Leading Bank CEOs Say Credit Crunch Nearly Over
Earlier today I wrote about how some believe the U.S. housing slump may soon be over. Now, some are saying the credit crunch may be over as well. Bloomberg’s Josh Fineman wrote today that prominent banking executives Jamie Dimon, Richard Fuld, Lloyd Blankfein, and John Mack are saying the credit-market contraction is almost at an end. According to Fineman:
Dimon, chief executive officer of JPMorgan Chase & Co., said today that the credit crisis is “maybe 75 percent to 80 percent” over. Fuld, CEO of Lehman Brothers Holdings Inc., told shareholders yesterday that the “the worst is behind us.” Their comments followed similar remarks last week by Goldman Sachs Group Inc.’s CEO Blankfein who told investors “we’re closer to the end than the beginning,” and Mack, Morgan Stanley’s chief, who said the crisis will probably last “a couple of quarters” longer.
However, Fineman noted that these statements “echoed those made by Wall Street executives in June 2007,” and which turned out to be completely wrong. The Bloomberg reporter wrote:
Christopher O’Meara, former chief financial officer of Lehman, told investors that “we continue to believe that subprime market challenges are and will continue to be reasonably contained.” Bear Stearns Cos. CFO Sam Molinaro said at the time that while declining value of subprime bonds was “a challenge” for the firm, “it hasn’t spilled into other areas of the market.” “Subprime continues to be weak” and yet “there’s very little effect on other credit markets,” David Viniar, the CFO of Goldman, told reporters on a conference call at the time. Stan O’Neal, Merrill’s former chairman and chief executive officer, said that subprime defaults were “reasonably well contained.” Bank of America Corp. CEO Kenneth Lewis said June 20 that the housing slump was just about over. “We’re seeing the worst of it,” he said.
The world’s biggest banks have recorded $255 billion in asset write-downs and credit losses since the beginning of 2007. On April 8, the International Monetary Fund said that turmoil in credit markets could spread, leading to losses approaching $1 trillion. Jon Fisher, a Minneapolis-based portfolio manager at Fifth Third Asset Management, told Fineman:
The credibility of some of these people that are making these quotes is pretty lacking. I don’t pay any attention to them. They don’t have any credibility to be calling a bottom here.
Rose Grant, managing director of Eastern Investment Advisors, the money-management unit of Boston- based Eastern Bank, which owns Merrill Lynch & Co. shares, told Bloomberg that shareholders require “more proof before they start believing things are fine again.” Until the firms reveal the full extent of their write-downs and credit losses, Grant said “people are going to sit on the sidelines.”
Sources:
“Bank Chiefs See End for Woes Investors Can’t Forget (Update5)”
Josh Fineman
Bloomberg, April 16, 2008
“Credit losses could approach $1 trillion: IMF”
Emily Kaiser and Lesley Wroughton
Reuters, April 8, 2008
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