UPDATE 1-US fiscal cliff tops BlackRock's Fink's worry list

Thu Oct 25, 2012 7:47pm EDT

By Katya Wachtel and Jonathan Spicer

NEW YORK Oct 25 (Reuters) - The so-called fiscal cliff of automatic spending cuts and tax rises set to occur on Jan. 1 if Congress fails to act before then will be the most important issue facing the next U.S. president after the election, BlackRock Chief Executive Laurence Fink said on Thursday, citing a "very strong risk" of another U.S. ratings downgrade.

Fink, addressing a conference hosted by The Economist magazine, lamented that President Barack Obama and Republican challenger Mitt Romney did not address the cliff in their pre-election debates. Nonetheless, Fink sounded more positive on U.S. economic prospects relative to Europe, particularly France, which he said is the most likely reason the euro zone would collapse.

Addressing the fiscal cliff, Fink, the chairman and CEO of the world's largest asset manager, predicted U.S. lawmakers would strike a modest $300 million to $400 million cut in the deficit before the end of the year.

"The most important issue affecting the next president will be how they deal with the fiscal cliff, and not one question from one of the (debate) interviewers ... was how are you going to deal with that," Fink said.

While politicians wait for the last moment to act, corporate CEOs are hoarding cash, which harms the economic recovery, Fink said.

The spending cuts and tax rises could take an estimated $600 billion out of the U.S. economy and push it into recession next year, according to the non-partisan Congressional Budget Office.

If Romney wins the presidency, Fink said it would require a lot more work to strike a deal with Congress to avoid the worst of the fiscal cliff, than if Obama were to win. This is because the Republican has made "some very large statements" about reducing taxes to fix the economy.

"If our behavior shows we cannot address the fiscal cliff," and Congress shows little bipartisanship, Fink said there is a "very strong risk of downgrade" to the U.S. credit rating.

However, he added that any downgrade would not be meaningful if foreign investors still consider U.S. government debt the global benchmark.

He was particularly upbeat on the U.S. housing and energy sector, while noting U.S. banks are in "great shape." BlackRock is one of the largest Citigroup Inc shareholders.

Turning to the euro zone debt crisis, where Spain and Italy are under pressure in the bond markets, Fink suggested investors should instead focus on France. He argued that even if France lowers its deficits, the second-biggest euro-zone country is still "structurally uncompetitive" relative to Germany and countries outside of Europe.

Fink, among the names floated as a possible successor to Treasury Secretary Timothy Geithner if Obama were to be re-elected, said "I'm really happy with my perch," when asked about the job. "I think there are a lot more opportunities where I'm sitting already."

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