Merrill's Thain: Credit crisis easing

By Rina Chandran

MUMBAI (Reuters) - The U.S. credit crisis is easing and the risk in its housing market is dramatically lower now, but economic growth will remain under pressure over the next year, the chief executive of Merrill Lynch & Co Inc (MER.N: Quote, Profile, Research) said.

U.S. investment banks, which have suffered massive subprime-related losses, are not likely to report such big losses in the coming quarters, although banks with a big exposure to consumers will see more pain, John Thain said on Wednesday.

"I believe the combination of falling home prices, rising food and energy prices and higher unemployment will result in a pull back on the part of the U.S. consumer, which will continue to exert a drag on the economy over the next 6-12 months," he said on a visit to the bank's India operations.

Dismal results on Tuesday from UBS (UBSN.VX: Quote, Profile, Research), Lazard Ltd (LAZ.N: Quote, Profile, Research), Fannie Mae (FNM.N: Quote, Profile, Research) and Legg Mason Inc (LM.N: Quote, Profile, Research) suggest that the credit turmoil is far from over, with more write-downs, layoffs and losses expected in the months ahead.

Merrill posted a $2 billion first-quarter loss last month, its third consecutive quarterly loss, amid hemorrhaging in subprime mortgages, collateralized debt obligations and other risky investments.

It has recorded more than $30 billion of write-downs since the third quarter, and Thain has said they were planning for slower, more difficult next few quarters, although he was optimistic about fiscal year 2008.

"Investment banks are already doing a pretty good job of taking write-offs and raising capital and it's not likely that you will see any kinds of those losses going forward," he said.

"But banks that have a consumer exposure, like credit cards and home equity loans, are likely to experience greater delinquencies going forward than we've seen."