Fund manager BlackRock expects the global credit crisis to last another two to four years as a weakening U.S. economy triggers more writedowns by banks, its chief investment officer for equities said on Monday.
The prediction was one of the starkest so far by a global investor about the length of a crisis that began last year with the collapse of the U.S. sub prime mortgage market, roiling financial markets.
The turmoil has led the $1.4 trillion money manager to be underweight on financial shares.
"The credit crisis will be with us for a long time," said Bob Doll, also vice chairman of BlackRock.
"The deliberating of the financial system, which is the outgrowth of the credit crunch, will likely last a couple of more years - two, three, four."
But BlackRock has also benefited from the crisis, acting as a top adviser to troubled banks, who have been trying to restructure distressed assets.
Recently it purchased a massive sub prime portfolio from UBS, which analysts saw as a sign investors were returning to assets previously considered too risky.
Doll, an ex-Merrill Lynch executive, said the worst of the crisis has passed after the Federal Reserve-led rescue of crippled investment bank Bear Stearns in March, but warned a slowdown in the United States threatens more credit-related problems in the months and years ahead.
"We've seen the worst of it in terms of crisis, write-offs, but there is still more to come," Doll told a group of reporters during a visit to Singapore.
"A slowing below-trend growth in the economy will expose more of them.Whether it is in the mortgage area...or in other consumer loans, auto loans, credit card loans - there are more write-offs to come."
Chua Hak Bin, investment strategist at Deutsche Bank Private Wealth Management in Singapore, told Reuters other investors had not predicted an exact timeline for any recovery from the credit crisis, but most also see it being slow.
Financial institutions around the globe such as Citigroup and Merrill Lynch have suffered more than $300 billion of write-downs and credit losses during a credit crisis triggered by the collapse of the U.S. sub prime mortgage market.
Ratings agency Standard & Poor's said on Friday the number of companies around the world at risk of getting a credit downgrade climbed to a record in May amid the credit squeeze.
Overweight On US Stocks
Doll said that probability of another failure like Bear Stearns was "very low" because of the recent measures by the U.S. Federal Reserve to allow cash to investment banks by opening its discount window.
"The point is policy-makers make bold, creative moves when the pressure is on and their back is (against) the wall."
Doll said BlackRock, despite being underweight on financials, is still overweight on U.S. stocks since some large multinationals such as technology firms are benefiting from growth outside the United States and from a weaker U.S. dollar.
Doll said the U.S. economy was in for a period of slower economic growth but a recession was unlikely unless oil and commodities prices continued to rally.
"If these commodities continue to move up at a pace they've been moving up of late, all bets are off. The U.S. will be in a recession," he said.
U.S. crude's dramatic near-$11 jump on Friday to a record of around $139 a barrel - its biggest-ever one-day spike in dollar terms - fuelled concerns about inflation and consumers' spending power, a key driver of economic growth.
Stocks hit 1-month lows on Monday after the surge in oil prices and weak U.S. jobs data emphasized the global economy is facing a damaging mix of rising prices and slowing growth - 1970s-style stagflation.
"We think we've had a correction in a bull market, not a bear market," Doll said. "At some point of time the bull market will end - it is usually because an economic expansion ends and it is usually about an inflation problem and central banks raising rates."