Thursday, June 19, 2008

Credit Crunch: Make No Predictions of What Lies Ahead

From the Oregonian:

There are new signs that the worst of the global credit crisis is yet to come and that banks and brokerages caught up in the market turmoil may lose nearly $1 trillion by the time it has passed. Major U.S. investment banks this week announced yet another painful quarter amid the implosion of mortgage-backed securities and risky credit investments. Regional banks have scrambled to secure fresh capital to stay in business, and by Wednesday there was new talk that embattled investment bank Lehman Brothers might be forced into a sale.
With each passing quarter, Wall Street's top bankers have indicated that the worst of the market turmoil was done, only to face more pain months later. The uncertainty has caused already battered investors to lose confidence in financial companies, and expectations have increased that more layoffs, asset sales and capital-raising will be needed in the weeks ahead.
"We thought this was going to be the kitchen-sink quarter, and we're finding out that CEOs and CFOs still don't have a handle on the credit crisis," said William Rutherford, a former state treasurer of Oregon who now runs Rutherford Investment Management. "We haven't disinterred all the dead bodies. What else is out there?"
The deepening credit crisis could cost the global financial system about $945 billion by the time it's over, according to a report from the International Monetary Fund. So far, banks and brokerages have written down nearly $300 billion from bad bets on mortgage-backed securities and other risky investments.
After reporting largely disappointing second-quarter results, executives at Goldman Sachs, Morgan Stanley and Lehman Brothers still weren't entirely clear when the hemorrhaging will end. David Viniar, Goldman Sachs' chief financial officer, said Monday that March marked "the bottom of the crisis, at least for now" -- making no predictions of what lies ahead.

Remember when $1 trillion in losses was 'at the very high end'?