- Leaders on Wall Street are calling on Congress to pass a second stimulus bill before key measures dry up and consumers face major financial hits.
- “Even though it’s hard and it’s expensive,” spending more to prop up aid programs helped blunt the coronavirus’s initial economic toll and can do so again, Goldman Sachs CEO David Solomon said Wednesday.
- Consumer losses and delinquencies will quickly have “contagion effects across the banking system” and, eventually, other industries, Jim Millstein, co-chairman of Guggenheim Securities, said on Bloomberg TV Thursday.
- Capital One said in its Wednesday earnings call that the firm is bolstering its loan loss reserves in case Congress doesn’t pass another bill. The possibility of new stimulus remains “the huge elephant in the room,” the firm’s CEO said.
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Some of the biggest names on Wall Street are pushing Congress to speed up deliberations on a second stimulus bill, no matter the cost.
Most major banks surprised to the upside with their second-quarter results as bolstered credit reserves were overshadowed by soaring trading-desk revenue. The strong performances were made possible by a combination of Federal Reserve monetary support and market volatility.
A mix of credit facilities, capital injections, and asset purchases announced on March 23 set backstops for the industry and drove a flood of investors back to risky markets.
Many of the Wall Street leaders who benefitted from the first round of fiscal stimulus now fear a second bill may arrive too late.
The economy is “still facing a very, very uncertain” outlook, Goldman Sachs CEO David Solomon said Wednesday, and a hefty government response is likely the best option for stemming additional pain.
“Even though it’s hard and it’s expensive, we are better to blunt the economic impact now in the short term, by spending more, than to allow it to get worse and deal with the consequences of being worse,” he said in an online event hosted by the Economic Club of New York.
The economic backdrop is already worsening. The University of Michigan’s consumer sentiment index slid to 73.2 in July from 78.1, erasing much of its recent gains amid fresh virus outbreaks. Credit card spending growth slowed in mid-July as well, JPMorgan said in a Wednesday note, suggesting “that the rapid economic rebound seen in May and early June has lost momentum.”
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Weaker spending data could quickly evolve into industry-wide fallout if Congress doesn’t prop up consumers, Jim Millstein, co-chairman of Guggenheim Securities, said Thursday.
“If those folks do not have continuing support, we’re going to see a spike in delinquencies and defaults in consumer credit, and that will have some contagion effects across the banking system and across the variety of financial institutions who’ve supplied that credit,” Millstein said on Bloomberg TV.
Still, some on Wall Street are planning to pick up the slack if Congress doesn’t deliver. Capital One CEO Richard Fairbank called the possibility of new stimulus “the huge elephant in the room” on a Wednesday call with analysts, and said the firm will bolster its loan loss reserves under the expectation that a second bill won’t be passed.
If key relief measures such as expanded unemployment benefits aren’t renewed, the bank is preparing for consumer pain to quickly hit its own balance sheet.
“To the extent that unemployment isn’t offset with other programs, or even forbearance, our allowance is built on a premise that that would translate to higher losses at some point in the future,” Richard Blackley, chief financial officer at Capital One, said, according to a transcript provided by Sentieo.
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