[Marxism] Wall Street's credit crisis heads to second year; signs are down
ffeldman at bellatlantic.net
Thu Jun 19 13:50:23 MDT 2008
Wall Street's credit crisis heads into second year
Updated: 2008-06-19 12:51
NEW YORK -- 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 $1 trillion by the time it has passed.
Morgan Stanley headquarters is shown Tuesday, June 17, 2008 in New York.
Morgan Stanley says trading and the sale of some of its holdings helped lift
the investment bank's profit above Wall Street projections for the second
quarter. However, it was down 61 percent from last year. [Agencies]
Major US 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 over -- 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 some $945
billion by the time it is 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
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, on Monday said that March marked "the bottom of the
crisis, at least for now" -- making no predictions of what lies ahead.
Morgan Stanley reported profit fell 61 percent on Wednesday, while Lehman
Brothers Holdings Inc. posted a nearly $3 billion loss. And Goldman Sachs
Group Inc., considered to have the best handle on the crisis, said profit
dropped by 11 percent.
The run on their competitor Bear Stearns three months ago forced the
government to save it through a sale to JPMorgan Chase & Co. And, since then
there has been persistent worry among industry leaders and analysts that a
full-fledged bank failure is in the offing if losses continue to mount.
Those worries have hovered over Lehman Brothers since it posted a stunning
loss, demoted two top executives and was forced to raise $6 billion in new
capital. There's been more talk that Chief Executive Richard Fuld is facing
either a sale of the company or massive layoffs to stay afloat.
A spokesman for Lehman declined to comment.
The concerns go beyond just brokerages, though, with continued fears about
the strength of regional banks. Fifth Third Bancorp raised $2 billion of
capital on Wednesday, following a move by rival KeyCorp to raise $1.6
billion, all toward a goal of bolstering balance sheets.
Goldman Sachs analyst Richard Ramsden said in a report Tuesday that US banks
might need $65 billion more to brace themselves from losses that might not
peak until 2009. The investment bank lowered its price targets on 14 banking
companies, and slashed earnings per share forecasts for 11 of them.
"Banks will not turn until a peak in credit costs is in sight," he said in
Joseph Quinlan, chief market strategist of Bank of America, said capital
could become more scarce if big institutional investors don't see things
turn around. He said new money could rush into the market, and help prop up
weak financial institutions, once investors get a better sense that there's
been a peak -- which has so far been a hard statement for investment banks
to make definitively.
"We've had all these write-offs globally, and in just the past couple of
days all the bad news is front and center because of earnings season," he
said. "All of the bad news we thought was out there has been confirmed, and
its a stark reminder of credit stress and overall angst that continues to
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