HSBC Holdings Plc Chairman Stephen Green foresees financial markets shifting toward Asia as emerging markets grow faster than the rest of the world economy.
“This is an irreversible trend” and Wall Street “will no longer be the center of the universe,” Green, 59, said today at the Spruce Meadows Changing Fortunes roundtable in Calgary. While London won't shrink, it's likely to lose market share, he said.
Banks and securities firms around the world have reported losses of more than $500 billion tied to the subprime meltdown, according to data compiled by Bloomberg. Almost all the damage has occurred at companies based in Europe and the US Markets remain “volatile and fragile” and banks are reluctant to lend because of increased risk, Deutsche Bank AG Chief Executive Officer Josef Ackermann, 60, told the gathering.
“We will see the rise of domestic and regional markets in places like Asia, in places like the Middle East, in places like Latin America,” Green said. He singled out China's banks for good risk management and corporate governance.
The world's biggest financial firms have been forced to raise more than $360 billion to replenish reserves, Bloomberg data show. Writedowns and losses at Deutsche Bank, Germany's largest, have been $10.3 billion, while HSBC’s total $27.4 billion.
Green said he's not predicting the demise of Wall Street or London financial markets.
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“The whole market is going to continue to expand because that's going to be driven by the underlying macroeconomic trends,” he said.
Credit Markets: Gordon Nixon, CEO at Royal Bank of Canada, the nation's biggest bank by assets, called current credit market conditions the worst since the Great Depression and said lack of liquidity, rather than credit quality, is a bigger issue.
“The global financial system has been pushed to the brink and the financial crisis is unquestionably, at least in my view, the most severe since the Great Depression,” Nixon said during his presentation.
A multi-decade era of relatively easy credit is “over” and borrowing will be tougher, said Nixon, 51, forcing lenders and companies that borrow to adjust their business models accordingly.
“There's no question that we went through a period where the pricing of credit became inappropriate, it didn't reflect the risk that was being taken, and that happened over an extended period of time,” Nixon said later at a press conference. “We're now going to go through an extended period of time where that reverses itself.”
Mispriced Liquidity: Bank of Nova Scotia CEO Richard Waugh, 60, said the credit crunch is “the worst we've ever seen” and that liquidity had been mispriced for years without enough regard for risk.
“One of the problems was liquidity was assumed, and it was assumed to be very cheap,” Waugh told reporters.
Former Federal Reserve Chairman Paul Volcker, 81, said the US financial system, dependent upon securitisation rather than traditional bank loans, is broken.
“This bright new system, this practice in the United States, this practice in the United Kingdom and elsewhere, has broken down,” Volcker said at the event. “Changes are going to have to be made” to the global financial system, Volcker said.
“You've got these large highly diversified financial institutions, a combination of investment banking and commercial banking, an institution that's lending, it's trading, it's doing M&A and it's doing investment management,” Volcker said later at a press conference. “That is a recipe for conflict of interest of a profound sort.”