By Kim Tae-gyu
Staff Reporter
The market consensus has been that a silver lining would shine for the financial sector this year after the heavy clouds of the unprecedented global financial distress fade away.
Such optimistic projections are feared to be giving way to the familiar pessimism that the economy will suffer a double-dip with the U.S. experiencing one of the largest bankruptcies ever.
CIT Group, a large-sized funder in the United States for small- and medium-sized enterprises and which has a total of $71 billion in assets, filed for bankruptcy, Sunday.
Only four outfits bigger than CIT have asked for bankruptcy protection by assets thus far ― Lehman Brothers, Washington Mutual, Worldcom and General Motors.
The abrupt fallout appears to be weighing heavily on financial markets across the world, including the Seoul bourse and Korean foreign exchange markets, which faced dips Monday.
The benchmark KOSPI plunged 21.6 points, or 1.37 percent, to close at 1,559.09. The index once soared beyond 1,700 last month but has plummeted of late due to a lack of a fresh momentum. In this climate, the CIT case caused further decline of the equities prices.
The vast majority of economists predicted that 1,500 is the absolute bottom for the KOSPI this year but an increasing number of analysts worry that the index might fall below the level.
The domestic currency also depreciated as the won-dollar exchange rate also showed signs of going upward, while approaching 1,200 won per dollar.
``If the collapse of CIT sways the U.S. financial landscape, the effect will be felt in Korea, too. The thing is that second or third CIT cases can take place down the road,'' HMC Investment Securities research head Lee Jong-woo said.
``The world did not solve many problems lurking beneath the financial system during the economic turmoil. Instead, they postponed the outbreak of them through an ultra-low interest rate and influx of limitless liquidity. Hence, bad situations will linger for the time being,'' he said.
Kim Seong-bong, an analyst at Samsung Securities, concurred.
``The fall of CIT will not lead to a credit crunch as the failure of Lehman Brothers did last year. But it is bad news, which will be sure to worsen investor sentiment,'' Kim said.
``The concern is that other small-sized lenders or financial companies are expected to crumble in the not-so-distant future. Then the financial markets will see turbulence in the near term,'' he said.