Morgan Stanley sees half chance of US recession

Revised outlook: Gorman seen here participating in an interview. The finance guru has toned down his forecast and said that any downturn in the US economy is unlikely to be severe. — Reuters.

NEW YORK: There is a 50% chance the US economy will enter a recession though any downturn is unlikely to be severe, Morgan Stanley chief executive officer James Gorman said on Monday,

He did warning though 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 US 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 US 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’s chief financial officer Alastair Borthwick 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,” said Borthwick, when asked about asset quality.

Bank of America, the second-largest US 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,” said Borthwick.

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 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.

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 US$100mil to US$150mil (RM442mil to RM663mil) write down on its leveraged finance portfolio this quarter. — Reuters

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