President Obama Blasts Banks Over Bailouts & Bonuses
Thursday, January 29, 2009SUSIE GHARIB: President Obama scolded Wall Street today. He said paying top executives $18 billion in bonuses, while seeking taxpayer help, was quote, the height of irresponsibility. In a meeting with Treasury Secretary Geithner this afternoon, the president said his administration will tell financial executives they have to quote, show some restraint.
BARACK OBAMA, PRESIDENT OF THE UNITED STATES: At a time when most of these institutions were teetering on collapse and they are asking for taxpayers to help sustain them and when taxpayers find themselves in the difficult position that if they don't provide help that the entire system could come down on top of our heads, that is the height of irresponsibility. It's shameful.
GHARIB: Meanwhile, it was a rough day for the financial sector as investors became less enthusiastic about the administration's potential plans to remove toxic assets from banks sheets. And as Erika Miller reports, analysts see pros and cons in the sector.
ERIKA MILLER, NIGHTLY BUSINESS REPORT CORRESPONDENT: Finally, a glimmer of hope for decimated bank stocks. Over the past week and a half, Citigroup, JPMorgan Chase and Bank of America have each surged over 35 percent on optimism the government will take toxic assets off bank balance sheets. Still, many portfolio managers, including Mike Levine of Oppenheimer funds, are telling investors to steer clear of the sector.
MICHAEL LEVINE, PORTFOLIO MANAGER, OPPENHEIMER FUNDS: I think people are very concerned about capital levels and profitability, the national potential for these banks to be nationalized or government taking a majority ownership. So I think there's just a lot of unknowns out there right now.
MILLER: RBC Capital markets is predicting 200 to 300 banks will go out of business over the next year or so. And for the firms that survive, analyst Gerard Cassidy sees many more quarters of dismal earnings results.
GERARD CASSIDY, BANK ANALYST, RBC CAPITAL MARKETS: Right now, our feeling is that the recession last through the end of this year and that the banks' profitability probably doesn't really come back to strength until the second half of 2010.
MILLER: However, he and others do see a number of positive developments, like consolidation that should benefit surviving companies. Michael Henry, head of financial services sector strategy at Accenture, says cost cutting is no longer the driving force behind deals.
MICHAEL HENRY, HEAD OF FINANCIAL SERVICES SECTOR STRATEGY, ACCENTURE: Now it's a little bit different. You have mergers that are taking place where you really have additional capabilities that are being built. You have new banking models being developed. Investment banks becoming bank holding companies and getting a whole bunch of new capabilities bolted on, regional banks acquiring to become national banks.
MILLER: In fact, even the most cautious bank analysts are putting together a potential buy list for bank stocks. When there are signs President Obama's economic stimulus plan is working, then some analysts say it may be time to get back in.
CASSIDY: I think the banks that are best positioned to benefit from this as we come out of the downturn will be the banks with the strongest capital levels today and the banks that didn't go overboard on the excessive risky lending in the last three years.
MILLER: If you are a long-term investor who is itching to invest in the financial sector now, analysts have one piece of advice: buy preferred shares. They are generally safer than common stock, although they usually have less profit potential. Erika Miller, NIGHTLY BUSINESS REPORT, New York.
