The government's plan to invest $250 billion in U.S. banks to encourage lending and boost the economy looks like good news for the financial...

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The government’s plan to invest $250 billion in U.S. banks to encourage lending and boost the economy looks like good news for the financial system, experts say.

Richard Bove, an analyst with Ladenburg Thalmann, says large commercial banks stand to benefit most, as the government might hesitate to invest in smaller, weaker institutions. “Having been anointed as the leaders of the new financial system, these companies will now take market share from all other financial institutions,” he writes in a report.

Banks have been struggling to shore up capital amid mortgage losses and a paralyzed credit market. Citigroup shares are down almost 50 percent, while Bank of America has lost about 41 percent this year. JPMorgan is down 7 percent and Wells Fargo has gained 7 percent.

Citi Investment Research analyst Keith Horowitz has upgraded several big banks, calling the planned capital injection a “game-changer.” He sees market share gains for Bank of America and JPMorgan.

Others have their doubts. “Our chief concerns are the economic damage already done over the past two years by capital markets disruption,” writes Oppenheimer & Co. analyst Meredith Whitney.

There’s no guarantee banks will use the extra funds to make loans to consumers and businesses, as the government hopes. “The capital injection helps shore up confidence, although we are not convinced banks will use capital to make loans when facing a recession,” says Buckingham Research analyst James Mitchell. Instead, the recipients might use the cash to acquire struggling rivals, he says. After failing in its bid for Wachovia, Citigroup is a likely acquirer, he says.

Treasury Secretary Henry Paulson on Monday said the $250 billion investment should end up making money for taxpayers, not costing money.