... to 5% as M&A comes through over the next year plus."
— Betsy Grasic [08:02]
Furthermore, the discussion touches on non-depository financial institution (NDFI) loans, asserting that their risk profile aligns with overall C&I loans, despite recent attention to their reclassification.
"Our view is that it's similar to overall C and I loan risk and we will dig into that outlook with management at the conference."
— Betsy Grasic [08:45]
Regulatory Easing and Future Strategies
The episode concludes with a nod to anticipated regulatory changes that could influence capital utilization and deployment strategies within large cap banks. Grasic encourages listeners to pay attention to these regulatory developments, as they may significantly impact strategic decisions and growth trajectories.
"Additionally, we will touch on regulation and how easing of regulation could change strategies for capital utilization and capital deployment."
— Betsy Grasic [09:20]
Conclusion
The June 9th episode of "Thoughts on the Market" provides a thorough examination of the critical themes expected to dominate the U.S. financial sector conference. From loan growth and net interest margins in mid cap banks to the resurgence of M&A activities and the rise of private capital advisory, the discussion underscores a cautiously optimistic outlook. Large cap banks appear poised to benefit from increased capital market activities and strategic regulatory adjustments. Investors and stakeholders would find this episode invaluable for understanding the nuanced dynamics shaping the financial landscape in the near future.
Note: This summary condenses the podcast's core discussions and insights, offering a clear and comprehensive overview for those unable to listen to the full episode.