Bear rescue averted 'systemic risk'

Merrill Lynch & Co Chief Executive Officer John Thain said the US Federal Reserve's rescue of Bear Stearns Cos helped avert "systemic risk" to the global financial system posed by the credit market meltdown.

The move "has given the market a great degree of confidence that nothing is going to be systemically damaging," Thain said, speaking to reporters in Tokyo yesterday.

Bear Stearns, the fifth-largest US investment bank, became the most prominent victim of the global credit squeeze last month when JPMorgan Chase & Co agreed to take it over with the Fed's backing. Fed Chairman Ben Bernanke said last week that a failure of Bear Stearns could have led to a "chaotic unwinding" of investments throughout the US economy.

"The current credit crisis is the most wrenching of the last half century and possibly more," Alan Greenspan, the former Fed chairman, told a conference in Tokyo yesterday via satellite from Washington.

Merrill's stock has jumped 15 percent in New York trading since the Bear Stearns rescue was announced on March 17, after falling 49 percent in the preceding 12 months. Goldman Sachs Group Inc, the biggest US brokerage, has risen 18 percent after losing 25 percent.

Thain repeated that Merrill, which raised $12.2 billion from investors including Korea Investment Corp and Mizuho Financial Group Inc, doesn't need additional capital. "We deliberately raised more capital than we lost last year," he said.

Merrill has eliminated more than 2,200 jobs, or about 4.5 percent of its workforce, joining Wall Street rivals including Citigroup Inc, Lehman Brothers Holdings Inc and Morgan Stanley in slashing costs to halt losses.

Thain said he's still reviewing costs, declining to elaborate. Asset writedowns caused Merrill to report a record loss for the fourth quarter.

"In this difficult environment, to focus on expenses is a logical thing for us to do," Thain said.

Agencies

(China Daily 04/09/2008 page17)