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Tidjane Thiam

(bloomberg)

(Bloomberg) -- Credit Suisse Group AG Chief Executive Officer Tidjane Thiam said there’ll be adverse effects and an unavoidable impact on markets from the European Central Bank’s plans to exit its bond-buying program.

“The tensions are showing and it’s very hard to imagine where you can get out of a scenario of prolonged extraordinary measures without some kind of -- I always use the word ‘trauma,’” Thiam said at an event in London on Thursday. “It was a reasonable answer to an extreme situation, but the challenge was the lack of an explicit exit strategy and that’s showing.”

The ECB’s cautious progress toward exiting years of extraordinary monetary stimulus is being complicated by an escalation of political threats by the U.S. and China to impose tariffs on each other’s exports. The ECB has largely followed in the footsteps of its U.S. counterpart, committing to keep rates unchanged until well after asset purchases stop and to reinvest maturing debt.

Officials may discuss how and when they might be able to end their bond-buying program at an ECB meeting on April 26. In March, they reiterated their commitment to spend 30 billion euros ($37 billion) a month on public and private debt through September, while omitting a pledge to increase that amount should conditions worsen.

Other bankers have also warned on the effect of a return to a more normal interest rate environment, with JPMorgan Chase & Co. executive Daniel Pinto saying last month that equity markets could fall as much as 40 percent in the next two to three years amid rising rates and inflation. Still, Thiam said it was good news for the economy that there’s normalization and that the market can prepare itself “step by step.”

Thiam and Banco Santander SA Chairman Ana Botin, speaking on the same panel, agreed that the return of volatility to stock markets at the start of the year serves as a warning of the kind of effects that can be expected when an exit from quantitative easing happens. U.S. stocks in February had their worst single-day plunge in almost seven years and 10-year Treasury yields reached their highest level in more than four years.

“My number 1 concern is how do you get out of QE in an environment where all the banks, all the players, have a very different role to what everybody had 10 years ago,” Botin said. “The fact that you’ve had several warnings is a good thing.”

(Updates with comments on February market volatility in sixth paragraph.)

To contact the reporters on this story: Charlie Devereux in Madrid at cdevereux3@bloomberg.net, Stefania Spezzati in London at sspezzati@bloomberg.net, Jan-Henrik Förster in Zurich at jforster20@bloomberg.net.

To contact the editors responsible for this story: Dale Crofts at dcrofts@bloomberg.net, Patrick Henry, Andrew Blackman

©2018 Bloomberg L.P.

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