Credit crisis still afflicts Wall Street

NEW YORK – The chief executives at the world’s biggest financial institutions might have been a bit too optimistic by declaring we may be nearing the end of the global credit crisis.

Morgan Stanley’s John Mack said in April it had reached its eighth inning or “maybe top of the ninth” of a baseball game. Goldman Sachs’ Lloyd Blankfein compared it to football’s “third or fourth quarter.” Richard Fuld at Lehman Brothers and Merrill Lynch’s John Thain were also more upbeat about the future.

Just as Wall Street started to look safer for investors, another wave of anxiety about the financial industry, inflation and the economy dragged down stocks this past week.

Investors continue to worry that the pain might not be over for financial companies – and that the market as a whole will suffer until investment banks release quarterly results later this month.

“Financials have become the kid that brings home a bad report card,” said Chris Johnson, president of Johnson Research Group in Cincinnati. “Once they bring home C’s and D’s, you watch that kid closely week to week. If they bring home A’s, you only really care once a quarter.”

Johnson was among many investors who thought the sector appeared to have bottomed in March when JPMorgan Chase & Co. rescued Bear Stearns from the brink of collapse. Now there are worries that Lehman Brothers Holdings Inc. is facing a serious cash shortage.

The investment bank has denied it’s short of money, though said a spokesman said it continues to examine options to increase capital through an outside investor or stock issuance.

Wall Street began the week with high-level shake-ups at Washington Mutual Inc. and Wachovia Corp. Standard & Poor’s downgraded the two biggest bond insurers, MBIA Inc. and Ambac Financial Group Inc., and also cut its ratings on Lehman, Merrill Lynch & Co. and Morgan Stanley.

The ratings agency has been most critical of Lehman Brothers, saying its balance sheet was the closest of all the Wall Street firms to Bear Stearns. And Lehman Brothers itself had to deal with everything from reports it is seeking an outside investor to trading-floor rumors of borrowing money from the Federal Reserve.

So has the financial sector sunk low enough that it’s closing in on hitting bottom?

“I think we’re a little early to call a bottom yet, and at this point nobody is in a big rush to add massively to their exposure to financials,” said Brian Gendreau, investment strategist for ING Investment Management. “But, that said, they’ve been battered down so badly that at this point there’s little to be lost in investing in them, and that’s about as optimistic as I can get.”

Most people on Wall Street feel the market feel investment banks can’t really fall that much more, and a rebound will help the stock market ratchet higher. Those who snapped up financial stocks in March are still waiting for a big payday.

The markets in review

For the week ending Friday, June 6