Merrill man predicts more turmoil

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John Thain, CEO, Merrill Lynch.

Merrill Lynch CEO John Thain gave his assessment of the global financial crisis and its impact in the Arabian Gulf to reporters in Dubai last week as his company moves towards the closure of a $50bn takeover by Bank of America Corporation that is set to close by the end of the year.

To what extent will the global financial crisis infect regional economies?

In spite of all the financial difficulties and concern about the global economy, we continue to be optimistic about our presence here and we are certainly committed to continue to grow our presence here. Clearly we are in a contracting economic environment.

The US economy is contracting very rapidly and we are going to have a global economic slowdown. To me the only question is how deep the recession will be and how long the recession will be. All parts of the world will be affected.

There is no such thing as decoupling. The economies here will slow down; it's just a question of degree.

Will oil offer a buffer to the region?

Obviously economies that are petroleum-based have some degree of protection and economies that have strong degrees of domestic demand have some protection. The reason that the stock market in the US has gone down in recent days is because of concern about the rapid slowdown and how deep and severe that recession will be.

Has the government intervention to prop up the US financial system worked?

We believe the action of the Fed, the Treasury and FDIC of a week ago has solved concerns about the US financial system and I believe those actions will all start to unblock and unfreeze the credit market.

We are starting to see a little of that already if you watch the libor rates. We're also starting to see some of that in the commercial paper market, but I do believe the focus now will be on the US economy.

Will we see more banks getting into trouble?

There will be more consolidation in the banking industry in the United States. There is no question there will be many small to medium-sized institutions that will either need to be recapitalised or will need to be acquired.

Do we need more or less financial regulation?

We need better regulation in the US, so less duplication of regulatory functions and a more efficient regulatory environment. The credit default swap market does need to be more transparent so there is more clarity about who the counter-parties are.

When will frozen credit markets thaw?

I believe we will start to see more lending between banks and start to see unfreezing in the short term financing markets. This is not something that will get better in a day or two, it takes time.

This is a global issue, not just a local one. What we have to do now is let the markets operate and get some more liquidity into the system. The bigger issue going forward is the overall global economy and what can be done to reduce the impact of a significantly slowing global economy.

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READERS' COMMENTS

How can we believe you?
Posted by Russell, Kuwait, Kuwait on Thursday 30 October 2008 at 12:48 UAE time


Tell us something we don't know. You "Bankers" got us all into this fine mess in the first place. Now sort it out! That's what you get paid ludicrous amounts of money for.
PS. Where are you off to to spend your bonus? The moon?

Optimist or Pessimist
Posted by WP7200, Dubai, UAE on Friday 24 October 2008 at 15:39 UAE time


First and foremost these large banks played around with customer's money investing in fancy financially engineered products and then when they could not get out of the mess, they went to the governments with a begging bowl to bail them out. Once they were bailed none of them admitted that they made a mistake and instead of rectifying their errors, they go around pontificating their useless views.

Why should one take Mr.Thain's views seriously if he could not save his company? Rather than pedaling pessimism he should be talking about what he would do to get things on track.

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