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Delegates at the WEF say troubles in the US housing market were likely to worsen
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January 26, 2008, 16:30
The warning comes as the US real estate market deteriorated, with European banks owned up to more losses, and US emergency stimulus measures fell short.
"It will be a while before you see a return of normalcy in banking and capital markets," says Merrill Lynch CEO John Thain at the World Economic Forum annual meeting in the ski resort of Davos.
Troubles in the US housing market were likely to worsen this year, with interest rate cuts and a hefty fiscal stimulus package unlikely to offset downside pressures, he says
Thain says he was not worried about further losses at his own bank, which reported $16 billion in mortgage related write downs and adjustment this month.
But in one of the most pessimistic public assessments of the short-term US outlook from a senior banker, he told a panel discussion he saw more trouble ahead for the broader economy. His comments were echoed by Japanese Prime Minister Yasuo Fukuda who says the world's economy faced growing downside risks against a backdrop of the US subprime issues and a record rise of oil prices.
"There is no need for excessive pessimism. At the same time however, we should respond quickly and should implement necessary measures," he said in Davos, adding Group of Seven finance chiefs would discuss the credit turmoil when they meet in Tokyo next month.
Other senior bankers, speaking in Davos under the condition of anonymity, shared Thain's assessment, describing the international banking sector as gripped by uncertainty and fear.
"As we look out into 2008, I think there will continue to be downward pressure on home prices, that will continue to put downward pressure on all mortgage-related securities," Thain said.
Shaky road ahead
World Bank President Robert Zoellick says uncertainty pervaded the financial markets and that the impact on the global economy remained unclear.
Thain, speaking on a panel with IMF Managing Director Dominique Strauss-Kahn and French Finance Minister Christine Lagarde, says he saw problems in credit markets spreading into the consumer sector, with capital markets not returning to past levels in the short term.
But he was more optimistic for the longer-term prospects of the banking sector, battered in recent months by tens of billions of dollars in write downs that forced many of the big names to look abroad for liquidity. - Reuters
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