总算有人出来说问题到底有多大了。
WASHINGTON (Reuters) - Fear and mistrust gripped Wall Street on Monday after Citigroup's CEO quit in the wake of mounting credit losses and an influential money manager called the subprime mortgage market a "$1 trillion problem."
Charles Prince's resignation from Citibank on Sunday -- the second high-profile Wall Street CEO ousted in less than a week -- came as the largest U.S. bank said it will write off as much as $11 billion in losses tied to subprime mortgages.
Stock indexes ended a volatile session down modestly as skittish investors wondered which bank might be the next to disclose substantial losses. Bonds gave up morning gains as stocks bounced back from the day's lows, while the downtrodden dollar edged up against the euro.
Prince's departure came just days after Merrill Lynch & Co Chief Executive Officer Stan O'Neal was kicked out following an $8.4 billion write-down.
"This situation with the investment banks is analogous to what the market went through when we had all the problems with Enron," said Andrew Busch, global foreign-exchange strategist with BMO Capital Markets in Chicago.
"The market had severe doubts over the accuracy of the reporting of earnings and accounting."
Bill Gross, chief investment officer of Pacific Investment Management Co., said mortgage delinquencies and defaults would rise through 2007 and into 2008, and the Federal Reserve would need to cut interest rates further.
"There are $1 trillion worth of subprimes and Alt-As and basically garbage loans," he said on CNBC television, adding that he expects some $250 billion in defaults. "We've only begun to see the pain" from rising mortgage payments.
Federal Reserve Governor Randall Kroszner said the housing market may worsen, and delinquencies and foreclosures would likely rise in coming months.
"Conditions for subprime borrowers have the potential to get worse before they get better," he said.
Former U.S. Treasury Secretary John Snow said he expected U.S. economic growth to slow to 1.5 percent in the fourth quarter and into next year, which would be less than half the annual rate of 3.9 percent recorded in the third quarter.
Ratings agency Fitch lowered Citigroup's debt ratings on Monday because of exposure to leveraged finance transactions, the subprime market and structured investment vehicles, and Standard & Poor's said it was considering a similar move.
"These exposures appear manageable, but taken together exert significant incremental pressure on Citi's finances," Fitch said.
NO LOVE FROM THE FED?
Britain and France rushed to offer reassurance that their economies and banking systems would ride out global credit turmoil. But a Fed official gave no indication that more interest rate cuts were upcoming.
Fed Governor Frederic Mishkin said policy-makers acted aggressively with rate cuts in September and October to prevent financial market turbulence from damaging the U.S. economy, but would be equally quick to take them back if necessary to cool inflation.
Recent economic data has shown the U.S. economy holding up remarkably well in the face of a housing recession. On Monday, the Institute for Supply Management reported that its services sector index rose to 55.8 in October from 54.8 a month earlier, better than analysts had expected.
Still, a Fed survey of bank loan officers showed credit terms were tightening for both residential and commercial loans, and that could constrain spending. More than 40 percent of banks polled said they had tightened standards even on prime loans, made to people with good credit records.
British Chancellor of the Exchequer Alistair Darling said the global banking industry was experiencing great uncertainty, but it was vital to keep Citigroup's problems in perspective. French Economy Minister Christine Lagarde said there was no reason to believe the turmoil would damage France's economy.
World markets were first gripped by a credit crunch in August when interbank lending dried up as banks realized they did not know which of them was dangerously exposed to mass defaults on shaky U.S. mortgage loans.
After U.S. interest rate cuts and a flood of central bank cash into the money markets to keep them functioning, investors had begun to move back into risk assets in the hope that monetary authorities had capped the crisis. But the Merrill and Citigroup problems reignited fears.
(Additional reporting by Mike Peacock in London) |
