Oppenheimer Forecasts Credit Crunch to Last Past 2009
- May 20, 2008
New York–The U.S. credit crisis will last beyond 2009, and banks will write off more than $170 billion in additional reserves, New York-based investment firm Oppenheimer & Co. said in a research note released Tuesday.”The real harrowing days of the credit crisis are still in front of us and will prove more widespread in effect than anything yet seen,” according to a team of analysts led by Meredith Whitney. “Just as strained liquidity pushed so many small and mid-sized specialty finance companies to beyond the brink, we believe it will do the same with the U.S. consumer.”Along with Kaimon Chung and Joseph Mack, Whitney cut U.S. bank earning projections because of ” strained liquidity resulting from shut down in the securitization market,” citing expectations that banks may take $88 billion of provisions in 2008 and $96 billion in 2009, Bloomberg said.To finance consumer lending, banks have become dependent on securitization markets, according to Whitney. Because that market basically collapsed after the credit crunch, banks will have a hard time matching the backing from their balance sheets–which will remove $3 trillion of capital market liquidity by the end of 2009.In addition, banks will have to increase borrowing rates and reduce the amount of available consumer credit as part of U.S. regulators’ plans to increase credit card sector oversight, resulting in the elimination of roughly $2 trillion in credit card lines by 2010. The reduction will cut the amount of credit open to U.S., consumers by nearly half, Bloomberg said.