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Roubini says banking system now insolvent - David Guyatt - 20-01-2009
Roubini Predicts U.S. Losses May Reach $3.6 Trillion (Update1)
2009-01-20 09:36:27.384 GMT
(Updates with Roubini quotes in fifth paragraph.)
By Henry Meyer and Ayesha Daya
Jan. 20 (Bloomberg) -- U.S. financial losses from the
credit crisis may reach $3.6 trillion, suggesting the banking
system is “effectively insolvent,” said New York University
Professor Nouriel Roubini, who predicted last year’s economic
crisis.
“I’ve found that credit losses could peak at a level of
3.6 trillion for U.S. institutions, half of them by banks and
broker dealers,” Roubini said at a conference in Dubai today.
“If that’s true, it means the U.S. banking system is
effectively insolvent because it starts with a capital of $1.4
trillion. This is a systemic banking crisis.”
Losses and writedowns at financial companies worldwide
have risen to more than $1 trillion since the U.S. subprime
mortgage market collapsed in 2007, according to data compiled
by Bloomberg.
Bank of America Corp., the largest U.S. bank by assets,
posted a quarterly loss of $1.79 billion last week, its first
since 1991, and received $138 billion in emergency government
funds. Citigroup Inc. posted an $8.29 billion fourth-quarter
loss, completing its worst year, and plans to split in two
under Chief Executive Officer Vikram Pandit’s plan to rebuild a
capital base eroded by the credit crisis.
‘Bankrupt’ System
“The problems of Citi, Bank of America and others suggest
the system is bankrupt,” Roubini said. “In Europe, it’s the
same thing.”
Stocks in Europe, Canada and Brazil dropped yesterday on
speculation government efforts to shore up the financial
industry will fail to stem the deepening global recession. The
U.K.’s Royal Bank of Scotland Group Plc said it expects to post
a loss of as much as 28 billion pounds ($41 billion) for 2008
and the government got ready to raise its stake in the lender.
Oil prices will trade between $30 and $40 a barrel all
year, Roubini predicted.
“I see commodities falling overall another 15-20
percent,” Roubini said. “This outlook for commodity prices is
beneficial for oil importers, it’s going to imply that economic
recovery might occur faster, but from the point of view of oil
exporters, this will be very negative.”
Oil has tumbled 77 percent from its July high of $147.27
as the global economy sinks into recession, straining the
budgets of crude exporters. Saudi Arabia, Oman and Dubai, the
second-largest sheikdom in the United Arab Emirates, have said
they will post budget deficits this year. HSBC Holdings Plc
said this week it is forecasting an average oil price of $45 a
barrel for this year.
Crude oil for February delivery traded as low as $33.18 a
barrel, down 9 percent from last week’s close, in after-hours
trading on the New York Mercantile Exchange at 4:23 p.m.
Singapore time.
For Related News:
For Top Economic Stories:TOP ECO <GO>
--Editors: Louis Meixler, John Fraher.
To contact the reporters on this story:
Henry Meyer in Dubai at +971-4364-1022 or
hmeyer4@bloomberg.net
Ayesha Daya in Dubai +971-4-364-1023 or
adaya1@bloomberg.net