Sep 2008 Financial News

TURMOIL - T&T braces for fallout from US market crash

Sep 16, 2008

The stunning, sudden tumble in the US financial system at the weekend is not good news for investment markets around the world, including Trinidad and Tobago's, Central Bank Governor Ewart Williams said yesterday.

New York's Wall Street suffered its worst day yesterday since the September 11 terror attacks as fears surged after once proud financial institution Lehman Bros filed for Chapter 11 bankruptcy and Merrill Lynch was forced to accept a US$50 billion takeover by Bank of America Corp, the number two US bank.

The world's largest insurer, American International Group, was also struggling as it scrambled for capital to stay afloat.

The companies have been brought to their knees as a result of hundreds of billions of US dollars in losses because of bad mortgage and real estate investments.

How things play out could affect the economies around the world, including Trinidad and Tobago's, and Governor Williams admitted yesterday: "This is not good news for anybody. These are not good times for anyone."

During a telephone interview from his office at the Central Bank Tower in Port of Spain, Williams said: "We are still analysing what this means to us because we invest the country's reserves directly and indirectly through external managers in the United States. Lehman is one of those but while the parent company has gone bankrupt, Lehman's subsidiaries (which handle Trinidad and Tobago's cash reserves) will continue."

With regard to possible financial contagion, Williams said in a broad sense, the turmoil on Wall Street would mean a rush to quality financial instruments and products.

US Treasury instruments would also increase in prices while yields will fall and rates of return will also drop, he added.

The majority of the Central Bank's investments are short term money market instruments that are insulated to an extent but Williams admitted that current uncertainty will "confuse investment strategy and it is something we will need to keep close tabs on".

"There are no immediate risks but the investment landscape has changed markedly," Williams said, noting that for people involved in trading in the US stock markets, there would be "tremendous uncertainty" with the weakening of the economy.

It was uncertain yesterday what would happen to Merrill's 60,000 employees or the 25,000 working at Lehman Bros.

Local bankers maintained yesterday that commercial institutions were largely insulated from the credit crunch but feared investors would now become more wary about new financial products.

A prominent investor and another stockbroker also worried that Government's unbridled spending could lead to an even greater economic fallout in this country in a few years. (See sidebar).

"The credit crunch has not worked itself out yet," Williams said when asked for a long-term prognosis. "We are going to see more fallout."


Source:
Curtis Rampersad
Daily Express
Tuesday, September 16th 2008

http://www.trinidadexpress.com/index.pl/article_news?id=161376417