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Morgan Stanley CEO sees 50% chance of U.S. recession

Published 06/13/2022, 10:12 AM
Updated 06/13/2022, 05:06 PM
© Reuters. FILE PHOTO: A Bank of America logo is pictured in the Manhattan borough of New York City, New York, U.S., January 30, 2019. REUTERS/Carlo Allegri/File Photo
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By Elizabeth Dilts Marshall

NEW YORK (Reuters) -There is a 50% chance the U.S. economy will enter a recession though any downturn is unlikely to be severe, Morgan Stanley (NYSE:MS) CEO James Gorman said on Monday, warning of a "bumpy" ride ahead for investors.

"It's possible, probably 50-50 odds now," Gorman told a conference hosted by the Wall Street bank, revising up his own forecast from last month when he told investors the likelihood of recession was less than 50%.

"It's going to be bumpy. People's 401(K) plans are going to be down this year," he added, referring to U.S. retirement plans. "But we're unlikely at this stage to go into a deep or long recession."

The benchmark S&P 500 looked set to confirm a bear market on Monday after falling more than 20% from its Jan. 3 record closing high due to growing investor fears of a potential recession.

Executives speaking at a Morgan Stanley financial industry conference said U.S. consumers and companies remain in good financial shape, which will help the economy bounce back from any contraction and insulate banks from the impact.

Bank of America Corp (NYSE:BAC)'s Chief Financial Officer Alastair Borthwick earlier in the day said his bank's loan portfolio was not yet showing any signs of a looming recession.

"There's this question of what will happen in the future, and there's what are we seeing right now. And what we're seeing right now, credit is in great shape," Borthwick said, when asked about asset quality.

Bank of America, the second-largest U.S. bank by assets, reported customer spending is up 9% this June compared to last year, while credit card balances remain lower than before the pandemic. Those are two signs that consumers are healthy and not "over-extended," Borthwick said.

The bank's corporate clients continue to borrow, and credit quality in the travel, restaurant and hotel sectors is improving, he added.

"Across the board right now we're seeing reasonably good loan growth," he said, adding growth was expected in the "high single digits."

Borthwick's comments contrasted with those made by JPMorgan (NYSE:JPM) Chief Executive Jamie Dimon earlier this month.

Dimon said that inflation, the conflict in Ukraine and other challenges facing the economy were akin to a "hurricane" coming down the road.

© Reuters. FILE PHOTO: James P. Gorman, chairman & CEO of Morgan Stanley, testifies on Capitol Hill in Washington, U.S., April 10, 2019. REUTERS/Aaron P. Bernstein/File Photo/File Photo

Both Borthwick and Gorman described the investment banking environment as challenged, as fewer companies have gone public in the volatile market.

Borthwick warned Bank of America expects to report a $100-$150 million write down on its leveraged finance portfolio this quarter.

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