Citigroup's Rhodes urges lending restraint
FRANKFURT, March 29 (Reuters) - Recent market turmoil serves as a warning that a significant market correction is likely within the next 12 months, Citibank chairman William Rhodes said, urging restraint in lending and investing.
Writing in the Thursday edition of the Financial Times, Rhodes, who also is senior vice chairman of the world's largest lender, said economic expansions tend to last five to seven years and the United States now is entering its sixth year.
"Against that background, I believe over the next 12 months a market correction will occur and it will be a real correction," said Rhodes, a veteran of emerging market debt crises.
The primary worry for market makers and regulators is the possible destabilising effect of new participants, namely hedge funds and private equity, when liquidity in markets recedes, he said. Conversely they may provide relief for markets facing liquidity shortages.
"Either way, this clearly is the time to exercise greater prudence in lending and in investing and to resist any temptation to relax standards," Rhodes concluded.
He said investors should not be complacent after sailing through the short-lived market upset of May 2006 caused by debt downgrades.
"Market developments in the last few weeks should be seen as a warning. What has been evident for a number of months is that, in the U.S., we are seeing lagging inflation and slower growth.
"Whether this means that we are going to have to fend off recessionary tendencies is not yet clear. However, what is clear to me is that in the next year a material correction in the markets will occur," Rhodes wrote.
