Credit Crunch 'could Last Years'

Terry Smith, the outspoken chief executive of money brokers Tullett Prebon, warned today that the current turmoil in the financial markets could take "years not months" to unwind.

He outlined three pointers to suggest why more uncertainty and volatility was still to come: the unwinding of positions; the so-called carry trade; and the possibility that other bank loans will turn sour.

Smith pointed out that as troubled firms such as hedge fund Carlyle raced to unwind positions they exacerbated their problems by driving down the value of the assets in the future.

The carry trade refers to the practice of funding investments by shorting - selling - the low interest-rate Japanese yen and putting the money into higher interest rate currencies such as the dollar. "We are yet to see this implode," he said, but noted that successive US interest rate cuts meant the trade was looking less attractive.

His last point about bad loans refers to concerns that banks such as Citigroup need more capital to absorb possible losses from investments in exotic financial instruments. "The US is in recession," Smith said. This suggests that loans to more traditional customers such as retail customers and big businesses are also likely to run into difficulty.

He was speaking as Tullett Prebon reported its first set of results since being demerged from stock broker Collins Stewart in December 2006. Operating profit was £132m in 2007, up from £115m the previous year as volatility in the financial markets helped the business. Pre-tax profit was down from £125m to £113m. Smith noted that volatility in the markets was good for Tullett Prebon. "The volatility that we experienced in the second half of 2007 has continued into the first two months of this year," said Smith. "These conditions are ideal for our business, and we are increasingly well-placed to benefit from them."

The final dividend of 8p takes the total to 12p. The company's shares rose over 6% to 480.25p by 3.15pm.