Subprime subplot: The recession question

How far-reaching will the fallout from the subprime-mortgage-market mess be?
That depends on whom you ask.
Home prices could drop 10% this year, and the economy could fall into a recession, if the Federal Reserve doesn’t lower interest rates, David Rosenberg, an analyst with New York-based Merrill Lynch & Co. Inc., wrote in a report last week. Mr. Rosenberg, who admitted to being “more concerned than most on the outlook for the economy, housing and credit,” said that a rate cut would slow economic growth to about 1%.
But if the Fed doesn’t act, and housing prices fall 10%, the probability of a recession is “very close to 100%,” he predicted.
However, economic forecasters in a survey released last week from New York-based WSJ.com put the odds of a recession over the next 12 months at just 25%.
By a 4-to-1 margin, the economists agreed that “the worst of the housing bust is behind us.”

Hardly substandard
Goldman Sachs & Co.’s release of record quarterly earnings last week lent credence to the optimists’ point of view that the subprime-market meltdown may not turn out to be all that catastrophic after all.
The New York-based financial powerhouse’s stake in the subprime business caused a lot of nail-biting, but its first-quarter earnings of $3.2 billion, a 29% increase over those in the first quarter a year earlier, allayed those concerns. David Viniar,chief financial officer at Goldman, told the Financial Times that the company’s earnings haven’t suffered.
That is particularly heartening, because, in poker parlance, Goldman has become “the tell” for the overall performance of the equity markets, according to Todd Harrison, founder and chief executive of Minyanville.com, a New York-based website for investors.
“[Goldman is] a proxy for liquidity and cheap money … and for structural smoke, contagion hedge fund woes and subprime mortgages,” he said. “So on both sides, they serve as a great vehicle and a great tell for the market.”
But the Financial Times’ “Lex” column countered that Goldman’s performance “raises the usual questions about how long the good times can keep rolling, but provides few answers.”

Showing some Legg
Legg Mason Inc., which acquired the money management arm of New York’s Citigroup Inc. last year, has decided to rebrand itself, last week rolling out a $4 billion advertising campaign that featured seven of its money managers.
The money managers are Batterymarch Financial Management Inc., Brandywine Global Investment Management LLC, ClearBridge Advisors LLC, Legg Mason Capital Management Inc., Permal Group Inc., Royce & Associates LLC and Western Asset Management Co.
One full-page ad that ran in The New York Times pictured various pieces of a gold pocket watch under the tagline “Independently impressive. Together, extraordinary.”
The campaign comes after a study that Baltimore-based Legg Mason conducted last year found that financial advisers, and others, weren’t understanding the company’s new structure after the Citigroup acquisition.
Ads will also run on digital screens in elevators in office buildings.

Brokers get a break
That collective exhale you heard last week came from broker-dealers across the country after finding out that NASD is giving firms more time to prepare for upcoming sweeps.
Firms and reps long have complained about being blindsided
by the Washington-based self-
regulatory organization’s specific requests for detailed information and being given only two weeks to prepare. NASD will now give targeted firms 30 days’ notice and allow more opportunities to ask questions during the process.
It will present a 90-minute online workshop April 26 that focuses on different types of examinations, what NASD examiners look for and issues they most frequently encounter during routine exams.
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suggestions to Charles Paikert at
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