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JPMorgan COO: 'There will be a recession at some point'

Top executives from JPMorgan Chase (JPM) and Citigroup (C) said Friday they are anticipating a tougher business climate through the end of 2023 and a slowdown in core Wall Street operations.

"There will be a recession at some point, but I don't see, for the moment, a crisis," said JPMorgan Chief Operating Officer Daniel Pinto, who expects the Federal Reserve to hike interest rates up to 5.5% before pausing.

"It's just a slowdown in the economic cycle to deal with inflation."

Pinto, speaking at a conference in New York, predicted JPMorgan's investment banking fees for the full year would be 7% lower compared to last year. He is also CEO of JPMorgan's corporate and investment bank.

Daniel Pinto, President and Chief Operating Officer of JPMorgan Chase, 
speaks at the Global Financial Leaders Investment Summit in Hong Kong on November 2, 2022. (Photo by Peter PARKS / AFP) (Photo by PETER PARKS/AFP via Getty Images)
Daniel Pinto, JPMorgan's chief operating officer. (Photo by Peter PARKS / AFP) (Photo by PETER PARKS/AFP via Getty Images) (PETER PARKS via Getty Images)

Citigroup CEO Jane Fraser, speaking at the same conference, also played down expectations for her bank's markets division in the second quarter. She noted that it earned $5.2 billion in revenue during 2022's second quarter and that “I’ll probably regret that at the end of the second quarter this year."

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Pinto and Fraser became the latest of several big bank executives this week to warn about weakness on Wall Street after a rough start to the year.

Most major banks that advise on mergers or IPO underwriting reported drops in fee revenue during the first quarter. The largest decrease of 26% belonged to Goldman Sachs (GS), followed by a 25% drop at Citigroup and a 20% drop at Bank of America (BAC). JPMorgan saw investment banking revenue down 19%.

Many of these banks decided to eliminate more positions this year, according to media reports. Cuts at Morgan Stanley (MS) will amount to roughly 3,000, and JPMorgan is culling roughly 500 positions. Citigroup and Bank of America are making smaller reductions of a few hundred jobs each.

Goldman Sachs Chief Operating Officer John Waldron said Thursday the bank is planning for a total of $1 billion in expense cuts, including new layoffs. Bank of America CEO Brian Moynihan said his bank's investment banking fees are flat, though it has gained market share.

“The good news is it's not moving around down much. It's just sort of bumping along that level,” said Moynihan, who pointed out the bank has been able to keep employee reductions low by redeploying workers into other areas for the bank.

Citigroup CEO Jane Fraser testifies at a Senate Banking Committee annual Wall Street oversight hearing, Thursday, Sept. 22, 2022, on Capitol Hill in Washington. (AP Photo/Jacquelyn Martin)
Citigroup CEO Jane Fraser. (AP Photo/Jacquelyn Martin) (ASSOCIATED PRESS)

Fraser made it clear Friday that Citigroup is getting more conservative by taming its expenses in a strategy known as “bending the cost curve.”

For example, it has been working over the last two years to exit 13 different consumer markets including China, India, Korea, Poland, Russia and Taiwan. It added Mexico in January 2022.

Another part of the strategy is to take Banamex, its consumer bank in Mexico, public. It halted a plan to sell the unit, which is Mexico’s fourth largest bank.

"I think it became pretty clear to us that the right route forward for our shareholders was to go down the dual path, down the IPO path, and we made that decision," Fraser said of the Banamex IPO. "We’ve got to move on."

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