Tuesday 24 March 2009

Bank of America’s Bernstein Says Sell Bank Stocks After Rally

Investors should sell bank stocks after they rallied 12 percent today because the Treasury Department’s plan to buy toxic assets won’t stop profits from dropping, Bank of America Corp.’s Richard Bernstein said.

1 comment:

Guanyu said...

Bank of America’s Bernstein Says Sell Bank Stocks After Rally

Eric Martin
23 March 2009

(Bloomberg) -- Investors should sell bank stocks after they rallied 12 percent today because the Treasury Department’s plan to buy toxic assets won’t stop profits from dropping, Bank of America Corp.’s Richard Bernstein said.

Removing devalued loans and securities from banks’ balance sheets is a short-term solution that will delay the problem’s ultimate solution, which is bank takeovers, Bernstein said. The government won’t be able to inflate the prices banks receive for selling bad assets indefinitely, he added.

“The history of bubbles shows quite well that financial sector consolidation is inevitable,” Bernstein, Bank of America’s chief investment strategist, wrote in a research note.

“Financial stocks will be attractive when the government tries to speed up that inevitable process. However, to the contrary, the government continues to attempt to stymie that inevitable consolidation.”

The Standard & Poor’s 500 Financials Index has climbed 51 percent since March 6 after Citigroup Inc., Bank of America Corp. and JPMorgan Chase & Co. said they’ve become profitable.

The measure surged 12 percent as of 3:10 p.m. today in New York. Bernstein compared the U.S. plan to Japan’s response in the 1990s, when the government, faced with public opposition to its bailouts of banks, waited before trying to fix its financial system. That resulted in the “Lost Decade,” in which economic growth averaged less than 1 percent a year and the unemployment rate more than doubled.

The Obama administration unveiled its plan to remove toxic assets from the books of the nation’s banks earlier, betting that it can revive the U.S. financial system without resorting to outright nationalization.

The plan is aimed at financing as much as $1 trillion in purchases of illiquid real-estate assets, using $75 billion to $100 billion of the Treasury’s remaining bank-rescue funds. The Public-Private Investment Program will also rely on Federal Reserve financing and Federal Deposit Insurance Corp. debt guarantees, the Treasury said in a statement in Washington.