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To: Bill Harmond who wrote (22997)	10/26/1998 8:08:00 AM
From: Glenn D. Rudolph	Read Replies (1) \| Respond to of 164684

October 25, 1998 Bankers Fret Over World Economy ---------------------------------------------------------------------------- ---- A.P. INDEXES: TOP STORIES \| NEWS \| SPORTS \| BUSINESS \| TECHNOLOGY \| ENTERTAINMENT ---------------------------------------------------------------------------- ---- Filed at 5:35 p.m. EST By The Associated Press AVENTURA, Fla. (AP) -- John S. Reed, co-chairman of Citigroup, said Sunday that the current crisis in global financial markets will not likely lead to a recession in the United States. ''I do not believe the U.S. is necessarily destined to have an economic slowdown,'' Reed said. However, Reed said recession in Japan and financial chaos in Russia could result in a significant reduction in U.S. exports to those countries. That could eventually translate to economic decline here, particularly in agriculture. Reed was one of several Wall Street executives addressing a meeting of the Community Bankers Association here. Citigroup has already begun to respond to a potential downturn by tightening consumer credit, especially in the credit card business, Reed said. A sudden downturn in consumer debt quality could be especially painful for the growing number of banks that have lent money to subprime borrowers. ''You've got a lot of nonprime lending, high loan-to-value products, 125 percent home equity loans,'' said Joseph Belew, president of the Consumer Bankers Association, in an interview before the meeting. ''No one should think the consumer side is bulletproof.'' The economy was in the forefront of many consumer bankers' minds who were meeting here this weekend. ''You've had a wonderful period of economic prosperity, and the question is, does it flatten or does it go into a tailspin?'' Belew said. John G. Heimann, chairman of global financial institutions at Merrill Lynch & Co., said that a global recession may be arrested in Latin America. Events in Brazil, which is holding gubernatorial elections Sunday, are critical to the turnaround in Latin America. ''The fiscal discipline that has to be brought to bear in Brazil has not been totally agreed upon, but after the election today it will,'' he said. James J. McDermott Jr., chairman at New York investment banking firm Keefe, Bruyette & Woods Inc., said U.S. banks have done a good job at minimizing their risks from overseas investments. Their capital base is strong and their domestic portfolios are diversified. Still, they may be vulnerable to the effects of a global economic downturn, he said. ''I am less worried about the ability of the U.S. banking industry to solve its own problems than about the rest of the world.'' Because the world's economy is so interconnected, small retail banks have to worry right along with the big global ones that the economic crises in Russia and Japan will worm their way into the U.S. economy. Now more than ever, global events can affect the safety and cost of individual checking, savings, money-market and credit accounts that transfer millions of dollars of American household wealth every day. With two interest rate cuts by the Federal Reserve since Sept. 29, banks are having to shift their thinking to allow for the possibility of an economic downturn. Reed rarely speaks in public, but consumer banking has grown in importance to Citigroup and several global banks, many of which were saved from dismal losses in the third quarter by their consumer businesses. On Sunday, Reed reiterated statements that he had made before Citicorp and Travelers merged, that he wanted to increase the company's customer base tenfold to 1 billion by 2010.