A flurry of recession warnings from the major U.S. banks’ CEOs resulted in a sharp fall in bank stocks yesterday. The KBW Nasdaq Bank Index was down 1.6%, while the S&P Banks Select Industry Index slipped almost 1%. This, along with investors’ wariness on the Federal Reserve’s aggressive monetary policy, led the major indexes – the S&P 500, the Nasdaq and the Dow Jones – to extend losses this week.
Among the major banks,
Bank of America
BAC
was down 4.3%, followed by
Morgan Stanley
MS
and
Goldman Sachs
GS
, which lost 2.7% and 2.3%, respectively. Also,
Citigroup
C
declined 1.5%.
Some of the biggest financial firms in the United States are bracing for a deteriorating economy next year as high inflation curtails consumer demand. The comments from the top executives indicate uncertain times ahead in 2023.
The biggest U.S. bank (in terms of assets and market cap),
JPMorgan
JPM
CEO, Jamie Dimon, in an interview with CNBC, noted that consumers and businesses are in good shape but this isn’t going to last long as the economy gradually slows down and inflation hurts consumer spending. He further said, “Those things might very well derail the economy and cause this mild to hard recession that people are worried about.”
Likewise, at a Goldman Sachs financial conference, Bank of America CEO Brian Moynihan stated that bank’s research indicates “negative growth” in the first half of 2023 but the recession will likely be “mild.” He also provided a grim outlook for investment banking (IB) business for the fourth quarter of 2022, while noting trading will be a bright spot. The company expects IB fees to decline 55-60% year over year, while trading revenues will grow 10-15% (with major support from fixed-income trading).
At the same conference, Goldman CEO David Solomon stated, “Economic growth is slowing. When I talk to our clients, they sound extremely cautious.” Further, he added that despite worsening economic outlook, the job market is “surprisingly tight” in banking sector, with competition for hiring talent “as tough as ever.”
It must be noted that Goldman had let go of several employees earlier this September as the company braced for a slowdown in the IB business. Similarly, another major investment bank, Morgan Stanley, too, is cutting jobs. The company slashed almost 2% of its workforce. Earlier in November, Citigroup undertook similar steps as a near-crash in deal-making activity is expected to hurt profits in the near term.
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