BlackRock, Goldman See Credit Problems Continuing

Bloomberg reports that at a Merrill Lynch sponsored investor event, both BlackRock CEO Larry Fink and Goldman CEO Lloyd Blankfein gave negative readings for the credit market, particularly CDOs and subprimes. Goldman is putting its money where its mouth is and is short mortgage-related debt.

BlackRock also said it was in contact with the Treasury about forming a vulture fund for distressed debt.

From Bloomberg:

Laurence Fink, who helped create the market for mortgage-backed securities, said the credit losses that have already cost banks and securities firms $45 billion are about to get worse.

Fink, chief executive officer of New York-based fund manager BlackRock Inc., said today at an investor conference that “many institutions don’t understand what the credit crunch is going to do to earnings and their balance sheet.” At the same conference, Goldman Sachs Group Inc., CEO Lloyd Blankfein said his firm is continuing to bet that mortgage-backed securities and collateralized debt obligations will fall……

Blankfein said Goldman, the world’s most profitable investment bank, doesn’t plan to take any significant writedowns on mortgage-related assets. Goldman shares rose 8.5 percent to $233.04 at 4 p.m. in New York Stock Exchange composite trading, and other financial stocks also climbed.

“We continue to be net short in these markets,” Blankfein, 53, said in response to a question about the New York-based firm’s position.”…..

“I don’t know when it’s over, but it’s not over yet,” Fink, 55, said. “The bottom has not been achieved yet.”….

BlackRock, the largest U.S. publicly traded asset manager, has been in contact with the Treasury, Fink said. BlackRock will raise “multibillion dollars” to invest in distressed securities that are resulting from the “chaos” in the market, Fink said, while declining to elaborate on fund details

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  1. Anonymous

    Just curious: do you have a view as to why BlackRock would require the assistance/participation of the Treasury department to form a vulture fund?

    More evidence that ‘capitalism isn’t perfect?’

  2. Anonymous

    That’s a great point. Why would Fink involve the Treasury regarding setting up a distressed fund. Could Blackrock be getting some kind of unfair advantage in profiting from the market “chaos”.

  3. Yves Smith

    Anon of 5:36 PM and 10:26 PM,

    Re Fink calling Paulson: it isn’t hard to notice how inappropriately active Paulson has been in promoting the SIV bailout plan. He seems desperate to be seen to be doing something.

    So this could be nothing more than your tax dollars at work. Fink realizes he can rent a very well connected, tireless, aggressive salesman who has great media access at no cost to him. Who wouldn’t take advantage of that? And if the SIV turns out to be a turkey, Paulson will be even more eager to have his name associated with something that actually worked.

  4. Anonymous

    It is not clear from the story whether the “talking to the treasury” and “forming a vulture fund” are necessarily linked.

    Reporting is sloppy enough these days that I wouldn’t necessarily link those two thoughts as Yves did. It’s not a crazy inference, but seems to me we would have heard more about this by now if was anything other than the MLEC monstrosity.

  5. Yves Smith

    Anon of 12:56 PM,

    Good catch. I was reacting to the two reader comments earlier, did not look back at the original post.

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