Commerce Conversations

What Do Headwinds Mean for Financial Instiutions? with Dima Batsev (Lazard)

Episode Summary

Dima Batsev, he’s an MD at Lazard, a firm with more than 270B dollars of AUM, where he’s spent the past two decades focused on public equities in the financial services sector. In this episode, Dima and Ys discuss what’s in store for Financial Services and tech players in 2023, having joined the assets manager in the market downturn of 2002 and of course advised throughout the GFC. With that outlook Dima shares his opinions about today’s uncertain market and why he’s hopeful for a soft landing.

Episode Notes

Episode Highlights:

Since joining Lazard in 2002, Dima has been investing actively in public equities in financial services with long horizons.
So, are we in recession? To Dima we either already are or about to experience one. However the real question is about the magnitude of such a recession.
Dima started in 2002 when JPM stock went down about 50% and of course, was still an analyst in the Global Financial Crisis, and the common theme for both of those was the very high amount of leverage in the system.
In the GFC there was tremendous leverage for the consumer, not just in mortgages as well as in the banking sector.
The difference coming into this downturn is that our financial baseline is different, right now consumer deposits are still multiples higher than at 2019 and commercial balance sheets are similarly positive. Our balance sheet health is stronger.
Banks have been prevented from getting into high risk areas like leveraged lending or subprime consumers because of the heightened regulation, which is a safety mechanism against higher levels of stress.
Back on magnitude, what’s the key driver of the spectrum there? Dima comes back to liquidity and in the context of the last few years banks are still flush with positive account balances. Of course, unemployment is a top factor to depression and today that rate is still hovering at record lows.
Rate hikes that have been unprecedented are not going to be felt overnight but will be reconciled in the coming quarters.
Angst in the investor community is more so a pain in a market correction versus true fundamental structural challenges.
However, the Fed is creating a tightening condition and that is in fact very real for recession.
A handful of Fintech players are deeply challenged by these conditions, BNPL is a clear example of threats from cyclical markets.
Businesses with revenue models driven by leveraging regulatory loopholes, like payments for order flow or Durbin-exempt interchange. The risk of these models being turned upside down is far too high.
Dima believes the banks will continue to invest in technology because there’s no other choice because 1. They must spend money to modernize and 2. They must spend money in order to retain and gain market share.
The key ingredient for the IPO boom to return is market stability and that will likely happen when the Fed stabilizes rates and the market finds its new base.

About the Guest:

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