Credit Crisis to Push Past 2009
Hat tip to Calculated Risk for the Bloomberg story on the Oppenheimer report (got that?) outlining the firm’s belief that there is more than $170 billion remaining in reserve reductions to be realized via losses in the credit markets. These losses will be realized well-through and past 2009 as banks take losses on a variety of mortgage-related and credit bets.
From Bloomberg:
“The real harrowing days of the credit crisis are still in front of us and will prove more widespread in effect than anything yet seen,” analysts led byMeredith Whitney wrote in a research note today. “Just as strained liquidity pushed so many small and mid-sized specialty finance companies to beyond the brink, we believe it will do the same with the U.S. consumer.”
Whitney, together with Kaimon Chung and Joseph Mack, cut earnings estimates for U.S. banks “significantly” due to “strained liquidity resulting from shut down in the securitization market” and on expectations that banks may take provisions of $88 billion in 2008 and $96 billion in 2009.
Another article on Bloomberg (also highlighted in the C/R article) shows that banks’ confidence levels are improving which may be a sign that the credit crisis is easing. Much of the cycle is driven by the banks’ fears of being the ‘odd man out’ by lending money to institutions that can’t repay the debt. This causes them to horde cash and charge higher interest rates to those that do borrow to protect themselves. If intra-bank money becomes cheaper it will make system liquidity less of an issue.
More from Bloomberg:
Lending confidence at banks rose to the highest level in more than nine months, signaling the global credit crunch may be easing.
The so-called TED spread, the difference between what the U.S. government and banks pay to borrow in dollars for three months, dropped to 77.7 basis points, the lowest since August. It was at 79 basis points as of 9:58 a.m. in New York. The spread narrowed as the yield on three-month Treasury notes rose to the highest in a week.
“The worst of the fears about the liquidity crisis appear to be alleviating,” saidPeter Jolly, head of markets research in Sydney at NabCapital, the investment-banking arm of National Australia Bank Ltd. “Liquidity is becoming more available ever since the bold moves by the Fed.”