Bank of America lost Merrill Lynch economist David Rosenberg and Merrill Chief Investment Strategist Richard Bernstein this morning, according to a company spokeswoman.
Both men were known for bearish outlooks, particularly on the current market. Yesterday David Rosenberg said in a note that the S&P 500 stock index could fall another 13 per cent, to 600 points, by October. (The good news is that he thinks the bear market will end in October.) He famously refused to trust his firm’s computer models, believing that the end of the housing boom and credit contraction would cause a more severe economic slowdown than most analysts thought. He thinks historians will call the current era “GDII,” as in “Great Depression II.”
Richard Bernstein said yesterday that investors should sell bank stocks because the Treasury’s plan won’t stop profits from dropping. He has been Merrill Lynch’s chief U.S. strategist since late 2001. His reputation was greatly boosted in recent years as the markets tanked and financial firms collapsed.
Bernstein is leaving to start his own consulting firm in mid-April, according to published reports. It’s not clear what Rosenberg’s next move will be.
There are competing rumours about the departures. According to one rumour, Rosenberg and possibly Bertstein were asked to leave because their dire predictions for the markets, including bearish outlook for financials, didn’t fit the story line Bank of America wants to promote.
The other rumour is that both men were worried that pay caps imposed by Congress on banks that take TARP funds would depress their income. If they start their own consulting firms or move to a bank that didn’t take TARP, their pay won’t be limited. One insider even said it is possible either or both might wind up working for Merrill Lynch again as outside consultants.
Chalk this up as yet another example of how injecting public money into financial firms breeds value-destroying political interference.
Update: Here (via Bloomberg) is the unsatisfying official line on the departures.
Rosenberg decided to leave for personal reasons, while Bernstein sought new challenges after more than 20 years as an analyst, Candace Browning, president of Bank of America Merrill Lynch Global Research, said in a memo to employees.