From New York Magazine:
You know things are serious when David Solomon, the Goldman Sachs CEO who spent the summer DJ-ing at Lollapalooza, hasn’t posted on Instagramabout his music since August. The largest economies in the world — the U.S., China, the eurozone — are teetering on the edge of recession, and the coming months, maybe the next year or so, will probably be a time of rising unemployment, spreading bankruptcies, and the price of everything remaining high. Add to that a European land war and OPEC+ cutting oil production, and you’d expect Wall Street’s biggest banks would be hunkering down to protect themselves from a wipeout. To an extent, they are. This has been a rough year, with dealmaking all but halted, the stock market erasing two years of gains, and rampant inflation throwing the global economy off-kilter. Wall Street banks are designed to understand the economy better than anyone else. Assuming they do have some special insights, it’s worth reading their real-world-concern level: Just how freaked are the masters of the universe right now?
Well, that’s a bit complicated. Observers of the financial world have noted that there is currently no consensus view among the people who lead America’s biggest banks. For some, the economy is about to get much scarier, while others argue that consumers are still basically fine and that the U.S. may scrape by with relatively light economic damage.
The lead spokesman for Team Fear is Jamie Dimon, the longtime head of JPMorgan Chase, which is the largest bank in the U.S. by just about every measure. Back in June, Dimon warned about an incoming economic “hurricane,” and he doubled down on that prediction last week when he said the country would likely be “in some kind of recession six to nine months from now.” From a certain angle, his bank is definitely preparing for some kind of downturn as it’s sitting on a mind-boggling $1.2 trillion in cash, or almost $4 million for each of its 288,000 employees (though that headline number is a little complicated — more on that later). And Dimon certainly has experience with this kind of thing. He’s the only CEO of a major bank who lived through the 2008 financial crisis, and he pioneered the idea of a “fortress balance sheet” that would protect a bank from going under in times of emergency.
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But it’s not all doom and gloom. JPMorgan, Goldman, Bank of America, Citigroup, and Wells Fargo have reported that they’re still making plenty of money, and analysts are expecting them to have to set aside only $5 billion or so for busted loans — one of the key ways a bank would get hurt during a downturn. And Brian Moynihan, CEO of Bank of America, is far more upbeat than Dimon is about the state of the world. “The customers’ resilience and health remain strong,” he said on an analyst call Monday morning. And while Dimon has made plain his fear about the future, he has pointed out that right now people are spending money. Even Goldman’s annual round of culling was fairly light as layoffs go. (Bonuses, however, are probably not going to be anything like last year’s absolute bonanza.)
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But CEOs like Dimon have the luxury to say one thing while their bank does another. Since the passage of a package of reforms in 2010, banks have had to set aside more money to prepare for not only a recession but a complete systemwide failure. “It’s night and day from before the great financial crisis to today, from an oversight and financial-preparedness level,” Mayo said. The analyst noted that most people who work on Wall Street have been through only one major recession, in 2008, and that a more run-of-the-mill recession would be much more manageable for Wall Street. “The banks are signaling that they’re preparing for tougher times,” Mayo said, “but they’re not freaking out.”
