Merrill LynchChief Executive John Thain said the global economy is in a deep slowdown and will not recover quickly, and the environment recalls 1929, the advent of the Great Depression.
Speaking Tuesday at his bank's annual financial services conference, Thain said he was "cautiously optimistic" about the outlook for the industry. But he said credit remains constricted and asset prices generally are still falling.
"The U.S. economy is contracting very rapidly," creating uncertainty "at least over the next few quarters," Thain said. "We are going to be in a very difficult economic environment for a significant period of time."
Conditions deteriorated as the housing market collapse mushroomed into a more general crisis of confidence.
This resulted in market-shaking events, including the Sept. 15 bankruptcy of Lehman Brothers and Merrill's decision the same day to quickly sell itself to Bank of America for $50 billion.
Through Monday, the value of the all-stock merger had fallen 42 percent because Bank of America shares are down. Thain nevertheless said market conditions for financial services companies were improving, in part because of the government's $700 billion industry bailout package.
As an example, he said Merrill recently issued three-month commercial paper, which typically funds companies' day-to-day operations. For a time, it had been able to issue only overnight paper.
Commercial paper markets seized up following Lehman's bankruptcy, causing a run on some money market funds that buy the short-term debt.
"Although things are starting to improve, this is going to be a long process," he said.
Thain said one had to look back to the 1929 period "to see the kind of slowdown we're experiencing now. "It is not like '87, it is not like '98, it is not like 2001," he said.
Thain was more optimistic about the Bank of America merger.
He said it gives Merrill a chance to sell more products, and combines its strengths in wealth management, investment banking, and sales and trading with Bank of America's strengths in retail banking, corporate lending and Treasury services.
"We're in a good space to weather this economic storm," he said.
Shareholders of both companies are scheduled to vote on the merger on Dec. 5, with a closing expected by year's end.
In morning trading, Merrill shares were down 73 cents to $14.78, while Bank of America fell 91 cents to $18.57.