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Consolidation of banks to continue apace: US broker

“Retail mortgage-backed securities are still going to be problems as housing prices continue to fall ... The problem in the housing market will continue for some time.” — John Thain, Merrill Lynch & Co chief executive

Merrill Lynch & Co chief executive John Thain said on Tuesday that he expects further consolidation among US banks and brokers and contends there are steps they can take to avoid collapse amid the current credit turmoil.

Thain listed raising capital to manage losses as one way investment banks can survive.

Financial companies have been forced to find outside investors after taking close to US$300 billion in writedowns since last year from bad mortgage debt.

He said there would continue to be interested investors, and pointed to Lehman Brothers Holdings Inc.

The brokerage on Monday announced it had raised US$6 billion in new capital after posting a nearly US$3 billion second-quarter loss.

Lehman has been “raising capital to make up for the losses and I wish them well,” Thain said.

“We all have concerns about what we read in the papers,” he said, speaking at a conference in New York sponsored by the Wall Street Journal.

Thain said that consolidation “has been a process on Wall Street.” He believes weaker firms will be snapped up as in the past, but warns that bigger companies are not immune to being broken up.

“Some can get too big,” he said.

There have been calls that Citigroup Inc. might consider splitting parts of its business to find greater efficiency.

There has also been speculation that JPMorgan Chase & Co — after its recent acquisition of a near-collapsed Bear Stearns — might be looking to expand its retail bank.

As for managing Wall Street’s risk levels, Thain said Merrill continues to diversify overseas.

He also does not see an end to the US housing crises or the risky mortgage-backed securities tied to the souring home loans environment.

“Retail mortgage-backed securities are still going to be problems as housing prices continue to fall,” he said.

“The problem in the housing market will continue for some time,” Thain said.
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