July 23 (Bloomberg) -- On Wall Street, where the most lucrative credit markets are barely limping thanks to the worst housing slump in a decade, there isn't a chief executive officer who will tell you there is a crisis.

A few weeks after Merrill Lynch & Co. CEO Stanley O'Neal said he saw ``no clear signs'' that rising delinquencies on subprime U.S. mortgages were hurting the rest of the debt markets, borrowing costs for non-investment grade companies rose to the highest in nine months. ServiceMaster Co., US Foodservice and 19 other companies have canceled bond sales because nobody wants to buy them.

JPMorgan Chase & Co. CEO Jamie Dimon told investors on a July 18 conference call that waning demand for loans used in leveraged buyouts was ``a little freeze.'' Two days later, an index that measures the default risk of the loans weakened to a record.

Investors' confidence is being shaken as losses spread beyond subprime mortgage securities to corporate financings. Federal Reserve Chairman Ben S. Bernanke said July 19 that he's watching for signs that falling housing prices have spilled over to the rest of the economy, citing studies that show credit market losses from subprime mortgages may reach $100 billion.

``I don't think anybody can say with great conviction that this is an isolated problem to a couple of small mortgage companies,'' said Walter Todd, a fund manager at Greenwood Capital Associates in Greenwood, South Carolina, who helps oversee about $800 million.

`No Disaster'

June was the worst month for U.S. high-yield bonds in almost two years, with a loss of 1.69 percent, indexes created by New York-based Merrill that track the performance of fixed-income assets show. They're down another 1 percent in July.

O'Neal told a gathering of state treasurers in New York last week that ``not even a sharp downturn in one market today necessarily portends financial disaster in another.''

Jessica Oppenheim, a spokeswoman at Merrill Lynch in New York, declined to comment.

Shares of Merrill, the third-largest securities firm by market value after Goldman Sachs Group Inc. and Morgan Stanley, fell 7.5 percent last week on concern that revenue will grow more slowly. Shares of New York-based Goldman, which reached an all- time high of $233.64 on June 13, declined every day last week to close at $205.94.

`A Challenge'

Lehman Brothers Holdings Inc. Chief Financial Officer Christopher O'Meara told investors on a June 12 conference call that ``we continue to believe that subprime market challenges are and will continue to be reasonably contained.'' Bear Stearns Cos. CFO Sam Molinaro told analysts on June 14 that while the declining value of subprime bonds was ``a challenge'' for the firm, ``it hasn't spilled into other areas of the market.''

``Subprime continues to be weak'' and yet ``there's very little effect on other credit markets,'' David Viniar, the CFO of Goldman, said on a June 14 conference call with reporters.

Lehman and Bear Stearns, both based in New York, are the biggest underwriters of U.S. mortgage bonds. Subprime mortgages are given to borrowers with poor credit histories or high levels of debt. Merrill Lynch was the largest underwriter of subprime bonds in the first half and Lehman was second, according to newsletter Inside B&C Lending. Bear Stearns ranked eighth.

``As a CFO you're paid to be optimistic when you talk to the Street,'' said Brad Hintz, a former Lehman CFO who is now an analyst at Sanford C. Bernstein & Co. in New York. ``The brokerage industry has been running on eight cylinders, but it's not going to be running on eight cylinders.''

Canceled Sales

Investors in early June demanded an extra 2.41 percentage points of yield on average to own U.S. junk bonds rather than Treasuries, a record low. The so-called spread has since shot up to 3.37 percentage points, the most since October, according to Merrill index data.

Companies have canceled, postponed, restructured or increased yields on more than $20 billion of bond offerings since mid-June as investors sought safer securities. The derivatives index linked to junk-rated loans has fallen more than 5.7 percent since it was created May 22.

Debt rated below BBB- by Standard & Poor's and Baa3 by Moody's Investors Service is considered junk.

The comments from Molinaro and Viniar came five days before Bear Stearns offered to provide $3.2 billion in loans to help rescue a money-losing hedge fund. The fund, run by its asset- management unit, invested in subprime mortgage-related securities. The amount was later lowered to $1.6 billion.

Last week, Bear Stearns told investors in the fund and a related one that they will get little if any money back.

`What's Our Exposure?'

Subprime concerns heated up again two weeks ago, when S&P and Moody's each cut ratings on more than $5 billion of bonds, and said so-called collateralized debt obligations that contain the securities were also at risk. Moody's last week joined S&P in warning it may also cut securities sold last year and backed by Alt A mortgages, a credit level above subprime loans.

``When the credit rating agencies come in and start to regrade a lot of this debt, investment committees like ours get together and say, `What's our exposure?''' said William Larkin, who manages a fixed-income portfolio at Cabot Money Management in Salem, Massachusetts. ``Events are forcing people to react.''

Goldman Sachs CEO Lloyd Blankfein said last month that low interest rates and narrow yield premiums on riskier debt fueled economic growth for the past four years by boosting investment in real estate, emerging markets and LBOs.

``The biggest risk we face, and there are a lot of things that contribute to this risk, would be a very big crisis in the credit markets,'' he said at a June 27 conference. ``Some of that is supply-demand fundamentals, but a lot of it is sentiment.''

No Contagion

Goldman Sachs is the world's biggest fixed-income, currency and commodity trader, with $14.3 billion of revenue from those markets last year. It also manages the largest buyout fund and collects the most fees from private-equity firms.

Securities firms worldwide got about $27.4 billion in revenue last year from underwriting, trading and holding bonds backed by mortgages and other assets, according to a June 4 report by Kian Abouhossein, a London-based analyst at JPMorgan.

Executives last week said shrinking demand for high-yield debt won't pose a serious problem.

Jeff Edwards, Merrill's CFO, said it reflects ``selectivity'' that's ``healthy.'' Merrill Lynch is a passive minority investor in Bloomberg LP, the parent of Bloomberg News.

Dimon of New York-based JPMorgan, the largest arranger of loans rated below investment grade, said he isn't ``particularly concerned'' about loans that the bank has been stuck with after failing to sell them to investors.

Wall Street CEOs and CFOs ``are talking their books,'' said Tim Backshall, chief strategist at Credit Derivatives Research LLC, a Walnut Creek, California-based firm that advises clients on how to invest in the market for credit-default protection. ``The amount of talking seems to indicate they are worried.''

To contact the reporter on this story: Christine Harper in New York at charper@bloomberg.net; Jody Shenn in New York at jshenn@bloomberg.net.

Last Updated: July 23, 2007 07:33 EDT