News
State, Region Feel The Effects Of Crisis
Ryan Fennell
The recent developments on Wall Street have New Jersey Governor Jon S. Corzine calling the situation "probably the worst financial crisis since the Depression."
"I don't think there is any question that more institutions going bankrupt than we have ever seen," Corzine, who was chairman and chief executive officer of Wall Street investment firm Goldman Sachs before entering politics, said. "This has had main street impact for over a year. It is getting worse because we are not dealing with the real economy."
Corzine said that the real focus of the federal government should be on housing prices, job growth and making sure that America's middle class "has real economic growth in their personal pocketbook."
"For the life of me I don't understand why people continue to resist the idea that we, as a nation, are in recession," Corzine said. "People are not focused on the what is the fundamental problem of the economy - there is no job growth, declining home values. We actually have a deflation in the value of assets. That is the same thing we had in the '30s. I don't think it's that serious yet, but if we don't get action out of Washington on the real economy, as opposed to how much we've been focusing on the financial institutions, then this will get even worse."
The bankruptcy of Lehman Brothers earlier this week may have a large impact on residents of the two river area according to Rumson Mayor John Ekdahl, who works as first vice president for Smith Barney in Shrewsbury.
"There are certainly a fair amount of Lehman Brothers employees that live in the two river area, and it's a bit too early to say if jobs are going to be lost but normally when you have a situation like this, some of the employees do get picked up by other firms," Ekdahl said. "But inevitably when you lose a firm as large as Lehman Brothers you're going to lose some jobs. I think it's going to have a negative economic impact on our area. It's unfortunate but it's a fact of life that not all of those jobs are going to be absorbed by other firms."
Ekdahl is also concerned about the financial impact on the area because along with the significant amount of employees of Lehman Brothers that live in the area, the firm also has a high percentage of employee ownership.
"The other unfortunate thing is that Lehman Brothers was one of those firms that had a high percentage of employee ownership and having most of that wiped out is a financial hardship for many," said Ekdahl. "It's a bit too early, but clearly it is going to have an effect."
To add to the confusion and fear of a firm as large as Lehman Brothers filing for bankruptcy, Bank of America acquired Merrill Lynch in a deal that took less than 48 hours to complete.
Bank of America Chairman and CEO Ken Lewis called the acquisition the "strategic opportunity of a lifetime" in a press conference on Monday.
"It flows very well. We can do so much more for our clients both on the retail side and on the corporate banking side with the capabilities that Merrill Lynch brings to us," Lewis said. "And as we always say, as we take care of our customers they'll take care of our shareholders."
Lewis recognized that the acquisition requires a lengthy process to transition and is confident that it will be done correctly and efficiently.
"We know we have some hard work to do in this transition, but in fact we are very good at that," said Lewis. "And we intend to be very focused on this being the best transition in the world to create the best financial services company in the world."
John Thain, chairman and CEO of Merrill Lynch, was in complete agreement with Lewis on the strategic opportunity of the acquisition and the future services the combined companies can provide.
"This is a transaction that makes tremendous strategic sense," Thain said. "The reaction both internally and externally has been incredibly good so we're very excited about the prospects going forward. From a shareholders point of view and our investors, I think this is going to be very attractive."
Lewis said that he received a call from Thain on Saturday morning about a possible deal.
"It didn't take but two seconds to see the strategic and positive implications and so then we got to the deal itself."
Thain said that his future with the company was not discussed as of yet.
Lewis said that Merrill Lynch will retain its name and the organization will remain intact.
Lewis was asked on the industry-wide forecast for the near future, and he acknowledged that it will be a hard road that will require businesses to be better at what they do.
"I think the remainder of this year and the beginning of next year will be a relatively tough time for the financial services industry," Lewis said. "We expect the economy to begin recovering in the second half of next year but not at a pace that would cause charge- offs to dramatically decrease. I think revenue opportunities will be tough and high levels of charge offs will continue on the commercial banking side, and we're going to have to be very focused on being efficient. I don't see the clouds parting like I would like them to in 2009. There are going to be fewer companies, and we're going to have to be better at what we do."
Lewis said that the combined company "is a much stronger entity and will survive most anything as a result of the combination."
"In the longer term, we have the prospects to grow and prosper because we are a strong company in an industry that is having issues."
"I don't know if I'll be involved in another acquisition in my career," Lewis said. "This one is too important not to get right. We'll be focused on this for quite some time."
The transaction is expected to close by the end of the first quarter in 2009. The deal requires the approval of each company's shareholders as well as standard regulatory approvals.
The underlying theme of the acquisition being relayed by Lewis and Merrill Lynch representatives is that for the time being, it is business as usual.
