Thursday, July 14, 2022 10:20 AM
By Sridhar Natarajan and Shubham Saharan
Wall Street’s two most outspoken CEOs said the US is more than prepared to withstand an economic downturn.
JPMorgan Chase & Co. Chief Executive Officer Jamie Dimon and his Morgan Stanley counterpart, James Gorman, both said Thursday that they aren’t steering their firms toward shelter even as they see a confluence of global events denting the economy in the months ahead.
“The consumer right now is in great shape,” Dimon said on a conference call discussing his company’s second-quarter results. “So even if we go into a recession, they’re entering that recession with less leverage and in far better shape than they did in ’08 and ’09.”
Gorman, on his bank’s earnings call, said a deep or dramatic recession in the US is unlikely, and Morgan Stanley is “long the US” in most of its businesses. “The US is a great region to be in the world.”
Those verdicts come even as second-quarter results at both JPMorgan and Morgan Stanley were hurt by a slowdown from the pandemic-era bonanza that gave them record revenue and profits.
Risks abound, with soaring inflation spurring central banks around the world to dial back the easy-money policies that had pushed markets to all-time highs. Russia’s invasion of Ukraine, along with worries about food and energy security as well as political instability across regions, are also keeping investors on edge.
“If I had to use one word to describe it, it would be ‘complicated,’” Gorman said on the challenges facing the global economy. He said that “Europe is fighting the hardest,” with the dual threat of the war in Ukraine and pressure on gas prices that’s been particularly problematic for countries such as Germany.
Dimon, meanwhile, said his previous forecast for a looming economic “hurricane” hasn’t changed, but that health of the American consumer offers a possible break in the clouds.
Both Dimon and his chief financial officer, Jeremy Barnum, emphasized the strength of the US job market and consumer spending as indicative of JPMorgan’s future growth, even amid rampant fears of recession. They pointed to robust credit-card loan growth and continued strength in discretionary spending, even with a 35% increase in outlays for consumer staples such as gasoline.
“We’ve looked a lot, very carefully, into our actual data,” Barnum said. “There’s essentially no evidence of any weakness,” he said, citing “very strong credit performance” despite broader questions around interest-rate hikes.
JPMorgan, based in New York, added $428 million to the pile of money it set aside for potential loan losses, reflecting “a modest deterioration in the economic outlook.” That marks a reversal from a year earlier, when the company’s results were padded by a $3 billion reserve release.
Investment-banking operations at both firms — the first of the US finance giants to report second-quarter results — were hurt by a sharp slowdown, a decline even more dramatic than predicted by analysts. Investment-banking fees plunged 54% at JPMorgan and 55% at Morgan Stanley as capital markets seized up.
Even as executives talked up their banks’ ability to face down a recession, they’re also preparing for a downturn that could prove deeper than their expectations. Morgan Stanley CFO Sharon Yeshayasaid her New York-based firm is performing a close scrub of expenses.
Still, there’s no rush to completely switch strategies, Gorman said.
“We have a lot of stuff going on, and we have choices as to when we do it. It’s sort of Plan A-minus, not a Plan B, if you will — that’s a mindset we’re in,” he said. “However, if things get worse — and, in my career, I’ve seen a lot of recessions, a lot of crises, a lot of damage done to the environment — if things really deteriorated, particularly in the US, then we’d take a much more aggressive position.”