Thain warns retail banks on subprime

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The pain from the subprime crisis has largely worked its way through the investment banking world but might only be just beginning for retail lenders, John Thain, chief executive of Merrill Lynch, said on Wednesday.

Speaking in Mumbai, he said the credit crunch had taken its toll on consumers and, coupled with rising energy prices and unemployment, was expected to result in higher defaults on retail loans, contributing to weakness in the US economy for at least six to 12 months.

“Those financial institutions which are primarily banks who are exposed to consumer credits – so credit cards, automobile receivables, home equity loans – are likely to experience greater delinquencies and losses going forward than they’ve seen so far,” Mr Thain said during a visit to Mumbai.

The comments come amid debate over whether global investment banks are over the worst of the crisis.

Merrill Lynch reported a $2bn first-quarter loss last month, its third quarterly loss in a row. The bank has made $30bn in write-offs since September.

There were also sharply negative results in the sector this week from UBS, Lazard, and other financial institutions.

But Mr Thain said Merrill Lynch had raised billions of dollars in new capital, some of it from overseas sources such as Temasek, the Singapore state investment company.

He said Merrill Lynch was targeting the high-growth markets of Asia, given US he weakness, and the bank’s operations in the region would be largely unaffected by planned job cuts.

“We have announced 4,000 job cuts. Most of those are in the US and we are not in any way restricting the growth opportunities or the investment opportunities in other parts of the world, so I expect our headcount for India to continue to grow,” Mr Thain said.

While he declined to provide a figure, Mr Thain said in India, the bank’s headcount had doubled in the past two years and its topline had tripled.

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