New Star fund manager Tim Steer warns there could be more bank failings on both sides of the Atlantic in the aftermath of Bear Stearns.
The US investment bank became the latest victim of the credit squeeze this week when it was bought by JP Morgan Chase for just £116m after being forced to ask the Federal Reserve for £14.89bn of funding.
Steer, who runs the New Star alpha fund, says the Fed’s quick reaction to Bear Stearns saved Wall Street but the credit crisis is of the banking sector’s own making and it must face up to its responsibilities.
He says: “Magic wands, like those waved by Ben Bernanke, are all very well but are not a lasting solution.
“This applies to both sides of the pond, as the UK banking sector results suggest a distinctly ostrich-like attitude to the depth of the hole it is peering down.
“Yes, banks look cheap by historic standards but until they decide to get real, I would suggest there could be more falls to come.”
Bear Stearns was forced to ask the Fed for emergency help after it admitted holding £23.8bn in mortgage-backed securities, of which £8.4bn might be difficult to value.
The £116m paid by JP Morgan Chase represents only 6 per cent of its value at the start of trading last Friday and only 1 per cent of its value at the beginning of March.
The Fed also announced a cut in the lending rate from 3.5 per cent to 3.25 per cent in a bid to reduce borrowing costs for banks and financial institutions.
The Bear Stearns crisis sent ripples through world stockmarkets on Monday, with the Hong Kong and Japanese indexes down by 5 and 4 per cent respectively. The FTSE100 fell 217 points on Monday, from 5,631 to 5,414, before recovering on Tuesday.