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Credit crunch toll may top $500bn warns Guy Hands
Nick Goodway22 Feb 2008
Guy Hands, boss of private equity company Terra Firma, has warned that the credit crunch could run far longer and bemore damaging than many people think.
Hands, who last year spent £2.3 billion buying troubled music group EMI and is now looking at a joint £1.3 billion offer for waste management group Biffa, told investors in his funds: "At this stage, this credit crunch is really only the drying-up of liquidity for certain types of deal."
He warned in November that banks faced up to $300 billion (£154 billion) of losses, but now he reckons "the banks are only dealing with a fraction of their true potential credit losses". He added: "The full scale of the problem will only become visible over the next two to four years, and, I believe, will be four to five times the size of the losses the banks have taken to date."
That would mean total losses of well over $500 billion. Group of Seven finance ministers last month estimated total losses at $400 billion.
"Subprime mortgages, complex structured products and overall aggressive buyout lending are all sharing the blame in different proportions," said Hands. "Over the next few years, these capital market products will be vilified, and responsibility for the economic ills that are undoubtedly going to beset Western economies will be laid at their door."
Biffa has already recommended a £1.2 billion, 350p-a-share bid from private-equity firm Montagu but former rival bidders Terra Firma and Suez are in advanced talks to form a joint bid vehicle.
The news pushed Biffa shares 7¾p higher to 372¾p.
