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Sept 22 (Reuters) - Banks and thrifts must raise capital now to take advantage of the recent rally in share prices, said analyst Paul Miller, who believes that the Bush administration’s $700 billion bailout plan for Wall Street will not benefit banks’ capital levels as much as expected.
“At this point, we just do not know. While the plan will most likely help, banks and thrifts still need to raise capital, and the recent rally provides them an opportunity to issue equity with less dilution,” the Friedman, Billings, Ramsey analyst wrote in a note to clients.
On Sunday, the Bush administration and Congress ramped up talks on an unprecedented $700 billion bank bailout as they battled the clock to prevent further financial market turmoil that risks hurtling the economy into a deep and damaging recession.
The plan for the largest-ever bank rescue would give sweeping powers to the U.S. Treasury to buy up toxic mortgage-related debt from financial firms, including U.S. subsidiaries of foreign banks.
“We certainly view the proposed government plan as a step in the right direction to stabilize the mortgage market,” Miller said, adding that this will provide a bid that the market lacks for the poorest performing non-agency securities.
The plan, however, offers no direct relief for defaulted homeowners or for the residential housing market, he added.
The analyst maintained his cautious stance on all financial stocks given rising credit losses, continued industry deleveraging and low tangible equity levels. (Reporting by Tenzin Pema in Bangalore; Editing by Jarshad Kakkrakandy)