'Not out of the woods': Here's what 5 top executives said this week about the prospect of more economic stimulus

Reuters

• Earnings season kicked off on Tuesday, and executives are sounding off on the stimulus stalemate and the risks it poses to the ongoing economic recovery.
• Hopes for a pre-election deal faded on Thursday after Senate Majority Leader Mitch McConnell said he'll only bring a smaller measure to a vote. The statement effectively dooms the larger proposal penned by the White House and Democrats.
• Here's what five executives had to say about the lack of near-term aid and the challenges it presents.
• Visit the Business Insider homepage for more stories.

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With earnings season officially underway, executives are weighing in on the stimulus stalemate that's gripped the US economy for months.

The chance of a pre-election relief deal faded through the week as Senate Majority Leader Mitch McConnell doubled down on his opposition to a major bill. The senator indicated Thursday that he plans to bring only a smaller measure to a vote, dashing hopes for the $1.8 trillion to $2.2 trillion package currently being negotiated by Democrats and the White House.

Several indicators suggest the pace of economic recovery slowed into the fall as previous support programs dried up. Here's what five executives had to say about the lack of new stimulus and the challenges it presents.

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JPMorgan: 'We'll probably see delinquencies tick up'

The March CARES Act played a major role in keeping Americans from defaulting on their debt, JPMorgan Chief Financial Officer Jennifer Piepszak said in a Tuesday earnings call. The "extraordinary support" played a major role in the initial economic bounce-back through the spring, but the bank is already preparing for a dire start to the new year.

"We'll probably see delinquencies tick up in the early part of 2021. We're not assuming further stimulus beyond the end of this year and how we think about reserves," Piepszak said, according to a transcript provided by Sentieo.

She continued: "I think future stimulus would give us more confidence in the economy delivering on the base case."

Bank of America: 'Stimulus coming in would move us further'

A new relief bill would help struggling businesses and unemployed Americans, Bank of America CEO Brian Moynihan highlighted in a Wednesday call. Aid for state and local governments would also help prevent layoffs of government employees, he added.

Most major banks decreased their loan loss reserves through the third quarter as the economy rebounded. Still, Bank of America allocated $1.4 billion for potential credit losses. 

"Stimulus coming in would move us further" toward lowering the loss provision, Moynihan said.

"You'd see the reserves come out further because the lifetime expected loss would be lower. That's kind of the way it works."

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PNC: 'We're going to see an acceleration' in charge-offs

As Congress nears its deadline to pass another relief measure, firms are bracing for more loans to sour. Such charge-offs will likely begin in pandemic-sensitive industries earlier in the year and trickle down to consumer debt in the second half of 2021, PNC CEO William Demchak said Wednesday.

"The consumer number in my view is going to be highly dependent on whether they provide more fiscal stimulus, which I think they absolutely need to do," Demchak added. "With PPP effectively running out and with the CARES Act having run out, we're going to see an acceleration [in charge-offs.]"

The CEO cited a survey of small businesses as further evidence that new stimulus is needed. Roughly 60% of respondents expect to be out of business should the legislative deadlock last another year, Demchak said.

Wells Fargo: 'Future credit performance may deteriorate'

The US's unprecedented fiscal and monetary response to the pandemic helped the economy improve significantly, but slowed reopenings and the expiration of some stimulus programs "are presenting headwinds," Wells Fargo CEO Charles Scharf said Wednesday. 

For one, "future credit performance may deteriorate" as Americans receive less help from relief payments and expanded unemployment benefits, the CEO said. A recent study from Federal Reserve researchers found Americans used the majority of their stimulus checks on paying down debts and bolstering savings.

In separate comments made during a Friday virtual panel, Scharf warned the nation is "not out of the woods" despite enjoying a steady climb from virus-induced lows.

"The consumer has been extraordinarily strong through this crisis, and it's not luck, and it's not because they weren't affected. It's because of the CARES Act, specifically the unemployment assistance," Scharf said, adding the bank is seeing signs of Americans' cash balances "starting to go away."

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United Airlines: 'We will continue ... to urge them to act'

The airline industry in particular hinges on the prospect of more aid. Carriers began laying off tens of thousands of workers earlier this month to cut costs and weather the slowdown in travel activity.

House Democrats' $2.2 trillion proposal would allocate $25 billion to airline relief, the same amount set aside in the CARES Act. While Senate Republicans have balked at the measure, House Speaker Nancy Pelosi has opposed a standalone bill for airlines without a larger stimulus bill.

As Congress continues to deliberate on fresh aid, United Airlines is pushing for an extension to the Payroll Support Program established in the CARES Act.

An extension "would allow us to bring back US team members we had to furlough upon expiration of the CARES Act support on September 30," Brett Hart, chief administrative officer at United Airlines, said Thursday. "We will continue to engage leaders in both parties in Congress and in the administration to urge them to act."

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