U.S banks warn of recession as inflation hurts consumers; shares fall

© Reuters. FILE PHOTO: Workers are reflected in the windows of the Canary Wharf offices of JP Morgan in London September 19, 2013. REUTERS/Neil Hall/File Photo

By Saeed Azhar and Noor Zainab Hussain

NEW YORK (Reuters) -The biggest U.S. banks are bracing for a worsening economy next year as inflation threatens consumer demand, according to executives Tuesday.

JPMorgan Chase & Co (NYSE:JPM) Chief Executive Jamie Dimon told CNBC that consumers and companies are in good shape, but noted that may not last much longer as the economy slows down and inflation erodes consumer spending power.

"Those things might very well derail the economy and cause this mild to hard recession that people are worried about," he said.

Consumers have $1.5 trillion in excess savings from pandemic stimulus programs, but it may run out some time in mid-2023, he told CNBC. Dimon also said the Federal Reserve may pause for three to six months after raising benchmark interest rates to 5%, but that may "not be sufficient" to curb high inflation.

The U.S. central bank last month raised rates by 75 basis points during its fourth consecutive meeting to 3.75%-4%, but it also signaled hopes to shift to smaller hikes as soon at its next meeting.

Major banks' shares fell sharply on the day after a lineup of top bankers outlined the risks for the economy. Bank of America (NYSE:BAC) slid more than 4%; Goldman Sachs Group Inc (NYSE:GS) and Morgan Stanley (NYSE:MS) each fell more than 2% and Citigroup Inc (NYSE:C) slid more than 1%.

Bank of America CEO Brian Moynihan told investors at a Goldman Sachs financial conference that the bank's research shows "negative growth" in the first part of 2023, but the contraction will be "mild."

The lender's investment-banking fees will probably decline 55% to 60% in the fourth quarter from a year earlier, while trading revenue will likely rise 10% to 15%, Moynihan said.

"Economic growth is slowing," Goldman Sachs CEO David Solomon said at the same conference. "When I talk to our clients, they sound extremely cautious."

In banking, the job market remains "surprisingly tight" and competition for talent is "as tough as ever," he said.

However, some banks are cutting staff. Morgan Stanley has reduced about 2% of its workforce, a source familiar with the company's plans said on Tuesday. The job cuts, first reported by CNBC, affect about 1,600 positions and follow workforce reductions at Goldman and Citigroup.

Elsewhere on Wall Street, the world's largest asset manager BlackRock Inc (NYSE:BLK) has frozen hiring except for critical roles, Chief Financial Officer Gary Shedlin said.

"We're trying to be a little more prudent," he said.