John Thain

Crisis, Redemption and Bubbles

John Thain Bloomberg
Mr. Thain, a long-time Wall Street banker, warns that new asset bubbles may be forming.
  • Why it matters

    Why it matters

    If financial regulators can find the right balance, growth will be possible while evading the danger that people and institutions break rules.

  • Facts

    Facts

    • Global markets have fallen sharply since the start of this year, and the price of oil has fallen to just over $30 a barrel.
    • Politicians in the United States have called for financial risk to be reduced by breaking up larger banks.
    • In December, the Bureau of Labor Statistics announced 292,000 jobs were created in the United States, where unemployment is at 5 percent.
  • Audio

    Audio

  • Pdf

John Thain hasn’t moved far. The office tower of Bank of America, the bank that let him go in 2009, sits nearly wall-to-wall with his new employer, CIT Group, in Manhattan’s Bryant Park.

Mr. Thain was fired by Bank of America just months after he had engineered the sale of Merrill Lynch, one of the biggest headline-grabbing moves of the global financial crisis. Convincing the powerful BofA to buy Merrill Lynch made Mr. Thain one of the saviors of the 2008 crisis by helping Wall Street stave off an even deeper collapse.

But he didn’t do Bank of America any favors, as the bank would soon find out when it opened up Merrill Lynch’s balance sheet, which had run into deep trouble in the run-up to the crisis. Mr. Thain, who led Merrill Lynch from December 2007 to the start of 2009, was let go soon afterwards. His public reputation suffered greatly because of it.

That was just one chapter in Mr. Thain’s illustrious career, which included a long stint at Goldman Sachs and three-year term as head of the New York Stock Exchange. Since 2010, he has served as chairman and chief executive of CIT, a financial institution with a $65-billion balance sheet that was in bankruptcy protection when he took it over.

It’s a career that has given him deep insights into the structures and operations of Wall Street. In an interview with Handelsblatt, Mr. Thain offers his view of the financial markets today, on the still-remaining risk of too-big-to-fail banks, and on a crazy U.S. presidential election cycle that has left his own favored candidate – Jeb Bush – struggling to gain traction.

He also looks back over the key decisions of his career: without anger, but also without much regret.

 

Handelsblatt: Mr. Thain, the start of the year has been pretty turbulent for global markets. Could a hard landing in China trigger a crash in Europe and the United States?

John Thain: There’s no question that China has an enormous influence on the rest of the world, it’s the world’s second-largest economy. What’s going on in China impacts markets and impacts business around the world. I don’t think that China is going to have a hard landing. Its growth is slower but it’s still an economy that’s growing at a faster rate than most of the rest of the world.

With a slowdown feared in China, the oil price has also collapsed. Should we be worrying about a wave of bankruptcies in the energy business? Some providers in the United States won’t be able to survive without higher prices.

There’s a lot of focus on this right now and it’s not only oil. It’s also the price of gas. Certainly the price declines are having an impact on a lot of the oil field services companies, as well as the owners of the reserves. Everyone is focusing on this: What is each financial institution’s exposure? What are they doing about it?

How deeply is CIT caught up in this area?

We answer this question on every single one of our earnings calls. Our total energy exposure is about $1 billion. We’re a $65-billion institution, so as a percentage of our overall exposure, it’s relatively small. And it’s collateralized and we spend a lot of time looking at it on a loan-by-loan basis. If oil stays where it is, there will be more pain and there will be more bankruptcies in the oil services sector. I expect the credit quality of our portfolio will deteriorate if energy stays where it is and I expect all of the lenders in the energy space will see deterioration in their credit portfolios.

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