Richard Bernstein of Bank of America-Merrill Lynch Says: Sell Financial Stocks

Richard Bernstein, the Chief Investment Strategist of Bank of America Securities-Merrill Lynch has some pretty eye-catching advice. He urges investors to take profits from today's 12-point rally in the financial sector.

Treasury Secretary Tim Geithner's plan for public/private collaboration in the purchase of mortgage-related investments from banks and other financial institutions sent the market soaring. Bernstein, however, says that the surge will not last, and that consolidation in the sector is the only way of stabilizing it and ensuring a recovery:

Removing devalued loans and securities from banks’ balance sheets is a short-term solution that will delay the problem’s ultimate solution, which is bank takeovers, Bernstein said. The government won’t be able to inflate the prices banks receive for selling bad assets indefinitely, he added.

“The history of bubbles shows quite well that financial sector consolidation is inevitable,” Bernstein, Bank of America’s chief investment strategist, wrote in a research note. “Financial stocks will be attractive when the government tries to speed up that inevitable process. However, to the contrary, the government continues to attempt to stymie that inevitable consolidation.”

Since 2007, Bank of America has acquired Countrywide, Merrill Lynch, ABN AMRO North America, and La Salle Bank. Apparently, it might want gobble up some more banks -- in the name of efficiency, of course.