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Stimulus Is ‘Infinite,’ Mike Mayo Says After Gary Cohn Talks

Stimulus Is ‘Infinite,’ Mike Mayo Says After Gary Cohn Meeting

(Bloomberg) -- The main positive takeaway from a meeting with President Donald Trump’s former economic adviser Gary Cohn was that government stimulus to stem the effects of the Covid-19 crisis may be “infinite,” according to Wells Fargo analyst Mike Mayo.

In the short term, there’s potential for “wave after wave of support for the economy and unemployed workers; the desire to do so should remain so long as there is a quarantine,” Mayo wrote in a note. Moreover, he added that “the return of consumer spending in the U.S. should not be underestimated.”

The discussions with Cohn, who was also a top Goldman Sachs Group Inc. executive, reinforced Mayo’s view that the largest banks are better-positioned for customer benefits from government programs, reallocating resources and leveraging scale from technology, he said.

Stimulus Is ‘Infinite,’ Mike Mayo Says After Gary Cohn Talks

Mayo listed other meeting takeaways: In the medium-term, the main concern is that more government spending should lead to higher personal and corporate taxes to pay down the deficit, he said. He added that “commercial real estate and other sectors will likely remain problematic.”

Long-term, Mayo expects the current situation will accelerate “digital transformation as individuals use even less cash.” Plus, he expects “supply chains for food, medicine, energy, and other areas should increasingly return to the U.S. as part of enhanced domestic security policy.”

Stimulus Is ‘Infinite,’ Mike Mayo Says After Gary Cohn Talks

Banks are particularly sensitive to economic upheaval and credit issues. The KBW Bank Index has tumbled 42% since Feb. 20, when concern about the pandemic began accelerating, versus a 16% drop for the S&P 500.

Big bank stocks slipped in early trading on Wednesday, along with the broader market, after Federal Reserve Chairman Jerome Powell’s grim outlook on the economy.

The KBW Bank Index fell as much as 3.2%, to the lowest since April 6. JPMorgan Chase & Co. shed as much as 2.3%, to the lowest since April 3; Citigroup Inc. lost as much as 3.3%, Bank of America Corp. as much as 3.4%, and Wells Fargo & Co. slid 4.2%, sinking to the lowest since October 2011. Goldman fell 2%; shares have dropped 25% since Feb. 20.

Analysts have recently expressed concern that banks will cut dividends, with Morgan Stanley saying Goldman’s dividend is most at risk in a bear case, and Atlantic Equities downgrading Wells Fargo due to the looming specter of a lower dividend. On Tuesday, Governor Randal Quarles said the Fed could curtail Wall Street banks’ ability to pay dividends by cranking up the amount of capital they need to maintain due to the Covid-19 crisis.

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