Bankers’ buzzkill

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Oct 16, 2023 View in browser   By Zachary Warmbrodt Presented by U.S. Bank Editor’s note: Morning Money is a free version of POLITICO Pro Financial Services morning newsletter, which is delivered to our subscribers each morning at 5:15 a.m. The POLITICO Pro platform combines the news you need with tools you can use to take action on the day’s biggest stories. Act on the news with POLITICO Pro. QUICK FIX 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: zwarmbrodt@politico.com. A message from U.S. Bank: At U.S. Bank, we believe young people deserve access to financial education. That’s why we partner with Junior Achievement chapters around the country to teach young people the skills they need to take charge of their economic and academic success. By supporting the next generation, we are investing in communities across the country not just today, but for decades to come. Because U.S. Bank is small enough to care, and big enough to make a difference. Learn more.   Driving the Week Monday … Philadelphia Fed President Patrick Harker discusses the economic outlook at the MBA conference in Philadelphia at 10:30 a.m. … Treasury Acting Assistant Secretary Eric Van Nostrand gives an update on the Russian oil price cap at Brookings at 2:30 p.m. Tuesday … House Republicans plan to hold a speaker vote … Fed board member Michelle Bowman gives a speech on “responsible innovation in money and payments” at a Harvard CBDC roundtable in Washington at 9:20 a.m. … Rep. French Hill speaks to the Exchequer Club of Washington at 1 p.m. … Senate Banking has a CDFI hearing at 2:30 p.m. Wednesday … The SEC votes on stock exchange rules at 10 a.m. … Fed Governor Christopher Waller discusses the economic outlook in London at noon … The FDIC’s Advisory Committee of State Regulators meets at 1 p.m. … Fed Governor Lisa Cook talks about the Fed’s employment mandate at the Future of Black Communities Summit in Washington at 6:55 p.m. Thursday … The Export-Import Bank kicks off its two-day annual conference in Washington … Senate Banking has a hearing on nominees for FDIC IG, SEC, NCUA, Ex-Im Bank and SIPC at 10 a.m. … Fed Chair Jerome Powell speaks at the Economic Club of New York at noon … Fed Vice Chair for Supervision Michael Barr speaks at the the Fed’s stress testing research conference in Boston at 1:30 p.m. Friday … Sen. Elizabeth Warren chairs a Senate Banking field hearing on the economic impact of federal investments in Massachusetts at 3 p.m.   A NEW POLITICO PODCAST: POLITICO Tech is an authoritative insider briefing on the politics and policy of technology. From crypto and the metaverse to cybersecurity and AI, we explore the who, what and how of policy shaping future industries. We’re kicking off with a series exploring darknet marketplaces, the virtual platforms that enable actors from all corners of the online world to traffic illicit goods. As malware and cybercrime attacks become increasingly frequent, regulators and law enforcement agencies work different angles to shut these platforms down, but new, often more unassailable marketplaces pop up. SUBSCRIBE AND START LISTENING TODAY.     Driving the day Can House Republicans get ‘er done? — Rep. Jim Jordan is hoping to secure a vote on his speakership Tuesday. He and his allies worked over the weekend to win over opponents after 55 Republicans said they opposed his nomination in a secret ballot. Some are vowing that Jordan will face a challenger this week. In the meantime, a few centrist Democrats have told Acting Speaker Pro Tempore Patrick McHenry they would support giving him temporary, expanded authority to move bills including government funding legislation. Economists ease up on recession warnings — Economists surveyed by the Wall Street Journal lowered the probability of a recession within the next year to 48 percent, down from 54 percent in July. It’s the first time the probability was below 50 percent since mid-2022. U.S. to tighten China tech restrictions — Bloomberg reports that the Biden administration plans to strengthen curbs on China's access to advanced semiconductors and chipmaking gear, including tech used for AI applications.   A message from U.S. Bank:   Housing GOP senators want to scrap credit scoring plan — Eight Senate Republicans led by Tim Scott are asking the FHFA to withdraw a proposal that would require mortgage lenders to assess borrowers using two, rather than three, reports from the major credit reporting companies, per Katy O’Donnell. The Senate Banking members argue that the agency’s plan would provide an incomplete snapshot of creditworthiness. The FHFA regulates mortgage giants Fannie Mae and Freddie Mac. Regulatory Corner Gensler sees AI disaster — SEC Chair Gary Gensler told the FT that regulators need to deliver AI safeguards or face a “nearly unavoidable” financial crisis within a decade. “It’s a hard financial stability issue to address because most of our regulation is about individual institutions, individual banks, individual money market funds, individual brokers,” he said. “[T]his is about a horizontal [matter whereby] many institutions might be relying on the same underlying base model or underlying data aggregator.”   PLAYBOOK IS GOING GLOBAL! We’re excited to introduce Global Playbook, POLITICO’s premier newsletter that brings you inside the most important conversations at the most influential events in the world. From the buzzy echoes emanating from the snowy peaks at the WEF in Davos to the discussions and personalities at Milken Global in Beverly Hills, to the heart of diplomacy at UNGA in New York City – author Suzanne Lynch brings it all to your fingertips. Experience the elite. Witness the influential. And never miss a global beat. BE PART OF THE CONVERSATION. SUBSCRIBE NOW.     Crypto Bullish for bitcoin? — The SEC will not appeal a federal court ruling that found the agency overstepped its bounds by rejecting Grayscale Investments' plans to launch a bitcoin exchange-traded fund, Declan Harty reports. A message from U.S. Bank: At U.S. Bank, community is everything. That’s why we’re investing in communities around the country by partnering with organizations like Junior Achievement. Together, we are teaching young people the skills they need to take charge of their economic and academic success. Students in these programs learn valuable financial education lessons, build professional skills and plan for the future. We are proud to offer our staff the opportunity to mentor young people in practical, meaningful ways that will impact their lives as they grow into adulthood. By supporting the next generation of Americans, we’re investing in the future of the country and its communities. U.S. Bank. Small enough to care, and big enough to make a difference. Learn more.     Follow us on Twitter Mark McQuillan @mcqdc Zachary Warmbrodt @Zachary Victoria Guida @vtg2 Declan Harty @ @declanharty Eleanor Mueller @eleanor_mueller Katy O'Donnell @katyodonnell_ Sam Sutton @samjsutton   Follow us

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