Sub-prime legend John Paulson: It’s not over yet

Sub-prime legend John Paulson: It’s not over yet


He says write-downs could hit $1.8 trillion, surpassing IMF’s $1.3 trillion forecast


LONDON – MR JOHN Paulson, the founder of the world’s top hedge fund company Paulson & Co, said global write-downs and losses from the credit crisis may reach US$1.3 trillion (S$1.8 trillion), exceeding the International Monetary Fund’s (IMF’s) US$945 billion (S$ 1.3 trillion) estimate.


‘We’re only about a third of the way through the write-downs, ‘ Mr Paulson, 52, told the Gaim International hedge fund conference in Monaco on Wednesday.


‘There are a lot of problems out there and it will continue to be felt through the year. We don’t see any signs of stabilising. ‘


Mr Paulson is the hedge fund manager who made almost £2 billion (S$5.4 billion) from correctly calling the implosion of United States sub-prime mortgages last year.


His Paulson Partners fund has risen 18 per cent a year since it started in 1994, and his main sub- prime-debt fund rose 591 per cent last year.


Banks and securities firms worldwide have posted more than US$395 billion in losses and write-downs since the US sub-prime crisis started last year.


In the last few weeks, various figures including Wall Street chief executives and former US Federal Reserve chairman Alan Greenspan have said that the worst of the credit crisis may be over.


Mr Paulson said the second half of this year will be worse than the first for the US as the economic slowdown spills over into next year.


Signs of stress are ‘accelerating’ in the housing market, and he is betting on falling securities prices.


‘I don’t consider myself a bull or a bear,’ he told the audience at the Grimaldi Forum in Monaco.


‘I’m a realist.’


Mr Bob Janjuah, a Royal Bank of Scotland strategist in London, agreed that stock and credit markets still face the worst in a slump that started almost eight months ago.


He added: ‘Mid-July through to October is likely to be the most bearish period we will experience in the bear market that began in the fourth quarter of last year.’


Mr Paulson said that Ambac Financial Group, the world’s second-biggest bond insurer, is ‘the most leveraged, troubled company out there’.


It is at risk of being downgraded to non-investment grade, he added.


Ambac shares have lost 92 per cent of their value this year after losses on US sub-prime mortgage securities caused the company to lose its AAA credit rating at Fitch Ratings.


Mr Paulson’s outlook is consistent with the view of hedge funds meeting in Monaco this week.


More than 80 per cent of the 1,300 fund managers, investors and service providers gathered there said that they expect the credit crisis to continue, according to a Gaim survey.


About 23 per cent said they believe the situation ‘will deteriorate significantly’ .


Mr Bill Browder, the founder of Hermitage Capital Management, said that securities firms have a ‘vested interest’ in claiming an early end to the crunch.


‘If we’re in the seventh or eighth inning, this is a 100-inning game,’ he said.


Source: Straits Times

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