Thursday, July 3, 2008

Deutsche Bank’s Jain: Crisis is Solvency, Not Liquidity

(Housing Wire) Anshu Jain, head of global markets at Deutsche Bank AG (DB: 87.12, +1.73%), said in remarks Thursday that most financial institutions are now facing a solvency issue around housing — a surprising assessment, to say the least, and one that underscores just how damaging the continued freefall in U.S. housing is likely to be for financial outfits that invested heavily in the area during the recent run-up.

Of course, that banks are now facing a so-called solvency challenge isn’t really the surprising part — HW wrote about the issue after the Bear Stearns bailout back in early March; what’s surprising is that Jain would publicly remark on the matter, sources told HW Thursday morning.

Jain was among the first major Wall Street executives to call the subprime slump in mid 2006, and usually tries to stay out of the limelight; sources suggested that he usually attempts to avoid sounding too extreme, as well, a viewpoint buttressed by a 2007 story at the Financial Times that said Jain was “keen to avoid sounding alarmist about market woes.”

All of which makes his alarming take on the state of the capital markets worth noting. Bloomberg News reported Thursday morning on his remarks at a Euromoney conference in London, in which the Deutsche Bank exec said that the crisis was one of the “three biggest crises faced by the insurance industry” and that “it’s by no means over.”

Jain reportedly declined to predict when all of the current mess will be over, an increasingly common trend among market participants; it’s clear at this point that even the market experts aren’t sure what’s going to be coming next, only that something will be coming.

At least one common thread throughout this mess continues to be that until housing recovers, neither will banking and finance — a sentiment Jain echoed Thursday as well.

“Banks continue to need and raise equity capital, and the proportion of equity capital which is required is directly driven by the further drop in assets they own,” Jain was quoted as saying. “One of the assets which continues to be in free fall is U.S. house prices.”

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