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Wall Street CEOs warn of imminent recession, own economists disagree

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Wall Street’s bosses are warning top clients to brace for a recession — at the same time as the banks’ economists proceed to waffle on the risks of a downturn.

JPMorgan boss Jamie Dimon these days has been privately telling his wealthiest investors he believes there’s a 90% likelihood the US is headed for a recession, in accordance with a leaked audio recording. At the identical time, the bank’s chief economist Bruce Kasman publicly puts the likelihood of a recession at 40%.

“A part of the divergence could also be as a consequence of the difference in jobs and responsibilities,” Lloyd Blankfein, the previous CEO of Goldman Sachs, told The Post.

“An economist is delivering a forecast, a CEO is chargeable for contingency planning and managing risk. As a CEO, whether the danger of a recession was 30% or 70%, I’d be battening down the hatches,” Blankfein adds.

Indeed, Goldman Sachs’ current CEO, David Solomon, said in an interview last month, “Anytime you could have high inflation and undergo an economic tightening, you wind up having some type of an economic slowdown.”

Lloyd Blankfein told The Post, “As a CEO, whether the danger of a recession was 30% or 70%, I’d be battening down the hatches.”Michael Cohen/Getty Images for The Recent York Times

“So I feel the possibilities that we have now a recession are high.”

Nevertheless, Goldman’s top economists are putting the likelihood of a recession at just 50%.

Other analysts say bankers like Dimon and Solomon, who’ve weathered quite a few financial crises during their careers, can have higher intuition relating to the economy.

“There’s all the time been a disconnect between the C-suite and economists,” Wells Fargo bank analyst Mike Mayo told The Post.

Dimon and his chief economist have been at odds for months. In June, Dimon made headlines for warning of a looming economic “hurricane.” Days later, Kasman pooh-poohed the comments and said he didn’t see a “real reason to be nervous a few recession… I feel what we’re going to see is growth proceed to be on the softer side, but growth proceed to indicate resilience.”

Preparing for possible contingencies is central to running an organization, Blankfein adds. “Consider how much you spend on insurance to hedge against even a 1% risk of a really bad event.”

David SolomonDavid Solomon has warned that probabilities of a recession are high.Bloomberg via Getty Images

Within the months before the 2008 financial crisis, top banks wrote off a variety of housing loans — a giant change to the balance sheet that economists didn’t factor into their models until much later.

Likewise, now some banks are writing off a whole bunch of tens of millions of dollars in corporate loans — and analysts worry economists might not be including those changes of their models.

As an example, JPMorgan added greater than $1 billion in a provision for anticipated credit loss last quarter because the bank prepared for possible consumer loan defaults. Citi, Wells Fargo, and Bank of America have also announced greater than $100 million losses on loans.

As DealBook reported, the variety of inferior rated firms in distress jumped to 9% this month — up from 4% the month before.

Still, not everyone seems to be convinced of gloomy times ahead.

“Jamie Dimon has historically been very cautious and really pessimistic because he lived through the financial crisis of 2008,” Thomas Hayes of Great Hill Capital told The Post.

“We’ve already had a technical recession with two quarters of negative GDP growth,” Hayes added. “The last time people had been this negative was March 2009 and April 2020 when the market had already bottomed… and the downturn was within the rearview mirror.”

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