Goldman CEO spots early signs of life in US economy

HYDERABAD: Investment bank Goldman Sachs may not see eye to eye with the International Monetary Fund���s (IMF) gloomy forecast on the US economy. The chairman and CEO of Goldman Sachs group Llyod Blankfien on Thursday signalled that the US economy was coming out of the woods. ���I think we have already turned the corner. The movement in stock prices, confidence and liquidity in capital markets mark the trend.

Nobody is really sure, but there has been some turning around. Six months ago, there was a real fear, and some parts of the markets were in real chaos. I think that fear has now abated,��� he told a gathering of ISB students in the city.

The aftermath of the global financial meltdown saw real growth in the US economy dip 0.8% in the fourth quarter of 2008. The IMF has forecast a 2.6% dip in the US economy for 2009. Mr Blankfien was, however, more optimistic on revival prospects. But he reckons there are challenges ahead. These include dealing with depressed asset prices and issues boggling insurance companies that took a hit after the sub-prime mortgage crisis.

According to him, the intention of the stress test of top US banks ��� to see if they are healthy enough to lend before getting additional financial support ��� is to provide confidence to the markets. ���The stress test would validate or confirm the financial integrity of institutions. But, the idea is that every institution is going to pass, subject to what the regulator tells them to do.

So, some of them pass because they are very well capitalised and do not need any more funds. Some of them pass subject to raising capital. So, everyone will pass subject to a different degree of action that they are mandated to take by the regulator,��� he said.

Simply put, the banks either build confidence on their own by raising capital or the regulator puts in the required money to build the confidence. Mr Blankfien said demand had slowed down for investment bank activity.

���But transactional activity, intermediation and market making activity was much more due to the disrupted markets and liquidity issues. I know it is not a balanced profile. But, on the whole, I think I am optimistic about economic picture,��� he said.