U.S. bank CEOs see economic pessimism lifting, but focus on costs, jobs

By Saeed Azhar, Lananh Nguyen and Niket Nishant

(Reuters) -Companies and households are feeling better about the economy despite recession predictions, the heads of top U.S. banks said on Tuesday, although elevated economic uncertainty means lenders are tightly controlling costs.

Goldman Sachs Group Inc’s chief executive officer, David Solomon, said sentiment among business leaders has improved. His counterpart at Bank of America Corp, Brian Moynihan, cited resilient consumer finances and spending as positive signs. But both leaders cited risks to the economy, including inflation, and said they would keep a lid on hiring this year to constrain costs.

“While it’s still very, very uncertain, the consensus has shifted to be a little bit more dovish in the CEO community that we can navigate through this in the United States, with a softer economic landing than what people would have expected six months ago,” Solomon told investors at a conference in Florida.

At a separate event, Bank of America’s CEO reiterated what he has been saying for months – that consumer spending remains robust and is underpinning the economy. Businesses were also faring better than expected, he said.

“Consumers remain very solid,” Moynihan told investors in New York. “Their balances are strong, their credit availability is strong, and the spending activity in January actually picked up a little bit.”

The comments came as latest data showed U.S consumer prices accelerated in January. The annual increase was the smallest since late 2021, pointing to a continued slowdown in inflation that will likely keep the Federal Reserve on a gradual path of interest-rate increases.

JPMorgan Chase & Co’s chief financial officer, Jeremy Barnum, expected another couple of rate hikes, with a peak at about 5.5%, he told investors. 

Even as economic sentiment picks up, Solomon said inflation is still “sticky,” posing a challenge for growth and for corporate investment.

JOB CUTS

Despite some easing concern about an economic slowdown, the bank chiefs said they were managing headcount to curb costs. Goldman cut about 3,200 staff, or 6% of its workforce, last month.

“We are in a position to lower the headcount,” Solomon said. “We’ve taken some action –we have a much tighter hiring plan in 2023” that entails less hiring, he said.

Bank of America will also manage its staffing through attrition. It aims to have a workforce of about 213,000 to 214,000 in the next three to four months, Moynihan said, down from 216,823 at the end of 2022.

Wells Fargo & Co Chief Financial Officer Mike Santomassimo told the Florida conference that “things are going to continue to get a little worse” when asked about the potential for a recession.

While consumer spending remains healthy, credit card delinquencies are increasing, and growth in Wells Fargo’s commercial bank is moderating, he said.

Citigroup Inc’s clients continue to be worried about interest rates, inflation, geopolitics and “the potential prospects of a recession and how that impacts their business,” said Shahmir Khaliq, the bank’s global head of treasury and trade solutions.  

The KBW index of bank stocks fell 0.2% on Tuesday afternoon after climbing more than 12% so far this year as equity investors bet on the Fed’s ability to tame inflation without triggering a sharp slowdown.

Morgan Stanley said confidence was improving among the CEOs of its clients, who have revived discussions around potential deals, according to finance chief Sharon Yeshaya.

“You have a fog of uncertainty – it’s beginning to lift,” she said. 

(Reporting by Saeed Azhar and Lananh Nguyen in New York and Niket Nishant and Mehnaz Yasmin in BengaluruEditing by Nick Zieminski and Matthew Lewis)