Merrill CEO sees Wall St firms less lucrative
NEW YORK (Reuters) - Wall Street banks will emerge from the credit crunch a little smaller and a little less profitable, Merrill Lynch Chief Executive John Thain told Reuters on Tuesday.
Thain, speaking on the sidelines of a Wall Street Journal conference in New York, said the use of lower leverage and more cautious markets will squeeze the eye-popping returns generated by investment banks during the boom period.
"The returns will be lower, but they can still be good returns. People just won't make mid-20 to 30 percent returns on their equity. If they make mid-teens (percent) returns on their equity, that's OK," Thain said in a brief interview.
Investment banks, including Merrill, have been shedding assets and bolstering balance sheets hammered by losses on subprime mortgages, leveraged deal loans and an array of risky debt instruments. These businesses helped fuel record profit on Wall Street in recent years, but have dwindled since the credit crunch hit last summer, slashing profits.
Thain reiterated that Merrill raised more than it needed when it sold more than $12 billion of stock and convertible debt. He declined to comment on Merrill's second-quarter results so far.
Thain also said that as of Tuesday Merrill has about $44 billion of equity capital.
Looking ahead, Thain expressed optimism that many fixed-income businesses that froze up last summer will recover -- if at a smaller scale.
"I think there still will be leveraged lending. I think there will not be the same kind of structured transactions, such as CDOs. There's still going to be a mortgage business. People still need mortgages, they're just not going to have these highly complicated derivative structures," he said.
Thain said Merrill is completing some asset-backed securities deals now.
"We and others are still doing CMBS (commercial mortgage backed securities), and so people will still be able to do securitized deals," Thain said. "You just have to do simpler, more rational ones."
(Editing by Gary Hill)
