Merrill man predicts more turmoil

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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 month.

Merrill Lynch, one of many casualties of the US ‘credit crunch', is moving towards a US $50 billion takeover by Bank of America Corporation by the end of the year. Its CEO, John Thain, recently offered local reporters his views on the crunch and how it might impact regional economies.

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 [recent weeks] 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 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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