Loan firm leaders say credit crisis worst to come

By Don Mecoy

Published: September 14, 2008

The leaders of an Oklahoma City company that markets huge portfolios of bank loans saw the subprime mortgage crisis coming.

And now they perceive more misery.

How bad is the current credit crisis going to get?

"You don't want to know,” said Bliss Morris, chief executive officer of First Financial Network. "It's a tidal wave.”

First Financial Network, based in Oklahoma City, is the nation's leading loan sale advisory firm. The company has marketed more than $16 billion in loans and assets over the past 19 years.

Bliss Morris' husband, First Financial Chief Operating Officer John Morris, estimates the financial sector will see another two years of a widening credit crisis.

"We think it's going to be bigger than the S&L crisis in terms of dollars, not in terms of banks (failing),” John Morris said.

Banks and large financial institutions have been hit hard, and the Morrises expect hedge funds will be next. The ability to securitize pools of loans has dried up, which has forced lenders to carry the risk of the loans they originate or cut back on lending, Bliss Morris said.

The government takeover of the nation's two main mortgage finance firms, Fannie Mae and Freddie Mac, and the Federal Reserve's employment of sharp rate cuts and rarely used lending tools were stark demonstrations of the current mess.

Keith Geary, chief executive officer of Capital West Securities in Oklahoma City, expects scores of banks will fail in the coming months, although he thinks Oklahoma banks should be spared.

"I won't be surprised in the next 12 months if we don't have 200 banks across the U.S. fail,” Geary said. "That's about $75 billion in assets.”

"Buffett could have done a lot of damage to a lot of banks, some of it deservedly so; some not so much,” Geary said. "That's throwing gasoline on the fire.”

While the turmoil is unsettling for Oklahoma bank customers, Geary said state banks generally are safe although they will pay for some of the losses guaranteed by the FDIC.

"People should feel safe about their banks here in Oklahoma,” he said.

Meanwhile, some large institutions like Lehman Brothers Holdings and Washington Mutual are struggling to stay afloat.

"The financial sector still has a way to go before it hits bottom,” Geary said. "No one in the marketplace has a sense that we're there.”

Jeff Blumenthal, vice president of investments at Wachovia Securities in Oklahoma City, said he also thinks the financial sector will struggle in the near term.

"Be prepared for more bad news and more scary news, because I do think there will be more bad news,” he said.

"Back then it was easy for people to make investments when it did not make sense at all,” he said. "Now it is so difficult for people to make investments in the financial sector when it makes sense.”

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