BNY Mellon’s Leo Grohowski Visits Goizueta to Discuss the ’Credit Tsunami’

Investors watched more than $25 trillion in equity value disappear as the stock market plunged this past October, and Leo Grohowski, chief investment officer, BNY Mellon Wealth Management, worked overtime to calm his institution's high net worth investors and "keep them from bailing out" of the stock market. 

As part of the Goizueta Business School Leadership Speaker Series, Grohowski spoke to a packed classroom of Goizueta students and explained the events that led to what former Federal Reserve Chairman Alan Greenspan aptly dubbed a "credit tsunami." 

Unrealistically low interest rates that existed for an extended period of time led to a massive amount of leveraging, much of it in the housing and mortgage industry. The over leveraging resulted in "a serious underpricing of risk," explains Grohowski. The leveraging was exacerbated by the fact that financial engineering and innovation outstripped the abilities of government regulations, and it was not uncommon to find institutions leveraged at a rate of 30 to one. As the credit markets dried up, over-leveraged institutions laden with illiquid assets found themselves in dire straits.

What occurred in October is part of the painful process of deleveraging. It will take time for the housing market to sort itself out and unemployment will rise as deleveraging takes its toll on the job market. Grohowski believes the deleveraging process will become more orderly going forward, but will continue well into 2009. The result will be a recession he predicts will last four to five quarters.

Grohowski also sees consolidation in the financial sector in the not so distant future. He believes the dollar will continue to strengthen and that investors will adopt a "back to basics" mentality when it comes to their money. But he hopes investors don't overreact. Grohowski sees opportunity amongst the doom and gloom. "This is a very good time to wealth rebuild," he explains. Unfortunately, it's difficult to get investors to take the plunge with "emotions ruling the roost."

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About Emory University’s Goizueta Business School

Emory University’s Goizueta Business School is home to an Undergraduate degree program, a Two-Year Full-Time MBA, a One-Year MBA, an Evening MBA, the W. Cliff Oxford Executive MBA (Weekend and Modular formats), a Doctoral degree and a portfolio of non-degree Emory Executive Education courses.