Wall Street’s bosses are warning top clients to brace for a recession — even as the banks’ economists continue to waffle on the risks of a downturn.
JPMorgan boss Jamie Dimon lately has been privately telling his wealthiest investors he believes there’s a 90% chance the US is headed for a recession, according to a leaked audio recording. At the same time, the bank’s chief economist Bruce Kasman publicly puts the likelihood of a recession at 40%.
“Part of the divergence may be due to the difference in jobs and responsibilities,” Lloyd Blankfein, the former CEO of Goldman Sachs, told The Post.
“An economist is delivering a forecast, a CEO is responsible for contingency planning and managing risk. As a CEO, whether the risk of a recession was 30% or 70%, I’d be battening down the hatches,” Blankfein adds.
Indeed, Goldman Sachs’ current CEO, David Solomon, said in an interview last month, “Anytime you have high inflation and go through an economic tightening, you wind up having some sort of an economic slowdown.”
“So I think the chances that we have a recession are high.”
Nevertheless, Goldman’s top economists are putting the likelihood of a recession at just 50%.
Other analysts say bankers like Dimon and Solomon, who have weathered numerous financial crises during their careers, may have better intuition when it comes to the economy.
“There’s always been a disconnect between the C-suite and economists,” Wells Fargo bank analyst Mike Mayo told The Post.
Dimon and his chief economist have been at odds for months. In June, Dimon made headlines for warning of a looming economic “hurricane.” Days later, Kasman pooh-poohed the comments and said he didn’t see a “real reason to be worried about a recession… I think what we’re going to see is growth continue to be on the softer side, but growth continue to show resilience.”
Preparing for possible contingencies is central to running a company, Blankfein adds. “Think of how much you spend on insurance to hedge against even a 1% risk of a very bad event.”
In the months before the 2008 financial crisis, top banks wrote off a number of housing loans — a big change to the balance sheet that economists didn’t factor into their models until much later.
Likewise, now some banks are writing off hundreds of millions of dollars in corporate loans — and analysts worry economists may not be including those changes in their models.
For instance, JPMorgan added more than $1 billion in a provision for anticipated credit loss last quarter as the bank prepared for possible consumer loan defaults. Citi, Wells Fargo, and Bank of America have also announced more than $100 million losses on loans.
As DealBook reported, the number of inferior rated companies in distress jumped to 9% this month — up from 4% the month before.
Still, not everyone is convinced of gloomy times ahead.
“Jamie Dimon has historically been very cautious and very pessimistic because he lived through the financial crisis of 2008,” Thomas Hayes of Great Hill Capital told The Post.
“We’ve already had a technical recession with two quarters of negative GDP growth,” Hayes added. “The last time people had been this negative was March 2009 and April 2020 when the market had already bottomed… and the downturn was in the rearview mirror.”