Big bank profits are up but CEOs aren’t all thrilled about what’s in store for the economy. It’s an inconvenient omen for a president who’s staking his reelection on things looking great next year. “It can't stay like this forever,†JPMorgan Chase CEO Jamie Dimon warned analysts Friday, after declaring in a press release: “This may be the most dangerous time the world has seen in decades.†Bankers like Dimon are bracing for further Economic fallout from geopolitical calamities in the Middle East and Ukraine. They’re beginning to see red flags emerge among C-suite clientele and lower-income consumers. They’re sounding cautious even as their economists dial back recession projections. Dimon drew headlines for his “dangerous time†remark. Citigroup CEO Jane Fraser has her own list of concerns: — “I'm struck how consistently CEOs are less optimistic about 2024 than a few months ago,†she told analysts Friday. — “In the U.S., recent data implies a soft landing. But history would suggest otherwise, and we are seeing some cracks in the lower FICO [credit score] consumers.†— “The affluent is accounting for almost all the spending growth that we're seeing. … The excess savings are sitting there now primarily with households with over $150,000 of income. And it's down in the rest. So these are things we're keeping an eye on.†Wells Fargo is planning for a continued slowing of the economy, though consumer spending remains strong, according to CEO Charlie Scharf. PNC expects a mild recession starting in the first half of the year. “We remain prepared for a wide range of scenarios, given there is still significant uncertainty ahead,†Scharf said. Wells Fargo is also tightening credit standards. The banks above are the largest and generally most diversified in the industry, with some having the added bonus of being too big to fail. Smaller regional lenders have shown themselves to be more vulnerable to financial tremors this year, and they’ll shed further light on the economy when they report earnings this week. Klaros Group partner Brian Graham, a former industry executive, said earnings for all but the very biggest banks are likely to disappoint relative to Wall Street estimates. The main event will be the impact of interest rates. For smaller regional banks, he’s keeping an eye on early signs of credit issues in commercial real estate, unrealized losses and changes in net interest margin driven by increasing funding costs. Graham told MM there are early signs that the largest banks are building reserves to prepare for credit challenges. “We're being prudent,†Fraser said. Happy Monday — Bankers: Is Dimon too pessimistic or is he spot-on? Send your thoughts: [email protected].
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