Bank Chiefs Differ On U.S., Global Recession Risks

Last week, big banks kicked off earnings season by placing executives in front of investors and the media for questioning.

Photo Insert: “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 US 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,” said Morgan Stanley CEO James Gorman.

Almost all of them were eager to talk not only about net interest margins and credit reserve builds, but also the most serious topic at hand: the recession, Frank Pallotta and Nicole Goodkind reported for CNN Business.

Jamie Dimon, CEO of JPMorgan, asserts that geopolitical tension, high inflation, waning consumer confidence, the uncertainty about how high rates need to go, and the never-before-seen quantitative tightening, as well as their effects on global liquidity, along with the war in Ukraine and its negative impact on global energy and food prices, are likely to have negative effects on the global economy in the future.

James Gorman, CEO of Morgan Stanley, is more specific: “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 US 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.”

Jane Fraser, CEO of Citigroup, is not prepared for a doomsday scenario: “While sentiment has shifted, little of the data I see tells me the US 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.”

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.”

Robin Vince, the incoming president and CEO of BNY Mellon, is not optimistic about the situation: “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.”

Charles Scharf, the CEO of Wells Fargo, also shared his take on the situation: “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.”

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