Credit Crisis May Bottom in Oct.: Lehman Strategist
A year-long global credit crisis may hit bottom soon, but the threat of more banking losses and slower growth for global economies is mounting, senior Wall Street analysts said Friday.
U.S. and European bank write-downs and losses will likely stretch out to 2009, expanding beyond problem mortgages to other forms of consumer credit, Deutsche Bank chief U.S. economist Peter Hooper told Reuters in a telephone interview.
That in turn may lead to slow growth and possible recession in the United Kingdom, Canada and continental Europe as rising inflation and high oil prices rein in U.S. consumer spending, a senior Lehman Brothers Inc strategist said separately.
"The UK is on the precipice of a recession, Canada is on the precipice, and the same thing for New Zealand and the euro zone," said Jack Malvey, Lehman's chief global fixed-income strategist, in another telephone interview. "You look around the planet, and the next thing is not some exotic instrument. It's a classic consumer-led economic deceleration."
High energy prices will continue to put the squeeze on U.S. consumers, dragging on global growth prospects, he said.
"This is a late-decade credit methodology purification," said Malvey, who expects the credit cycle may bottom in October after the release of more earnings results.
A "credit recession" due to the U.S. housing market downturn may last more than two years, Malvey said last month.
Still, Lehman forecasts that oil prices have peaked and may fall to $90 per barrel by the end of the first quarter of 2009.
Oil hit a seven-week low on Friday, after falling more than $20 in the last two weeks. U.S. crude was $1.90 lower at $123.64 a barrel and traded as low as $122.50, the lowest since June 5. Brent crude lost $2.05 to $124.39.
Concern that high prices and the slowing U.S. economy will undermine demand have helped oil fall from a record $147.27 on July 11.
Deutsche Bank's Hooper said U.S. and European bank write-downs and losses may stretch out over the next six to nine months.
"It will be painful in both the U.S. and Europe," Hooper said in response to a question about future financial write-downs and losses.
"There's more to come, and I don't think we're all the way through the process." "We won't have a sense of that until we know when U.S. home prices bottom and that won't be clear until the first half of next year," Hooper said.