At least someone is finally telling the public about the risks associated with excess liquidity. Bank of America's Lewis Calls for Lending `Sanity' (Update2) By Warren Giles and Mark Pittman May 9 (Bloomberg) -- Bank of America Corp. Chief Executive Officer Ken Lewis said a so-called credit bubble is about to break after six years of historically low interest rates and relaxed lending criteria. ``We are close to a time when we'll look back and say we did some stupid things,'' Lewis said, speaking at a lunch at the Swiss-American Chamber of Commerce in Zurich. ``We need a little more sanity in a period in which everyone feels invincible and thinks this is different.'' Demand for so-called junk bonds is close to its highest in a decade, while risk premiums are near their lowest level in a decade. Investors demand an extra 2.69 percentage points to own high-yield, high-risk securities instead of Treasuries, about 2 percentage points less than the spread's 10-year median, according to Merrill Lynch & Co. index data. The spread on Feb. 22 came within 5 basis points of the all-time low of 2.44 percentage points, set on Oct. 17, 1997. Junk bonds are rated below Baa3 by Moody's Investors Service and BBB- by Standard & Poor's. Bank of America has been the No. 2 arranger of high-yield loans every year since 2000, according to data compiled by Bloomberg. Lending rates for companies rated four or five levels below investment grade are only 28 basis points higher than their all- time low in February of 2.12 percentage points over the London interbank offered rate. Bad Deal Lewis, 60, said ``We need a deal to go bad, as long as we're not in it.'' The global high-yield default rate fell to 1.5 percent in April from 1.7 percent at the end of 2006, its lowest year-end level since 1996 and its fifth straight annual decline, according to Moody's. Defaults will rise this year, according to Edward Altman, a New York University professor who in the 1960s created a widely used mathematical formula that measures the risk of corporate bankruptcy. Altman predicts 2.50 percent of the $1.1 trillion junk bond market will default this year, up from 0.76 percent at the end of 2006. The rate will climb to 2.72 percent in 2008, he said in January. Some bank executives, including Barclays Plc President Robert Diamond, say the credit rally may run longer. ``I think the liquidity is probably a little bit more sustainable than he would think,'' Diamond said in an interview today. ``Only time will tell.'' He said bond yields are increasing and volatility ``will be back.'' LaSalle Bank Charlotte, North Carolina-based Bank of America is trying to buy the LaSalle unit of Amsterdam-based ABN Amro Holding NV for $21 billion. Lewis, who started his career as a credit analyst, also said ``risk is being distributed so much more effectively than in the past'' because it's ``spread across a broad range of investors.'' The chief executive said that while the bank has turned down some corporate customers as too risky, ``the deals we've turned down have been taken up quickly by others.'' Lewis said real estate prices, punctured by defaults among subprime borrowers, should stop falling by the end of this quarter, ``and won't drift over into the prime or super-prime market.'' While wages and employment are rising, ``people won't be giving up their homes in that environment,'' Lewis said. ``The subprime market was exacerbated by poor lending techniques by a few.'' No Subprime Bank of America is ``not considering doing subprime'' mortgages, Floyd Robinson, its mortgage head, said in a May 7 interview, even though the sale or closure of at least two dozen companies focused on lending to borrowers with poor credit or high debt within the past year has lessened competition. Lewis's comments were preceded by some pessimism from Wells Fargo & Co. Chief Executive Officer Richard Kovacevich who said in December that ``I am not a forecaster of the future; I'm a historian. And history says this will blow up. It always has. And there will be some blood on the street.''
Hilarious, considering http://today.reuters.com/news/artic...S-BANKOFAMERICA-IMMIGRANTS.xml&src=rss&rpc=22 I wonder what the 'risk' is in making credit cards available to illegal aliens who have no SSN#, DDA/SDA accounts with no state id's when they default. Actually on second thought. There is no risk since citizens who follow the rules are the bag holders. Bankers are just like politicians. You can only tell theyre lying when their lips move. Lewis problem is he probably didnt make enough subprime loans that worked out to cover the ones that didnt
=============== Dont know the risk to aliens but at apr of, what are they,-19-33%, plus late fees????? maybe crazy like a FOX. Think i saw on CBN news with Pat Robertson; minimun credit card payment is calculated so its never paid off
They doubled the minimum payments on credit cars last year as I recall. Obviously all the money to pay the interest on all this debt has to come from somewhere, so the Fed prints it? The guy from BAC is right, but sort of like Greenspan's irrational exuberance comment taking 3 yrs to come true, it could be a while for this one, too. The market can stay irrational longer than you can stay solvent. My guess is its not until the LBO chickens come home to roost, the yen rises, or the economy slows. When credit starts to contract it will contract quickly, IMO.