American Bulls Clash With Europe’s Bears at World Finance Summit

The world economy is either the healthiest it’s been in a decade, poised to continue an epic bull run, or perched on the precipice of another crisis. It just depends what side of the Atlantic you’re on.

In panel after panel, American bankers expressed optimism about markets and global growth, while European finance chiefs warned of “storm clouds” over the Continent and a coming recession. The attitudes on display at the Institute of International Finance’s annual meeting in Washington underlined the divergent fortunes of the regions since the 2008 crisis.

JPMorgan Chase & Co. Chief Executive Officer Jamie Dimon and some of his deputies were among those brimming with confidence, saying a coordinated period of global growth is underway for the first time in more than 12 years. The head of his investment bank, Daniel Pinto, said it “may last a while.” The U.S. consumer, meanwhile, is “as healthy as ever,” JPMorgan asset-management chief Mary Callahan Erdoes said during a panel discussion last week.

U.S. Treasury Secretary Steven Mnuchin echoed those sentiments, telling attendees that tax and regulatory overhauls could fuel growth exceeding 4 percent. The global economy remains “far from our true potential,” Mnuchin said.

The European delegation espoused a starkly different, and darker, worldview.

“I can see the storm clouds gathering, I am warning against complacency,” UBS Group AG Chairman Axel Weber, the former president of Germany’s central bank, said Friday. “Enjoy the recovery while it lasts, because it will not last.”

He and Banco Santander SA Chairman Ana Botin warned that the Continent continues to be riddled with risk, noting this year’s bailouts of several Italian banks and the rise of populist pro-independence and anti-European Union movements.

Europe “cannot afford to not have a deeper integration when the next down-cycle comes,” Botin said. “And it will come.”

Staley’s Warning

Jes Staley, the American-born CEO of London-based Barclays Plc, piled on the gloom. While everything on the surface seems “safe and secure,” now is “a better time to be cautious,” he said, citing a U.K. consumer-credit bubble and overextended central bank balance sheets across Europe.

“It feels as benign in 2017 as it felt in 2006,” Staley said Saturday during a panel discussion on global markets, noting the impact of persistently low interest rates. “To the extent that we’ve had an economic crisis every seven or eight years, I think we need to be cautious about being too confident in the current trajectory.”

While Europe is tussling over Brexit, bank rescues and anemic growth, the U.S. economy has gained some traction this year, allowing the Federal Reserve to increase rates. President Donald Trump’s promises to curb regulation and lower corporate taxes have helped push U.S. stocks to record highs.

Last week, some of the biggest U.S. banks beat third-quarter profit estimates despite a slump in trading revenue. Many of their European rivals are expected to show they struggled when they report results later this month.

Party Mood

The S&P 500 Financials Index has climbed 12 percent this year, outpacing the 9 percent advance of the Bloomberg Europe 500 Banks and Financial Services Index, in which the two worst performers are Barclays and Deutsche Bank AG.

More than 1,900 executives attended panel discussions at the Ronald Reagan Building and International Trade Center, a short walk from the White House. Banks, consultants and investment firms rented entire hotel floors to woo clients and plot the year ahead, while ballrooms and embassies hosted parties reflecting the revitalized American mood. The four-day event, second only to the World Economic Forum in Davos in the industry’s calendar, wrapped up Saturday evening.

The outlook of the American bulls was a contrast to last year’s event, when JPMorgan’s Erdoes complained there was “a lot of hand-wringing.” In 2016, the summit was dominated by complaints about rock-bottom U.S. interest rates, regulation and concern that Deutsche Bank’s legal costs and liquidity woes could cause it to collapse.

Gorman’s Shift

Take Morgan Stanley CEO James Gorman. He said Friday that the relentless advance of equity markets isn’t a mystery: They’re supported by rising corporate earnings in a buoyant economy. Last year, he bemoaned tougher post-crisis rules and said that if the country wanted growth, regulators would need to get out of the way and “let banks do what they do.”

Some things haven’t changed.

Brexit has become an even greater headache as the U.K. and Europe have agreed to little in the 16 months since British voters decided to leave the EU. Bankers discussed how they’re restructuring businesses, whether staff will leave London and the likely slowdown to come as the union’s second-largest economy pulls out.

Goldman Sachs Group Inc. co-head of government affairs Faryar Shirzad said a “hard Brexit” — in which the U.K. leaves without securing a trade deal — is almost unavoidable. Martin Gilbert, co-CEO of newly merged British investor Standard Life Aberdeen Plc, said he can’t see any Brexit scenario that’s beneficial for the U.K. Both he and BlackRock Inc. CEO Laurence D. Fink, said British rates are unlikely to rise until a resolution is reached.

Technological advances and cybersecurity, or lack thereof, also were at the fore. Barclays’s Staley said the payments industry will be the “battleground of finance” for the next 15 years and that banks will have to protect their turf from encroachment by tech companies.

And of course there was more talk of bitcoin.

On Friday, just a day after vowing not to talk about the virtual currency again, JPMorgan’s Dimon doubled down on his criticisms, saying people who buy bitcoin are “stupid,” that they’ll “pay the price” and that governments will crush it one day because it’s “a great product” for criminals. BlackRock’s Fink agreed, calling it a money laundering index.

“Who cares about bitcoin?” Dimon, speaking at a packed auditorium at lunchtime, asked the audience, who lapped up his performance. “You can all do whatever you want. I could care less who trades it,” he said, before ending his diatribe with a fresh promise.

“This is the last time I am ever going to answer a question about bitcoin.”
Source: Bloomberg

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