By Lynn Thomasson
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’s assets 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.”
Financial shares in the Standard & Poor’s 500 Index tumbled 57 percent last year, driving the benchmark index for U.S. stocks to the steepest annual retreat since 1937.
Lehman, Merrill Lynch
Lehman Brothers Holdings Inc., once the nation’s fourth biggest securities firm, filed the largest U.S. bankruptcy in September after its shares lost almost all their value. Its rivals Merrill Lynch & Co. and Bear Stearns Cos. were forced into takeovers to avoid collapse, while Goldman Sachs Group Inc. and Morgan Stanley converted to bank holding companies as investors lost confidence in firms that depend on debt-market financing. American International Group Inc., Fannie Mae and Freddie Mac were taken over by the U.S. government.
Bernstein’s new employer, Bank of America, has plunged 57 percent in 2009. He had worked for New York-based Merrill Lynch since 1988.
To contact the reporter on this story: Lynn Thomasson in New York at lthomasson@bloomberg.net.
Last Updated: February 11, 2009 16:23 EST
