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Banks Face Biggest Crisis
in 30 Years, Report Says
Edward Evans
Bloomberg
Tuesday, April 1, 2008
Credit market turmoil poses the most severe crisis
for banks in 30 years, surpassing Black Monday in 1987, the Asia
currency crisis and the burst of the dot-com bubble, Morgan Stanley
and Oliver Wyman said in a joint report.
Revenue from investment banking may drop 20 percent in 2008 before
a further $75 billion in markdowns, analysts led by Huw van Steenis
said in a note to clients today. Six quarters of earnings will
have been erased by writedowns and falling revenue by this month,
rivaling the collapse of the junk bond market at the end of the
1980s that put Drexel Burnham Lambert Inc. out of business, the
report said.
``The industry is facing the most severe investment banking crisis
in 30 years,'' the analysts wrote in the report. ``Global securities
markets are in the midst of profound cyclical and structural change.''
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Banks' revenue from their credit businesses may drop as much
as 60 percent, the analysts said, and the firms will have to provide
more transparency to investors who buy their loans. At the same
time, regulators will push the industry to retain more capital
as a cushion, hurting banks' return on equity in the long-term,
the group added.
Banks' earnings have been hit for the past three quarters by
the turmoil in the credit markets, the report said. In total,
the crisis may last for eight to 10 quarters, exceeding the six-
quarter duration of the Asia crisis and bailout of LTCM in 1997-
8, and the seven-quarter fallout from the bursting of the dot-
com bubble, the report said.
Investment-banking revenue has also stalled as the pace of takeovers
and initial public offerings declined in the first quarter of
2008. Writedowns and losses on subprime-infected assets have already
cost the world's biggest financial institutions about $230 billion
since the start of 2007.
Full
article here.
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INFOWARS:
BECAUSE THERE'S A WAR ON FOR YOUR MIND
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