Big banks kicked off earnings season last week, placing executives in front of investors and members of the media for questioning.
The rapport was fairly predictable: Bank execs want to discuss things like net interest margin and credit reserve builds. Everyone else had one thing on their mind: Recession.
There's no denying that the economy is the story and investors believe that banking titans are co-authors. They want to know what happens next.
So here's what we've gleamed so far about the state of the economy to come.
JPMorgan CEO Jamie Dimon:
Geopolitical tension, high inflation, waning consumer confidence, the uncertainty about how high rates have to go and the never-before-seen quantitative tightening and their effects on global liquidity, combined with the war in Ukraine and its harmful effect on global energy and food prices are very likely to have negative consequences on the global economy sometime down the road.
Morgan Stanley CEO James Gorman:
We might head into some form of recession – and I, like many of others, have tried to handicap it, but we are frankly guessing at this stage, but I think it's unlikely to be a deep and dramatic recession at least in the U.S. I think Asia is a little behind. It depends how COVID rolls out, and it's sort of reemerging a little bit in some countries. And then Europe is obviously – is fighting the hardest right now because of the war in the Ukraine, because of the pressure on gas and gas prices and so on.
First Republic Bank CEO and founder Jim Herbert:
The Fed has to play catch up. They're behind and they're doing -- they're likely to do so pretty quickly. So I think you're likely to see the recession is probably coming of some kind, and it will stabilize a lot of the excesses. I don't think that it's threatening overly to us... I think we're in maybe the second or third inning of what's going to be required to get inflation under control. That would be my personal opinion.
BNY Mellon president and CEO-elect Robin Vince:
You've all seen those charts. The S&P 500 had its worst first half performance in over 50 years, 10-year Treasury had the worst start to the year since the beginning of the Index in the early 1970s. And with 150 basis points in rate hikes, this is the fastest tightening cycle over six months since the Volcker era at the end of the 1970s. Underneath these headlines, what we're seeing across our platforms is that investors are clearly rebalancing and de-risking. We're seeing asset reallocation from growth to value, higher than expected cash balances, and relatively shallow market liquidity, making it harder for investors to move risk.
Wells Fargo CEO Charles Scharf:
You're really looking at a number of scenarios that you need to be thoughtful about and include in your modeling. And for a number of quarters in a row, we have had a significant weighting on the downside scenario already. And some of those scenarios are pretty severe, right? And so you've got weightings on what some might term wild recession, more severe recessions, so you could create a lot of labels for them. But it's a number of scenarios that have different severities of downside.
Citigroup CEO Jane Fraser:
While sentiment has shifted, little of the data I see tells me the U.S. is on the cusp of a recession. Consumer spending remains well above pre-Covid levels with household savings providing a cushion for future stress. And as any employer will tell you, the job market remains very tight.
I'm just back from Europe, where it's a different story. We expect a very difficult winter is coming, and that's due to disruptions in the energy supply. There is also increasing concern about second order effects on industrial production and how that will affect economic activity across the continent. And the mood is, of course, further darkened by the belief that the war in Ukraine will not end anytime soon.
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