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BoA Analyst: Geithner Plan Won't Work

By Big Tent Democrat, Section Economy
Posted on Mon Mar 23, 2009 at 05:35:22 PM EST
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Via Atrios, a vote of no confidence for the Geithner Plan from Bank of America analyst Richard Bernstein:

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.

But Krugman always hated Obama so it can't be true.

Speaking for me only

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    BoA Analyst: Geithner Plan Won't Work | 66 comments (66 topical)

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    Can't nationalize... (5.00 / 1) (#5)
    by BigElephant on Mon Mar 23, 2009 at 06:15:21 PM EST
    Even if it was the best option we have neither the resources nor the expertise to pull it off very quickly.  At least not an BoA/Citigroup like level.  But if nationalization actually was in the cards... they'd be playing it VERY close to the chest.  I don't think we'd know about it until it was here.

    Did you know (5.00 / 1) (#6)
    by Big Tent Democrat on Mon Mar 23, 2009 at 06:26:24 PM EST
    We nationalize about 2 banks per week?

    Parent
    I did. (5.00 / 3) (#7)
    by inclusiveheart on Mon Mar 23, 2009 at 06:32:25 PM EST
    Apparently though a lot of people are now convinced that we "can't".  Had an exchage with one such person yesterday who didn't really even understand what the FDIC is.

    And, by the way, speaking of the FDIC... They seem to play heavily into Geithner's plan guaranteeing these deals.  Of course, that is well beyond their mandate of being a "deposit" insurance entity.  Like they are taking on the same risk AIG was taking on in insuring speculative deals.  Anyone else think that is problematic?  Am I just being too old school in my thinking?

    Parent

    And (5.00 / 1) (#15)
    by hookfan on Mon Mar 23, 2009 at 06:59:43 PM EST
    the same arguments about being too big to fail, and nobody else having the knowledge to deal effectively with it except those who caused it was the same arguments used in the asian crises in the 90's. Digby wrote an article about this yesterday, I believe, stating that Thailand didn't buy the bs and wound up being glad they didn't. When they took over the banks they found evidence of massive fraud.
       J. Galbraith in his article "No return to Normal" also points out that an investigative company doing sample checks on the toxic loans has found evidence of fraudelent lending practices.
       So a looming question is whether the bailout is intended to cover for the fraudelent practices of the banks, and the statements about requiring insiders to straighten every thing out isn't a smoke screen.
     "

    That chance can be assessed, of course, only by doing what any reasonable private investor would do: due diligence, meaning a close inspection of the loan tapes. On the face of it, such inspections will reveal a very high proportion of missing documentation, inflated appraisals, and other evidence of fraud. (In late 2007 the ratings agency Fitch conducted this exercise on a small sample of loan files, and found indications of misrepresentation or fraud present in practically every one.) The reasonable inference would be that many more of the loans will default. Geithner's plan to guarantee these so-called assets, therefore, is almost sure to overstate their value; it is only a way of delaying the ultimate public recognition of loss, while keeping the perpetrators afloat." J.Galbraith "No return to normal", Washington Monthly

    Parent

    Right, it's the people lacking (5.00 / 2) (#31)
    by BackFromOhio on Mon Mar 23, 2009 at 07:58:08 PM EST
    substantive knowledge who are nevertheless certain that it can't be done.  I heartily disagree.  If there's a will there's a way.  Do you know how quickly RTC doubled the size of its legal division as banks under its supervision grew in number and size? And how much the RTC benefitted from all the unemployed talent it was able to harness from the private sector?  Current attitude of "it can't be done" is myopic & self-serving.

    Parent
    I think a lot of people have been (5.00 / 1) (#46)
    by inclusiveheart on Mon Mar 23, 2009 at 09:13:52 PM EST
    genuinely convinced that all this stuff is "too complicated", "too sophisticated" and too "big" to deal with.  They don't, however, seem to realize that if that is the case all hope is really lost on a certain level.

    Parent
    But it is not the case (5.00 / 1) (#49)
    by BackFromOhio on Mon Mar 23, 2009 at 09:23:57 PM EST
    all this stuff, as you put it, is not so complicated.  If the Bozos who got us into this mess can understand it, there are many who can figure out how to unravel it in a manner that prvides maximum value to the taxpayers.

    Ask other lawyers on this cite, but complex cases and complex deals are just cases or deals with more issues and more paper; the only things that are true challenges are garnering the patience to sift through all the issues or pieces of paper, one by one, and the need for a couple of people who can see the forest as well as the trees.  I read an article yesterday -- I think it was from NYT, but not sure, that likened the generation of those born just at the end of the baby boom generation as the ADD generation that wants instant answers and can't stay focused on one thing. It seems to me sometimes that it's this type of thinking (or lack of persistent thought) which underlies the current view that all is too complex to deal with....

    Parent

    Oh, I do not believe that it is so (none / 0) (#50)
    by inclusiveheart on Mon Mar 23, 2009 at 09:36:04 PM EST
    unimaginageably "brilliant" that only the most rarified of persons can understand it.  The bottom line is that you either have money or you don't when you saddle up to the roulette table.  I think that's all you really need to be able to comprehend in what these people were doing.  Unravelling this mess isn't that complicated.  There are a lot of losers who should be taking their hits and being escorted out the door.  Not hard. Not mysterious or sophisticated.  A simple walk from the gambling table to the casino door.  Done.

    Parent
    Several last week (5.00 / 2) (#9)
    by Cream City on Mon Mar 23, 2009 at 06:48:32 PM EST
    on Friday, I think, as usual.  Saw the story -- FDIC took over several sizeable banks, some S&Ls . . . and yet the republic, it still stands.

    Parent
    Two large credit unions this weekend. (none / 0) (#47)
    by inclusiveheart on Mon Mar 23, 2009 at 09:14:33 PM EST
    That is what I heard.

    Parent
    Size and Scope of the Banks Put Into ... (none / 0) (#12)
    by santarita on Mon Mar 23, 2009 at 06:55:17 PM EST
    receivership so far have been small in comparison to Citi or BofA.

    Of course, it is possible and feasible.  Easy and painless, no.

    For some of the possible fun and games involved, one can look at the lawsuit that WaMu's holding company just filed against the FDIC for $14.5 bn in connection with the forced marriage between the bank and Chase.  

    Parent

    And that is significant why? (5.00 / 2) (#14)
    by Big Tent Democrat on Mon Mar 23, 2009 at 06:59:00 PM EST
    Indy Mac is bigger than "Your Corner Bank" but both were successfully put into receivership and then spun off.

    But wait, the IndyMac deal cost us 10B!!!!! You know of course that Geithner is proposing blowing another TRILLION on top of the 750 billion already out the door.

    Please, the idea that a big is too big to be put in receivership is absolutely specious.

    Parent

    I Am Not Saying... (none / 0) (#22)
    by santarita on Mon Mar 23, 2009 at 07:11:30 PM EST
    that BofA and Citi are too big to be put into receivership.  I'm saying that it won't be a cakewalk to do so.  It may be the only solution but it is a drastic solution.  And for those who think that nationalizing them is the only way to root out the greed and corruption, who do they think is going to be waiting in the wings to buy the assets?  

    Parent
    A trillion dollars (5.00 / 1) (#23)
    by Big Tent Democrat on Mon Mar 23, 2009 at 07:14:29 PM EST
    does not seem "drastic" to you? And this analyst is saying it won't work. say what you will about nationalization, in the end, the problem will be resolved.

    This dance around in this thread is incredibly depressing.

    Parent

    Won't necessarily cost $1 trillion (none / 0) (#37)
    by Alien Abductee on Mon Mar 23, 2009 at 08:21:23 PM EST
    Only $75 to $100 billion is promised at the outset.

    Parent
    What if the Geithner plan works? (none / 0) (#40)
    by Green26 on Mon Mar 23, 2009 at 08:29:33 PM EST
    Then, the government may actually make money under the Geithner plan. I can't imagine that sophisticated investors and asset managers are going to waste their time and money, to bid too much for the assets and/or engage in a process that isn't likely to work.

    This plan isn't going to cost the US a billion dollars no matter what. That could only occur if the assets end up being absolutely worthless, i.e. not worth one penny. It looked to me like some of these assets are still rated AAA. That tells me they're worth a decent amount.

    When a loan or investment is made, there is something given in return, i.e. collateral or an interest in the company. While there are varying degrees of risk, the collateral is certainly going to worth alot, and the investment has a reasonable chance of being worth something--including a possible return on the investment.

    Parent

    AAA rating huh? (none / 0) (#57)
    by Amiss on Tue Mar 24, 2009 at 12:57:43 AM EST
    It looked to me like some of these assets are still rated AAA. That tells me they're worth a decent amount.

    That AAA rating could be totally bogus according to this article, and an investigative report that was televised last nite,  I believe, and here as well.

    LINK

    Parent

    Amiss, the articles you cite are out of date. (none / 0) (#59)
    by Green26 on Tue Mar 24, 2009 at 04:15:51 AM EST
    While the rating agencies have received criticism, presumably deserved, most of the problems were from an earlier period. From the first article you linked (and note the time period):

    ""It is by now clear that a number of the assumptions we used in preparing our ratings on mortgage-backed securities issued between the last quarter of 2005 and the middle of 2007 did not work," Standard & Poor's chief executive Deven Sharma said."

    "A Standard & Poor's spokesman said lawmakers exaggerated the percentage of mortgage-backed securities that had to be downgraded and noted that none of the $855 billion worth of AAA subprime mortgage-backed securities that it graded over 2005-2007 had gone into default."

    Parent

    Wish I had written this (none / 0) (#64)
    by KoolJeffrey on Tue Mar 24, 2009 at 06:44:57 PM EST
    Wonderful post.

    Think about buying a new car. The second you drive off the dealership's lot, you are upside down on your loan. Does that mean your car is worthless? Of course not.

    Not only will the government make money, but so will capital investors. The prices of these assets will of course be determined by the market, but with government backing, they should be very desirable.

    Parent

    Just because something is not (5.00 / 1) (#36)
    by BackFromOhio on Mon Mar 23, 2009 at 08:14:55 PM EST
    a cakewalk doesn't mean it's not doable or shouldn't be done.  Size means, primarily, more of the same due diligence and more to sift through and sell.  The RTC sold bank operating subsidiaries in regulated industries that were quite sizeable.  The notion of too big to handle never occurred to anyone; it meant that once the RTC had a handle on operations & assets of a particular institution, meaningful proposals for disposition in a manner that achieved greatest value were possible, and were accomplished for the most part.  There was lots of interagency work, where needed, and private sector "advisors" were used when needed.  It didn't hurt, to boot, that the RTC provided employment for many unemployed professionals and support personnel.

    Not saying here RTC was perfect, but the government found a way to step up to the plate and meet the challenge.  All the self-fulfilling statements about how the failing financial institutions are too complex and too big for government to handle IMO is a way to avoid facing the problem in a way that may actually work, and benefit we, the taxpayers at the same time.  If Wamu's claims against the FDIC are valid, then one could argue that the sale was not handled well, but that isn't to say that the government could not do better.  FDIC seemed in a great rush to sell off WaMu.  This all harks back to the faith-based way the prior admin did things, without enough information and forethought.

    Santarita, I don't mean my diatribe above as a criticism of you or your posts, which are always thoughtful and informative.  I am just so exasperated and worried for the future of our country.    

    Parent

    Receiverships For Large Banks ... (none / 0) (#58)
    by santarita on Tue Mar 24, 2009 at 01:09:23 AM EST
    are not impossible.  They are doable.  But they will be expensive.  If I recall correctly, the initial estimates of the S & L bailout costs were $50 bn (or was it million), every quarter the Administration haad to go back to Congress and ask for more until they got up to $400 bn.

    I'm not enamored with the way this bailout has gone so far.  But I'm not  ready to throw in the towel and go straight to receivership for the large banks.  I haven;t seen anything that precludes that approach.  In other words, I'm not ready to condemn Geithner and friends.

    Parent

    Indy Mac (none / 0) (#66)
    by BigElephant on Wed Mar 25, 2009 at 08:13:07 AM EST
    Actually Indy Mac wasn't all that much larger than your corner bank when it came to assets.  Sure they had a lot of mortgages, but after deposits, those are the easiest thing to handle.  

    And yes, IndyMac cost ~$10B.  How much smaller are they than Citigroup.  IndyMac assets = $32B.  Citigroup assets = $2T.  Citigroup is 7 TIMES larger than Indy Mac.  And BofA is 50% larger than Citigroup!  And then you still have JP Morgan Chase, Wells Fargo, etc..  

    And don't forget that literally thousands of depositors in the Indy Mac case lost a portion of their savings.  And if you thought the run on Indy Mac was crazy (and it was!) just wait till you see the chaos when we say that we're nationalizing the US banking system.  

    It's absurd to think that this is a decision that is taken lightly.  It really should be the last option, because once we go down that path we'll be in a world we've never seen before.  


    Parent

    Absolutely... (none / 0) (#65)
    by BigElephant on Wed Mar 25, 2009 at 08:01:43 AM EST
    In fact a close relative of mine is part of the team at the FDIC who goes in and does it.  Do you know the average amount of assets that the average bank takeover has?  It's a LOT less than BofA.  Do you know the average range of instruments?  It's a LOT less diverse.  Do you know the number of employees at the average of one of these takeovers?  It's SEVERAL orders of magnitude lower than Citigroup.

    Just nationalizing BofA would be a huge effort, unlike any we've done before.  Now do every bank in the US?  You'd probably have to grow the FDIC by a factor of 20 just to begin.  That doesn't happen over night.  And don't get me started on the audit provisions that need to be in place (have you seen what they have to do for a single community bank!!).

    Is it possible to nationalize at some point.  Sure.  But it's like asking what would it take to takeover India.  Sure, we could probably do it, but it's not like you just wake up one day and do it.  And you don't expect it to go easily.

    Parent

    Who is Geithner? (none / 0) (#1)
    by Saul on Mon Mar 23, 2009 at 05:41:14 PM EST
    Was this guy really the best there is out there?  Was he THE economic guru that was so indispensable.  What are his dispensable credentials.?

    This guy looks like Robert Stack of the TV series The Untouchables.

    Selling indefinitely. (none / 0) (#2)
    by inclusiveheart on Mon Mar 23, 2009 at 06:05:39 PM EST
    Keep swapping the Edsels?

    Is Bernstein (none / 0) (#3)
    by cal1942 on Mon Mar 23, 2009 at 06:13:22 PM EST
    actually recommending nationalization?

    If he is: WOW!

    He is saying (5.00 / 2) (#4)
    by Big Tent Democrat on Mon Mar 23, 2009 at 06:13:57 PM EST
    it is inevitable.

    Parent
    He Said Consolidation Is.. (5.00 / 1) (#8)
    by santarita on Mon Mar 23, 2009 at 06:48:00 PM EST
    the answer.  He didn't mention nationalization, although that could certainly be the vehicle to effectuate consolidation.

    I'm a little suspicious of someone from Bank of America, which might just have its own agenda, denigrating Geithner's plan.  I take his comments to suggest that Bank of American believes it will be a survivor. And I'm betting that BofA believes it will be the beneficiary of a consolidation.

    Of course, this doesn't mean that he isn't right.  If he is, it should become apparent very quickly.  And then the Geithner plan will just have been a prelude to the government takeover.  

    Parent

    You can be suspicious (none / 0) (#10)
    by Big Tent Democrat on Mon Mar 23, 2009 at 06:51:29 PM EST
    but you do not get to change what he said - to wit "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."

    Who in the hell do you think he means when he writes "bank taheovers."

    Let's argue honestly here santarita.

    Parent

    I'll bet you $1,000 that the Bank of America (none / 0) (#13)
    by steviez314 on Mon Mar 23, 2009 at 06:57:59 PM EST
    analyst does NOT mean the US gov't taking over Bank of America.

    Parent
    BoA (none / 0) (#16)
    by Big Tent Democrat on Mon Mar 23, 2009 at 07:00:33 PM EST
    is not, I assume, insolvent, in this analyst's eyes. But guess what, I suspect the BoA analyst does NOT provide analysis about BoA. What's your view on that?

    But you know you a chasing a red herring here.

    Parent

    Well, I see ... (none / 0) (#18)
    by santarita on Mon Mar 23, 2009 at 07:01:53 PM EST
    someone else on this thread has pretty much said the same thing.  

    I find it hard to believe that a senior officer from Bank of America is arguing for nationalization of large money center banks, like ...Bank of America.  He is looking to pick off smaller banks and benefit from the dismantling of one of BofA's chief competitors.  

    Parent

    I find it hard to believe (5.00 / 1) (#19)
    by Big Tent Democrat on Mon Mar 23, 2009 at 07:05:21 PM EST
    that he is commenting on Geithner's Plan without referencing big money center banks.

    Surely no one thinks that the Geithner Plan is intended to save your local corner bank.

    Parent

    No. Consolidation not nationalization (5.00 / 1) (#11)
    by lodi on Mon Mar 23, 2009 at 06:54:39 PM EST
    is what Bernstein is predicting. Of course consolidation has already been happening. BofA just recently purchased Merrill Lynch and bought a bunch of Country Wide mortgage loans.

    "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."

    No where does Bernstein mention takeovers by the government. "bank takeovers" and "consolidation" are one in the same to Bernstein because the words are synonymous in financial speak.

    Also note than when a bank chief investment strategist says sell it is because it benefits the price of the stock going up. Yes as he says profits could go down but he would not be saying that without the OK from upper management. What it tells me if you own BofA stocks is to hold until the next sell-off they are creating and make even more money.

    And as for consolidation BofA is as in good of a position as anyone to buy up other banks. Their balance sheet is pretty solid, they have cash and in fact are declaring dividends and making 100 million dollar asset based loans to companies like  Louisiana-Pacific as late as this month.

    The smaller banks that the Fed has already taken over are prime targets for BofA and others. Unless they need to expand branches into the regional areas of those banks is is likely that they would only buy liquid or profit producing assets as they  did with Country Wide. Depending on Citi's profits for the first quarter they could be buying profit producing assets also.

    Parent

    This is nonsense imo (5.00 / 2) (#17)
    by Big Tent Democrat on Mon Mar 23, 2009 at 07:01:50 PM EST
    There is no doubt in my mind Bernstein is contemplating receivership for insolvent banks, which is what he describes many banks as being.

    I am pretty sure Bernstein is quite familiar with the FDIC.

    Parent

    Receivership for Insolvent Banks Is... (5.00 / 1) (#20)
    by santarita on Mon Mar 23, 2009 at 07:07:13 PM EST
    appropriate.  Obviously several small banks have already been placed into receivership.  At issue is receivership for banks of Citi's size and scope.  If Citi, BofA and other similarly sized banks are hopelessly insolvent, then receivership is appropriate.  

    Parent
    Precisely (none / 0) (#21)
    by Big Tent Democrat on Mon Mar 23, 2009 at 07:08:48 PM EST
    At issue is the BIG BANKS. and yet you pretend Bernstein is NOT talking about them. absurd.

    Parent
    Read your link (5.00 / 1) (#24)
    by lodi on Mon Mar 23, 2009 at 07:15:10 PM EST
    Nowhere does he mention receivership. He is talking up acquisitions, which is what BofA wants to do and has been doing. He is talking about selling off of stocks by putting the scare of lower profits into the markets heads. If you want to buy up other banks or the bank's assets who are teetering then you drive down their stock price by scaring the market. Any investor knows that.

    He is all about acquisitions, takeovers, consolidation - all one in the same - in his planned interview. He doesn't even hint at receivership in his statements. That is not his game here. Is he aware of receivership? Of course. BofA has their eyes on those too. What do you think they are going to do with the cash when their bad assets are bought up? Buy good assets of course.

    Parent

    Of course (5.00 / 1) (#25)
    by CoralGables on Mon Mar 23, 2009 at 07:25:30 PM EST
    The last thing Bernstein would want is all bank stocks to rise. That makes takeovers a far more costly venture.

    I would take anything out of a bank executive today with a grain of salt. Afterall, BOA has argued in favor of getting government money to help BOA while also arguing against government intervention in executive pay and bonuses.

    Bank of America is a business. Anything that they say is meant to be good for Bank of America.

    Parent

    Bernstein (none / 0) (#27)
    by Big Tent Democrat on Mon Mar 23, 2009 at 07:29:50 PM EST
    is a stock analyst, not a bank executive.

    Parent
    Who (none / 0) (#32)
    by CoralGables on Mon Mar 23, 2009 at 08:01:15 PM EST
    unless I'm mistaken, was the chief investment strategist for Merrill Lynch and now went with the sale to Bank of America. He's not independent, he's on the payroll.

    Parent
    Of course he is (none / 0) (#33)
    by Big Tent Democrat on Mon Mar 23, 2009 at 08:11:32 PM EST
    But that is true for most stick analysts.

    they are more interested in their own reputations that the fortunes of their company.

    Parent

    Correct (none / 0) (#35)
    by lodi on Mon Mar 23, 2009 at 08:14:50 PM EST


    Parent
    That's right (none / 0) (#28)
    by lodi on Mon Mar 23, 2009 at 07:35:24 PM EST
    "Anything that they say is meant to be good for Bank of America".

    That is why he is talking about "financial sector consolidation" and not nationalization or receivership or whatever else you want to call it.

    I quoted what he said a few post above. here is the rest of the same paragraph I snipped:

    "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."

    It is more than clear that the is talking about "financial sector consolidation" and not nationalization.

    Parent

    Ridiculous (none / 0) (#26)
    by Big Tent Democrat on Mon Mar 23, 2009 at 07:28:57 PM EST
    BoA is going to acquire Wells Fargo or Citi or other big banks?

    I wish.

    He is talking about government receivership.

    Parent

    I didn't mention any (5.00 / 1) (#29)
    by lodi on Mon Mar 23, 2009 at 07:44:21 PM EST
    specific banks, you did. BofA buy Citi? Doubtful. Part of Citi? Possibly.

    And I'm sorry he is not talking about nationalization. There is not one quote in that entire article that even come close to that. If there  was I trust you would have provided it. He uses the specific phrase "financial sector consolidation". That is what it is and it isn't nationalization. He is talking about BofA opportunities for bank takeovers in the market. Consolidation of any industry is bigger companies swallowing up smaller companies. Just like what happened to the media in the '90's and early 2000's.

    Parent

    But (5.00 / 2) (#30)
    by squeaky on Mon Mar 23, 2009 at 07:50:37 PM EST
    Isn't he criticizing the US gov for delaying nationalization like Japan did?

    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 delay of nationalization led to the lost decade, no?

    In Japan, Long-Term Credit Bank was nationalized after the severe attack to its stock in 1998 and Nippon Security Credit Bank followed. It was eight years after the burst of the bubble, but the problem was not finalized. Other "mega-banks" continued to dispose of the bad loans by "own responsibility". When Finance Minister Yanagisawa was fired and Economic Minister Takenaka took over his position in 2002, the disposal accelerated, because Takaneka threatened mega-banks saying "there is no bank which is too big to fail".

    link


    Parent

    Geithner was working in Japan (5.00 / 1) (#42)
    by Green26 on Mon Mar 23, 2009 at 08:36:15 PM EST
    during the time of the bank issues there. He has cited his experience in Japan as one of the reasons that he believes the US has to move fast and aggressively to stabilize the banks. He is well aware of what happened in Japan. He doesn't believe that waiting too long to take over the banks was the problem; he believes that not doing enough to help the banks during that period was the problem.

    Parent
    In regards to Japan (none / 0) (#34)
    by lodi on Mon Mar 23, 2009 at 08:12:29 PM EST
    he is saying that to wain on the "inevitable consolidation" (which he mentions twice two paragraphs above in the column) is a mistake. You see because of public outcry to bailouts japan sat on it's hands and did nothing. They could have allowed consolidation which would have weened the weak banks and strengthened the bigger banks.

    Now of course the US is not doing what japan did at all so Bernstein's comparison is a bit weak. But it still has some validity in spite of his non-apple to apple comparison in that consolidation is the inevitable final solution here. Even though he is not talking about nationalization, the nationalization we currently have, or any future nationalization will lead where? Consolidation for a large part. That is what he is pushing and has been for several months now.

    Here is an quote from him in early February:

    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.
    ...
    "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.

    So you see he is beating the same drum of trying to drive down competitors stock prices by making them sound toxic.

    Now what is amazing here is the government is trying to raise stock prices by making existing banks healthier and Bernstein is trying to do just the opposite because it benefits his employer. Fascinating.

    Parent

    Hmm (none / 0) (#38)
    by Big Tent Democrat on Mon Mar 23, 2009 at 08:21:47 PM EST
    sounds like good stock analysis to me. You impute impure motives to a guy who is paid to analyze financial stocks and seems to have done a damn good job of it.

    Parent
    I honestly don't impute anything to him (5.00 / 1) (#48)
    by lodi on Mon Mar 23, 2009 at 09:22:35 PM EST
    As a life long investor who has read this guy long before BofA acquired Merrill, and read hundreds of those like him, I know exactly what he is doing.  The bottomline here is he is talking about acquisitions and that is very clear to those who know about acquisitions and how analysts play a roll in making that happen. Particularly when they are owned by the company wanting to acquire. I suggest readers here read the article and past articles from him that echo the same "financial sector consolidation" theme along with the "beware of bank stocks" theme and decide for themselves. I would point out that nowhere does he mention nationalization or receivership or any of the like. I would also point out to readers of his articles to notice how careful he is in making sure the words he wants to use he uses several times - like "consolidation". Had he wanted to talk about nationalization I am quite sure he would have used that exact word several times and used it very clearly. And the word would have been used in a clear context that supported the reasons he was for or against nationalization. The fact that he didn't use it points to that is not what he was talking about.

    Parent
    Well youn seem to clearly be wrong (none / 0) (#61)
    by Big Tent Democrat on Tue Mar 24, 2009 at 09:01:33 AM EST
    Despite your "lifelong experience."

    Parent
    You are only considering (none / 0) (#41)
    by standingup on Mon Mar 23, 2009 at 08:35:00 PM EST
    consolidation as a matter of one bank acquiring or merging with another bank.  What about the consolidation that occurs when the FDIC disposes of failed banks they took over?  

    Bernstein sees "takeovers" (by the FDIC) as the "ultimate solution."  And he is clearly talking about the process of the FDIC taking banks over as the "inevitable solution" that will make financial stocks attractive again.  But the current plan from Obama is working to delay the what ultimately will need to happen via the FDIC.

    Parent

    I mentioned (none / 0) (#51)
    by lodi on Mon Mar 23, 2009 at 09:37:23 PM EST
    banks currently in recievership in a post in this thread. Of course they are part of the consolidation and I said Bofa has their eyes on those too.

    FDIC? Bernstein never mentioned the FDIC in that article. So you are attributing his use of the word takeover to something he never said. The entire context of that article attributable to Bernstein is  "consolidation" and 'bank stocks are weak'. That's it. That is all he talked about in context of his main themes.

    Parent

    No (none / 0) (#53)
    by standingup on Mon Mar 23, 2009 at 11:13:10 PM EST
    you are all over the place but it is clear from your comments that you do not consider nationalization or receivership a part of consolidation.

    And I'm sorry he is not talking about nationalization. There is not one quote in that entire article that even come close to that. If there  was I trust you would have provided it. He uses the specific phrase "financial sector consolidation". That is what it is and it isn't nationalization. He is talking about BofA opportunities for bank takeovers in the market. Consolidation of any industry is bigger companies swallowing up smaller companies. Just like what happened to the media in the '90's and early 2000's.

    and

    He is all about acquisitions, takeovers, consolidation - all one in the same - in his planned interview. He doesn't even hint at receivership in his statements. That is not his game here. Is he aware of receivership? Of course. BofA has their eyes on those too.

    and

    That is why he is talking about "financial sector consolidation" and not nationalization or receivership or whatever else you want to call it.

    While Bernstein does not mention the FDIC in the article, he does not specify the context of a takeover either.  You are attributing everything he states on your assumption that he is simply trying to depress financial stock prices to make it cheaper for BOA to acquire other banks.  But his statements are really about the future performance of financial stocks based on the Obama administration's current plan to deal with the financial system.  

    And you left out an interesting statement from Bernstein in the Feb 11 article from Bloomberg in your comment below.  Again he was negative on financial stocks and the latest plan from the administration.  

    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."

    He certainly is not opposed to the FDIC acting there.  

    Parent

    Here's a Reuters quote on Bernstein from Feb. 11: (none / 0) (#54)
    by Green26 on Mon Mar 23, 2009 at 11:16:18 PM EST
    Note the reference to "shut" large banks and "seize" assets.

    "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."

    Parent

    Standingup, you are too quick for me. (none / 0) (#55)
    by Green26 on Mon Mar 23, 2009 at 11:19:22 PM EST
    I see you posted the quote while I was looking to find it again and minutes before I was able to get it out.

    Parent
    Well, if the Government does its job (5.00 / 1) (#39)
    by BackFromOhio on Mon Mar 23, 2009 at 08:21:59 PM EST
    receivership will be the first step toward deciding whether the way to maximize return for the taxpayers is a whole bank sale or sell off of various assets and operations to the highest bidderS.  

    Parent
    Bernstein is talking about both (none / 0) (#43)
    by Green26 on Mon Mar 23, 2009 at 08:46:06 PM EST
    consolidations/acquisitions by other financial institutions and takeovers by the government. I have seen clearer language from him in his previous comments.

    He's sorta a doom and gloom guy, and has been for some time.

    A consent decree agreed to by the big investment banks a number of years ago and similar rules require analysts to be independent, i.e. they can't take their marching orders from management or consult with the investment bankers.

    Yes, this guy came with Merrill Lynch.

    Parent

    That seems fair (none / 0) (#45)
    by Big Tent Democrat on Mon Mar 23, 2009 at 09:08:31 PM EST


    Parent
    I think if you reread (none / 0) (#52)
    by lodi on Mon Mar 23, 2009 at 10:00:29 PM EST
    the article you will see he is clearly not talking about takeovers.

    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."

    In the first paragraph he talks about the "ultimate solution" while in the second paragraph where he continues what he was saying he refers to the ultimate solution as the "inevitable process".

    In the first paragraph where he says takeovers he is talking about the ultimate solution but in the context that the Feds can't prop up the prices of assets indefinitely. That doesn't even come close to talking about nationalization especially when you add in the context that he continues with in the second paragraph. takeovers; "ultimate solution" and "inevitable process" are all one in the same.

    Parent

    It won't work (none / 0) (#44)
    by AX10 on Mon Mar 23, 2009 at 09:01:33 PM EST
    The banks are saying to "trust us".  Why should we trust them?  This is nothing but a give-a-way to the banks.  They could have a profit in the area of 250 billion dollars.

    FDR didn't nationalize (none / 0) (#56)
    by Rashomon66 on Tue Mar 24, 2009 at 12:25:47 AM EST
    FDR didn't nationalize the banks. Aren't you an FDR fan? Don't you apparently want Obama to be like FDR? You're asking him to be more progressive and more left than FDR. I don't think B of A need nationalizing.

    And in somewhat related news: (none / 0) (#60)
    by steviez314 on Tue Mar 24, 2009 at 08:08:11 AM EST
    DJ News- Merrill Lynch Strategist Richard Bernstein Leaving Firm

    --------------------------------------------------------------------------------
    Tue Mar 24 09:00:29 2009 EDT

    Ruh roh.... (none / 0) (#62)
    by ChiTownDenny on Tue Mar 24, 2009 at 05:16:34 PM EST
    I found his statements shocking.  The ramifications of his statements, not so much:

    "Rich, after more than 20 years as a sell-side strategist, has made the decision to pursue new challenges, including potential opportunities on the buy-side, teaching and perhaps authoring another book."

    http://www.ritholtz.com/blog/2009/03/merrillbank-america-departures/

    Loving this (none / 0) (#63)
    by KoolJeffrey on Tue Mar 24, 2009 at 06:16:44 PM EST
    Good to see both liberals and conservatives opposing this plan. Usually means we are on the right track, whether the masses realize it or not.

    Going back to before election day, this issue has been a battle for the populist soul. Since nobody knows what's going to happen no matter what steps are taken, the safest route politically is to attack whatever is proposed.

    I wonder what all the naysayers will complain about if this plan works.

    BoA Analyst: Geithner Plan Won't Work | 66 comments (66 topical)

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