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How to say the 'R-word': Bank executives in US grapple with recession talk

Although many economists are predicting a downturn, a big bank executive doing so can become a self-fulfilling prophecy

Reuters  |  New York 

Economy
Wall Street CEOs and CFOs realize that their words carry a lot of weight, given they manage multi-trillion-dollar balance sheets and have insight into nearly every consumer and institutional lending business

Executives at the largest US banks are grappling with how to best talk about the slowing and its impact on their businesses as they enter earnings season, people familiar with their thinking told Reuters.

Of particular concern is how to deal with the word "recession," which has become all but verboten as US gross domestic product growth has decelerated.

Although many economists are predicting a downturn, a big executive doing so can become a self-fulfilling prophecy. On the other hand, a top dismissing worries to calm fears could be seen as uninformed or dishonest.

When asked to name the single biggest threat to the at a congressional hearing on Tuesday, Inc answered, "Our ability to talk ourselves into the next "

The "R word," as some are calling it, has been a topic of discussion during earnings planning, executives, investor relations staff and public relations officials said.

There are a few well-tested strategies to reassure investors without misleading them, said Pen Pendleton, founding partner of firm in New York, and a former for and

If a is seeing negative signs in its loan book or markets businesses, executives should say something like "we believe we are competitively positioned in the market place to tackle the challenges," Pendleton said.

An easy way to avoid endorsing any particular outlook is to defer to what economists are predicting, he added.

"CEOs are always cautious about commenting on the economic outlook, especially when indicators are negative." he said.

Even if executives feel obligated to share bad news because of a fiduciary duty to investors, they are likely to hedge what they say, according to an of one of the top 20 banks by assets who spoke on the condition of anonymity.

For example, if loan performance suffered executives might speak optimistically about the future, or chalk it up to a "one-time thing" she said.

If top bankers do acknowledge a slowing U.S. economy, they would not be alone.

The Federal Reserve took a sharply less aggressive posture last month when it signaled it would not hike rates this year and projected slower U.S. growth for 2019.

While policymakers made clear they saw no in the next few years, some cautioned incoming data could change their minds on whether the next move should be to raise or lower rates, meeting minutes showed on Wednesday.

The U.S. grew 2.9 percent in the fourth quarter, down from 3.6 percent the prior period and 4.2 percent in the middle of last year.

STOCK DROPS AND TEQUILA SHOTS

Wall Street CEOs and CFOs realize that their words carry a lot of weight, given they manage multi-trillion-dollar balance sheets and have insight into nearly every consumer and institutional lending business.

can be sensitive to any recession talk that makes headlines.

& Co shares fell 1.7 percent when chief said that "recessionary indicators ... are not flashing red, but they are off the floor" at the bank's investor day in March.

Dimon then helped talk the shares back up, saying the bank's decision not to raise its profitability target was not a warning about the economy and that JPMorgan was not predicting a recession, though it was nonetheless "prepared for one."

"In a world of sound bites it's difficult to be nuanced about recession risk," said bank analyst "It's a fine line between alarming (markets) and conveying an impression of being recession-ready."

The pressure to say the right thing can be intense enough to cause sleepless nights, executives and their counselors say.

Ronn Torossian, of New York-based 5W Public Relations, said he once spent nearly all night with a rehearsing, taping and listening to prepared remarks for the next day's earnings discussion with analysts.

"I was next to him and he did a shot of tequila a few minutes before the early morning call," Torossian said. "That may have helped more than the training."

JPMorgan and & Co will kick off on Friday, followed by Citigroup, Goldman Sachs Group Inc, and next week.

 

(Reporting By and in New York; Editing by and Meredith Mazzilli)

First Published: Thu, April 11 2019. 13:56 IST
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