The world's largest financial institutions are getting healthier, with credit-related losses expected to ease over the next year, the head of an international banking group said Thursday.
"I think that by and large the health of the largest 20 to 30 global financial institutions is improving," Charles Dallara, managing director of the Institute of International Finance, told a news conference in Tokyo. The IIF is an association representing more than 375 of the world's major banks.
"I think it is reasonable to say that we can expect moderation over the next year or so in certain aspects of the turbulence surrounding the structured products and the valuation losses on those products," said the former US assistant Treasury secretary who also worked for J.P. Morgan. Although losses may spread in the more traditional credit market activities of US and European financial institutions, "we may be moving into a phase of some global stability," he added. The comments contrasted with market gloom over the fate of America's fourth largest investment bank Lehman Brothers which is struggling to raise fresh capital.
It posted a 3.9 billion-dollar loss in its fiscal third quarter from mortgage-backed assets gone sour due to the subprime crisis, in which risky US customers defaulted on their loans.
Although the bank outlined a plan Wednesday to sell key assets including its investment management unit and spin off its commercial real estate division, it failed to name a buyer, disappointing shareholders and Wall Street. But Dallara said that on the whole, banks' credit-related writedowns may have peaked and are beginning to temper.
"Look at the broader fact," he said. "In spite of the magnitude of losses not just with Lehman but by other firms in the past few months, it would appear that we're moving into a phase where those losses are moderating somewhat," he said. "Obviously there remains some value embedded in this institution," he said of Lehman.
"I think we can all hope that they will be able to find that new position of stability," he added. But while financial elements of the current crisis are beginning to ease, Dallara warned of the impacts of slowing economies in the United States, Europe and Japan.
He said that market turbulence was expected to continue unless the US housing market shows clear signs of bottoming out. Washington last weekend announced it had seized the country's two largest but ailing mortgage lenders Fannie Mae and Freddie Mac in an attempt to stabilise markets, a move that received a mixed welcome. The US Treasury has agreed to inject 100 billion dollars if needed into each of the two lenders, which were devastated by the subprime crisis.
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