Bank of America’s Bernstein Says Bank-Rescue Plan Won’t Work
Feb. 11 [Bloomberg] — The U.S. Treasury’s bank-rescue plan won’t repair the financial system or revive credit markets, Bank of America Corp. strategist Richard Bernstein said as he recommended avoiding the industry’s shares.
Treasury Secretary Timothy Geithner pledged up to $2 trillion in government financing yesterday for programs aimed at spurring new lending and addressing mortgage assets that are difficult to value. The government’s prior measures to prop up financial institutions included backing $118 billion of Bank of America securities and injecting $45 billion into the Charlotte, North Carolina-based bank after it bought Merrill Lynch & Co.
“Financial stocks are likely to be as toxic to portfolio performance as banks’ assets are to their balance sheets,” New York-based Bernstein wrote in a research note. They plunged yesterday, driving the Standard & Poor’s 500 Financials Index to an 11 percent drop, on skepticism the rescue package will work.
Bernstein said the government should increase deposit insurance, seize assets, shut “large” banks and encourage takeovers.
“The history of bubbles clearly shows that the significant consolidation of the financial sector is inevitable,” the strategist wrote. “The latest Treasury program is simply another attempt to stymie the consolidation process.”
Even their own analyst says so