Optimism on the US side over the Sub Prime problem

Nov 15, 2007

US bank stocks up as execs calm investors
Lenders downplay write-downs, losses, saying system can withstand shocks

CONFIDENT: Goldman, Bank of America and JPMorgan have assured investors that they can take losses from their exposure to the mortgage crisis.

NEW YORK - TOP executives at America's banks have reassured investors that the system can withstand shocks from mounting loan and credit losses, even as the nation's housing slump worsens.

Comments from Bank of America, Goldman Sachs, JPMorgan Chase and Morgan Stanley helped fuel a 2.9 per cent surge in the Standard & Poor's 500 on Tuesday. The Dow Jones Industrial Average rose 319.54 points, or 2.5 per cent.

Investors have worried that mounting write-downs and losses from mortgages and other debts, leveraged loans, and consumer lending will cut profits and, for some lenders, capital levels and dividend payouts.

The comments at a Merrill Lynch banking conference suggested that 'maybe things are not as bad as everybody says it's going to be', said Mr David Levy, portfolio manager of Kenjol Capital Management.

Goldman shares soared 8.5 per cent, their biggest gain in more than six years, after chief executive Lloyd Blankfein said Wall Street's largest investment bank by value expected no significant write-downs from the current credit market turmoil.

Investors have been concerned that Goldman's cache of hard-to-value assets has made the bank a prime candidate for disappointment, following an unusually strong third quarter.

'It's a good thing. It's not a big deal for the US economy and certainly a much smaller deal for the world economy.' - MR DIMON, CEO of JPMorgan, on the sub-prime marketBank of America's exposures to losses and turbulence are 'manageable', says chief financial officer Joe Price

Bank of America, the US' second-largest bank, has said it expects to write down US$3 billion (S$4.36 billion) for its exposure to collateralised debt obligations, including some backed by US sub-prime mortgages.

It also expects to set aside US$600 million to support money market funds exposed to risky debt. It also projected a US$300 million write-down for a bad investment. But Bank of America chief financial officer Joe Price called the bank's exposures to losses and market turbulence 'manageable'.

Mr Jamie Dimon, chief executive of JPMorgan, said 'we think we're fine'.

'It was something good that went way to excess. But remember, sub-prime is minority groups, younger folks, immigrants, people who had problems earlier in their life,' he said.

'There's nothing wrong with sub-prime. It's a good thing. It is not a big deal for the US economy and certainly a much smaller deal for the world economy.' he added.

REUTERS