Business | Markets
Fund managers rattled as rescue plan's rejection shakes markets
"I've never lived through something like that," Stephen Jarislowsky, the 83-year-old chairman and founder of Montreal-based money manager Jarislowsky Fraser Ltd, said yesterday about the past month on Wall Street.
- Bloomberg
- Published: 00:02 October 1, 2008
New York/Boston: "I've never lived through something like that," Stephen Jarislowsky, the 83-year-old chairman and founder of Montreal-based money manager Jarislowsky Fraser Ltd, said yesterday about the past month on Wall Street.
"I don't even think the '30s were like that," he said in a telephone interview. "At least they had a bank holiday and they closed all the banks. These idiots in Washington didn't do that."
On the worst day in global financial markets in 21 years, investors who have seen it all were left shaken. After the US House of Representatives voted down a $700 billion (Dh2.6 billion) rescue package supported by President George W. Bush and leaders of both parties, $1.2 trillion of market value was erased from US stocks.
"I'm more than worried," said Jarislowsky, who co-founded his firm in 1955 and oversees C$51 billion (Dh180 billion). "In a market like this, I'm not looking at opportunity. I am looking at preservation of capital. If governments aren't careful and this mess isn't solved fast, capitalism as we know it will be wiped out."
The consensus of fund managers interviewed Monday was that Treasury Secretary Henry Paulson and congressional leaders will fashion a compromise that can win legislative approval and prevent a complete collapse of financial markets.
"After the initial surprise, I said to myself that they will sign it by the end of this week," said Jean-Marie Eveillard, who oversees $35 billion at First Eagle Funds in New York. "Not one congressman wants to be identified as having contributed to an economic and financial catastrophe."
Broad authority
Eveillard, 68, said he will continue to shun financial stocks while holding on to gold. He has moved as much as 8 per cent of his $22 billion First Eagle Global Fund into gold bullion.
Amid partisan wrangling, the House voted down the bailout proposal by a vote of 228 to 205. The legislation would have given Paulson broad authority to buy troubled assets from financial companies to help ease a lending crunch triggered by the decline of the housing market.
Paulson told reporters that lawmakers "need to work as quickly as possible" to reach a deal. "The markets around the world are under stress," he said. "Our toolkit is substantial but insufficient" to fix the crisis and legislation is needed.
Until Monday, asset-management stocks had held up better than broader financials. The Standard & Poor's Supercomposite Asset Management and Custody Bank Index fell 20 per cent for the year through September 28, while the Supercomposite Financials Index lost 25 per cent.
On Monday, money managers tumbled 25 per cent, while financials shed 15 per cent.
The decline in custody banks was led by Bank of New York Mellon Corp, the world's largest financial custodian, and rival State Street Corp, which both fell 27 per cent. Investors were concerned that the mounting credit crisis will cause increased losses in their bond holdings and off-balance funds called conduits.
"It's pretty much a nightmare," said Michael Nasto, the senior trader at US Global Investors Inc, which manages $5 billion in San Antonio.
"I felt my stomach drop" after the Treasury package was rejected, said James Swanson, chief investment strategist at MFS Investment Management, the Boston-based fund unit of Canadian insurer Sun Life Financial Inc.
Swanson, whose firm manages about $200 billion, said not enough had been done to explain to lawmakers that "real jobs",' and not just Wall Street banks, depend on the bailout. "We've already seen the real economy slowing, and the worst case is if that continues and gets worse," he said.
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