A Dark Winter and Another Tough Year

We’re up against what Joe Biden is calling a dark winter.

The signals keep coming from Wall Street executives and their regulators that as Covid-19 rages, the economic damage will continue to be painful. Randy Quarles, the vice chair for supervision at the Federal Reserve, said this week that it could be as late as 2023 before the economy returns to pre-Covid levels. He added his voice to a number of others who keep pushing the horizon for recovery further and further away.

JPMorgan’s David Kelly, chief strategist at the bank’s asset-management unit, doesn’t expect payroll employment to recover all of its losses until 2022. He doesn’t see unemployment reaching the Fed’s long-run expectation of 4.1% until 2023 at the earliest, according to a note to clients this week.

Meanwhile Guggenheim’s Scott Minerd said Covid-19 is accelerating out of control, and the worst is yet to come.

Morgan Stanley’s James Gorman also struck a note of caution. “The damage to small businesses and individual balance sheets has been profound,” and it will take years to recover in certain industries, he said at a virtual event hosted by the Economic Club of New York. “I’m not expecting miracles,” he said. “This is going to be a couple hard years.”

Meanwhile Goldman Sachs warned that many small businesses are finding it hard to stay afloat, with more than a third of small-business owners dipping into their personal savings to keep things going.

“A full 40% of small businesses do not think they’re going to survive, and that’s the highest number we’ve seen since April,” Margaret Anadu, the head of the urban investment group, told me in a Bloomberg Television interview.

“Even though there is optimism about getting to a vaccine, we’ve had some of that optimism for a while now,” she said. “That’s not going to cure the pain, and the issues, and the closures that we are facing today.”

Adding to the concern is uncertainty about how long it will take to get a vaccine distributed.

We will continue to look for all the green shoots.

Georgia Race & Key Roles

Since more world leaders began to embrace Joe Biden as the U.S. president-elect, more names in finance have begun to turn to the Georgia run-off elections that will shape the balance of power in the Senate.

“Everybody I know is giving money to these two run-offs,” Mark Patricof, a long-time investment banker and founder of investment firm Patricof Co., said by phone. “How could you not though? If you were as supportive of Joe Biden over the last eight months, once Biden won the nomination, you’ve got to finish the job.”

Of course, money is flooding in from both sides of the aisle. “What you’ll probably find is it will be one of each,” Avenue Capital’s Marc Lasry told my colleague Vonnie Quinn. “It will be a close Senate, but at the end of the day I think what will end up happening is, it seems that Wall Street would rather have a bit of a divided government.”

Much of the support for Democrats comes despite early indications that members of a Biden administration might be tough on the industry.

Gary Gensler and Preet Bharara, the former CFTC head and Manhattan’s former top federal prosecutor, are both seen as candidates to lead the U.S. Securities and Exchange Commission. Both were known for taking a hard line on Wall Street, even though Gensler was a banker himself at Goldman Sachs. Here’s a fuller list of candidates, by my colleagues Ben Bain and Robert Schmidt.

Lael Brainard, a candidate for Treasury Secretary, had also been tougher on the banks than many of her fellow Fed governors during Trump’s regulation rollbacks. During the depths of the pandemic, she said it was a mistake to let banks keep paying dividends. She also rebuked some of the changes to capital rules.

Here, you can read more on what Brainard said about the risks to the financial system, on the heels of the twice-yearly financial stability report released on Monday.

More on Wall Street

• Goldman names its smallest class of partners since 1998. Here are the details, a little more than half had started their careers at the bank as campus hires.
• In hours of testimony, the Fed’s Quarles, Brian Brooks of the OCC and the FDIC’s Jelena McWilliams took questions from lawmakers. The concerns ranged from the ability of citizens to pay their rent, let alone mortgages, and the swelling national debt.
• The rush to go public continues. DoorDash’s IPO filing shows a sharp revenue jump and a profitable quarter as it plans for a NYSE listing. We are also waiting on an Airbnb Nasdaq debut, among a few others.

More ahead, and hopefully some more good news. I hope you and your families are staying safe and able to enjoy the sunshine this weekend. Tips and opinions always welcome at [email protected].