The worst times for the US economy, which is in crisis due to the COVID-19 coronavirus infection pandemic, are over, says James Gorman, chief executive officer of the American bank Morgan Stanley.
Speaking at the annual client conference, this time online, Gorman argued for continuing to pay dividends by US banks. In Europe, regulators have called on financial institutions to abandon dividends’ payment temporarily, increasing pressure on US regulators to impose similar banks’ restrictions, writes the Financial Times.
Gorman, himself a recent survivor of COVID-19, said the unexpected growth in US employment in May suggests that “the worst is behind the economy and the labor market.”
According to him, Morgan Stanley has already noted an improvement in the situation with overdue loans. In the second quarter, the bank’s deductions to reserves for possible loan losses will be less than the first. In January-March, the bank directed $ 470 million to these reserves, 1.5 times more than a year earlier.
Gordon Smith, one of JPMorgan Chase CEOs, noted that the share of overdue loans “is significantly lower than would be expected at this level of unemployment.”
“I am more optimistic rather than pessimistic about the next few quarters,” Smith said, adding that Morgan Stanley would still maintain a “conservative approach” to loan loss provisions.
The improvement in the general background justifies further dividend payments by US banks, Gorman said. “We have to pay dividends. I said this from the very beginning. We will very easily cover the dividend payments this year,” he said.
“What is the reason for demanding an end to dividend payments? Yes, retaining more capital is always wise, but it is not wise if it is done at the expense of shareholders who need these funds,” Gorman said.
In March of this year, major US banks voluntarily refused to buy back shares, which spent much more money than dividends, he said.
During the conference, Gorman also noted that the market for mergers and acquisitions is “virtually dead”, and this situation will continue in the second half of this year. “I’m not worried about this, this is a cyclical factor, and over time, the flow of transactions will resume,” he said.
Morgan Stanley shares lost 3% in price in trading on Wednesday. Since the beginning of this year, their value has dropped by 4.4%.