By Tenzin Pema
BANGALORE, Feb 11 (Reuters) - The U.S. government’s plan to stabilize the financial system was not enough, several analysts said as they voiced concern over banks’ capital levels and called for more details over a “bad bank” public-private partnership.
Prominent banking analyst Meredith Whitney provided an even more gloomy picture.
“Nothing the government can do is capable of altering the unavoidable reality that fewer American businesses and consumers will have access to prior levels of credit,” Oppenheimer & Co’s Whitney said.
Other analysts, however, were cautiously optimistic.
“From a conceptual level, the plan hits on the right issues. Problem is how it will be executed,” Citigroup analyst Keith Horowitz said.
Analysts at Friedman, Billings, Ramsey said the $1.5 trillion bank rescue plan was a step in the right direction, but it was “nowhere near enough.”
The plan does not address the lack of tangible common equity in the financial system, said Friedman analysts, who estimated that financials need at least $1 trillion in tangible common equity to be sufficiently capitalized.
“The capital holes on financial balance sheets are just too large to be plugged with convertible securities with vague terms,” Friedman analysts led by Paul Miller said.
The U.S. government’s bank-rescue plan disappointed the markets with its lack of detail, despite including a proposal to soak up $500 billion to $1 trillion of bad assets from struggling banks and expanding a Federal Reserve program to support new loans.
Under the plan, which will total as much as $2 trillion, a Public-Private Investment Fund is to be launched to buy troubled assets of up to $1 trillion.
Some analysts, however, expect limited participation from private investors as they will want to buy assets at distressed rates while banks will sell at above-market prices.
“Providing long-term low-cost capital from the government could enable buyers with clean balance sheets — private or existing public companies — to buy assets and add liquidity to the system,” Oppenheimer’s Whitney said.
But as details on how exactly the government would entice private investors to buy distressed assets remained sketchy, analysts said more information about the joint public- and private-fund could be “critical.”
(Editing by Gopakumar Warrier)
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