“It’s a shitshow,” the senior Wall Street executive tells me. “I have a thousand balls in the air, trying to manage this, which is not easy.” His biggest concern? “A worry of the unknown.”
Like nearly every business everywhere—with the notable exceptions of companies such as Zoom (its stock is in the 52-week high range) and Clorox—Wall Street is reeling from the effects of the coronavirus pandemic. Not only are the stocks of the Wall Street firms down, and down materially—Goldman Sachs is down nearly 50% this year; JPMorganChase is down around 40%—at the moment everywhere bankers and traders look there are problems. Clients are drawing down credit lines with abandon, swelling the assets on bank balance sheets at just the moment they would much prefer that not be happening. Many of these clients are also hoping to get new financing from their banks in order to stave off near-certain defaults or bankruptcy.
Discussions about so-called “rescue financing” between bankers and their clients are underway and will only accelerate over the next weeks and months as the true consequences of the nationwide social-distancing mandates translate into genuine economic hardship, which at the moment looks like an abyss. Over the weekend, the economic forecasts for the second quarter of the year fell off a cliff. James Bullard, the president of the Federal Reserve Bank of St. Louis, told Bloomberg he expected second-quarter GDP growth to fall by 50% and for the unemployment rate, now 3.5%, to hit 30%. In other words, Bullard is predicting an economic depression. If he’s an outlier, it’s not by much. Morgan Stanley is predicting GDP in the second quarter to fall by 30%; Goldman Sachs says it will fall by 24%. “We don’t know what the knock-on effects of this will be,” the Wall Street executive continues. “We don’t know what the impact will be. There are state issues, credit issues, liquidity issues. We’ve never seen anything like this before. We’ve never been through this before, even in 2008.”
There are certain industries—oil and gas, hospitality, airlines—where the economic collapse is already acute, to say nothing of the tens of thousands of small businesses that are suffering, looking for capital lifelines and may just simply disappear. The senior Wall Street executive is worried about the “knock-on” effect of the economic collapse. It’s the old butterfly effect. He posited that a big private-equity firm, such as a Blackstone, which owns a bunch of apartment buildings in New York City, will soon not only have to deal with tenants who won’t be able or willing to pay their rent, but it also will have to deal with the fall in the value of the bonds issued in connection with the acquisition of the apartment buildings when those rents don’t get paid. Will those bonds default? Will the company go into bankruptcy? Which investors get hurt when that happens? The pension funds of teachers, firemen, and policemen? “The magnitude of all this stuff is pretty overwhelming,” he continued. (He’s not alone in this kind of thinking—between Thomas L. Friedman, in Sunday’s New York Times, and Donald Trump’s all-caps, screaming tweet Monday morning, “WE CANNOT LET THE CURE BE WORSE THAN THE PROBLEM ITSELF.”)
Then there is the fate of Wall Street’s cadre of investment bankers—a group for which it is always difficult to feel sorry. (It doesn’t help that view that the board of Goldman Sachs paid David Solomon, its CEO, $27.5 million for his work in 2019, a 20% raise.) “There is no investment-banking business right now,” the senior banker continues. “That’s pretty much stopped.” That means there are few, if any, new underwritings of debt and equity. And the lucrative business of mergers and acquisitions has virtually dried up, although bankers will continue to act like the business is still viable, at least in the short term. Many deals that once looked like they might happen, have been pulled. Among them, ViacomCBS’s effort to sell Black Rock, its Sixth Avenue headquarters, and Gray Television’s $8.5 billion offer to buy Tegna, another large operator of local television stations. Investment bankers are keeping busy advising their clients about how to handle the economic meltdown in real time, so busy in fact that when contacted on Sunday afternoon another senior banker said he didn’t have time to talk with me until late Tuesday. He said he was on “nonstop calls” until then, between his commercial and civic responsibilities. (For their part, Wall Street’s so-called “vulture investors” are probably licking their chops.)