Thain: Economic Environment Recalls 1929

Tuesday, November 11, 2008 9:40 AM

Merrill Lynch & Co Chief Executive John Thain said he did not expect the global economy to recover quickly from the credit crisis and that the environment more closely resembled 1929, the advent of the Great Depression, than recent slowdowns.

Speaking Tuesday at a financial services conference sponsored by his bank, Thain said credit remained constricted and asset prices generally were still falling, following the housing market collapse and a crisis of confidence.

These led to market-shaking events, including the bankruptcy of Lehman Brothers Holdings Inc, and Merrill's own decision to quickly sell itself to Bank of America Corp for $50 billion.

"We are going to be in a very difficult economic environment for a significant period of time," Thain said. He said the U.S. economy "is contracting very rapidly," creating uncertainty "at least over the next few quarters."

Thain nevertheless said market conditions for financial services companies were improving.

As an example, he said Merrill recently issued some three-month commercial paper, which companies typically use to fund day-to-day operations, when for a time it had been able only to issue overnight paper.

Commercial paper markets had seized up following Lehman's Sept. 15 bankruptcy, which led to a run on some money market funds that buy the short-term debt.

"I'm cautiously optimistic that things are starting to get better in financial services," Thain said.

"Although things are starting to improve, this is going to be a long process, and this is not going to get better quickly," he added. "It is not like '87, it is not like '98, it is not like 2001."

For Merrill, he said, the outlook is not all bleak as its merger combines Bank of America's strengths in retail banking, corporate lending and Treasury services with Merrill's strengths in wealth management, investment banking, and sales and trading.

"We're in a good space to weather this economic storm," he said.

The merger is expected to close by year-end. Bank of America and Merrill shareholders are scheduled to vote on the transaction on Dec. 5.

http://moneynews.newsmax.com/streettalk ... 49952.html