by Calculated Risk on 9/15/2008 10:24:00 AM

At a news conference announcing the BofA purchase of Merrill, BofA CEO Ken Lewis just said that he expects the rest of 2008 and most of 2009 to be tough for financial services. Lewis expects the economy to recover in the 2nd half of 2009, but charge-offs to continue to rise until sometime in 2010.

Transcript (hat tip Brian):

NY Times: I wanted to see if each of you could tell us a little bit, as you look ahead, a year out, how you think the industry will look different -- areas like jobs, leverage ratios, business mix, competitive landscape. What do you think are going to be the most different-looking parts of the business in a year? And I mean industrywide?

KEN LEWIS: You mean financial services, not just investment banking and not just banks?

NY Times: Yes, yes.

KEN LEWIS: I think it's going to be -- I think the remainder of this year and all of next year will be a relatively tough time for the financial services industry. Now, having said that, we expect the economy to begin recovering in the second half of next year, but not at a pace that would cause charge-offs to dramatically decrease. I think that's probably a 2010 situation. So, I think revenue opportunities will be tough, and high levels of charge-offs will continue in the commercial banking side, and we're going to have to be very focused on being efficient and gaining market share to get the kind of revenue growth that we want. But I don't see the clouds parting as I would like them to in 2009.

JOHN THAIN: I think the only thing I would add to that is, for those firms who have large trading businesses and/or carry large amounts of less liquid assets, I think you'll see a continued reduction in risk, a continued shrinkage in leverage ratios, and a continued focus on improving core equity ratios to risk-weighted assets. Of course, with the demise of both Bear Stearns and Lehman, there's already been a pretty dramatic change to the shape of the industry.I also would say that, as we go forward, size is going to matter, so the ability to have a diversified stream of earnings, the ability to maintain high degrees of funding certainty are going to continue to be very important.

KEN LEWIS: You could probably look back and say, I would think, that we've gone through a golden era of banking and financial services in general, and things are just going to be -- they may be simpler because you're not going to have the highly complex structured products, etc., but it's going to be tougher and so there are going to be fewer companies, and we're going to have to be better at what we do.