BlackRock CEO says market environment likely to get worse in coming months

By Jennifer Lanning Drey

Portland, Ore., Dec. 11 - The current hostile environment in the financial markets is still likely to get worse before it gets better, BlackRock Inc. chief executive officer Laurence D. Fink said Thursday during an investor presentation at the Goldman Sachs Financial Services Conference in New York.

"In the next month or so, we're going to see a lot of corporate failures and we're going to see a lot of problems associated with the leveraged loans and private equity firms that did transactions in 2006 and 2007 with 6-to-1 and 7-to-1 leverage," Fink said.

Additionally, fourth-quarter earnings are likely to be "shockingly bad," with earnings from financial institutions particularly "horrific" due to additional impairments taken in November, he said.

"November was the cruelest month of all months in this credit crisis in terms of impairments," he said.

On top of that, Fink said November unemployment numbers indicate layoffs will worsen in the coming months, and BlackRock believes the unemployment rate could briefly top 10%.

However, Fink noted he also believes that banking system stress and the risk of insolvency among financial institutions has been largely eliminated.

"If the market can see beyond the large headline-grabbing unemployment rate and the bad fourth-quarter earnings and look beyond that, there is hope in the future," Fink said, adding that the bottom of the equity market may be seen during the next three months.

Ideas for stabilization

In response to the dismal conditions and a belief that government money channeled into financial institutions so far has disappeared due to lower asset values, BlackRock intends to rally government forces in the coming weeks for a series of further initiatives the firm believes are needed to stabilize markets.

"Creating stability in mortgage assets will create stability in balance sheets. Creating stability in balance sheets will then create more capital to get back into the systems," Fink said.

Specifically, BlackRock believes the government must clarify its Fannie Mae and Freddie Mac guarantees in order to begin to stabilize the housing market.

In addition, BlackRock is recommending a purchase program consisting of Fannie/Freddie-eligible mortgages to be bought by the U.S. Treasury.

BlackRock will also recommend that mortgages become assumable in order to increase their value and demand.

BlackRock is an investment management firm based in New York.

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