Exclusive Exclusive: BlackRock’s Fink Warns of Bankruptcies, Market Turmoil Before Things Improve

Larry Fink, head of the world’s largest fund manager BlackRock, expects the global economy and financial markets to get much worse before the situation stabilizes. In an exclusive interview with Handelsblatt, Mr. Fink warned that “we’re still in a phase of radical change,” citing the effect of declining energy prices on consumers and businesses, as well as China grappling with the transition to an industrial economy. “I think what we will see now are some good old-fashioned bankruptcies. It may need to feel much worse before it gets better. We may need to have 25 bankruptcies, oil going down to $22 and markets going down another 10 percent before they will stabilize,” he said. Mr. Fink predicted that “uncertainty will continue” in the market for the time being. “An end is not in sight at this point,” he added. Mr. Fink did say he expects stock markets to recover somewhat toward the end of 2016. By the end of this year, share prices should climb back up to the same level they held at the end of 2015, maybe “slightly higher,” he forecast. “At some point, people will grow more confident again and spend the money they’ve saved through falling energy prices,” he said. Mr. Fink rejected the notion that BlackRock itself, with some $4.5 trillion under management, poses a systemic risk to the global financial system, but acknowledged that his industry is likely to face tougher scrutiny in the coming years. “A big bank is systemically significant; we aren’t,” he said. “But of course we will be regulated and investigated more intensively in future, especially with regard to individual finance products. And that’s a good thing, too. I believe that more intense and comprehensive regulation of funds is the right approach.” Blackrock and other U.S. fund managers have long resisted being labeled as systemically important by regulators, which could mean that they come in for even tougher scrutiny. Mr. Fink argued that Blackrock acts merely as a “trustee” of pension funds and insurers and invests two-thirds in exchange-traded and other index funds. Instead, he pointed the finger at smaller rivals that, he argued, are taking bigger risks in the market place. “If I were sitting on the regulators’ side, many in the industry wouldn’t like me. This is because I would proceed far more aggressively than many think, to prevent individual funds from becoming a danger to the financial system,” he said. “Problem cases like Third Avenue show that it is mostly small investment funds that take the greater risks in order to grow. We are risk-averse because we’ve got too much to lose,” he added,   Read the full interview in Friday’s Handelsblatt Global Edition at 12:00 Central European Time. Photo Source: Nik Hunger for Handelsblatt