Friday, January 18, 2008

Credit crunch: the end is nigh

This week and the next few will see most of the big investment bank players empty their closets and show the world how much they really messed on their bets vs. the credit market.
So far, Citigroup & Merrill have announced losses the size of a medium-economy, and gratefully accepted help from oil and communist dollars to shore up their capital. UBS will also take a similar hit (it’s already gone to east with a begging bowl) when it announces its FY and is already abandoning investment banking to concentrate on providing a save haven for dinero from African dictators. Bearn Stearns will also make huge losses. The funniest thing is that two yrs ago, many investment banks prided themselves on how much of stake they had managed to acquire in a Chinese bank and how far their expansion plans in Middle East had gone. How times have changed…

JP Morgan & Deutsche are probably the only two that had mild hits. Goldman Sachs actually made money out of the fiasco by getting out early in 2006 and betting against the market.


Gillian Tett puts it all down to how tribal the different banking cultures are-more tribal, more messy.

Recession is now pretty much expected in the US. In the UK, there will be a downturn, but one expects the Bank of England to cut interest rates a couple of times this yr to stop a recession. That will be good news for fixed rate mortgage holders (including your truly) due to roll this yr.

2 comments:

Ssembonge said...

Maina,
We've seen close to $100 billion in right-offs. The US real estate market is worth $13 trillion. Mortgage equity withdrawals has not reared it's ugly head, credit card debt is about to implode and we are facing mounting job losses.

At the minimum, there must be at least another $100 billion waiting to be written off.

MainaT said...

I doubt if it will come it in the huge shanks that we've seen so far. More likely it'll be spread out over the next two quarters and even longer if need be.
Just depends on what the US economy does.