Vontobel, the Swiss private bank, is sticking to a defensive investment stance over equities, concerned that government stimulus packages, coupled with state controls over many banking groups, will drag out the process of any economic recovery.

Many banks, nationalised or partly controlled by governments as part of measures to combat the credit crunch, are being forced to lend money cheaply as part of the deal in receiving state funds, argues Thomas Steinemann, chief strategist, Vontobel.

“At first glance this is understandable; at second glance, on the other hand, it is clear that this is the wrong economic incentive. This practice could lead to another situation of excess credit in the economy. This was one of the causes of the present crisis: too much cheap money generated excessive demand for real estate, resulting in excessive debt,” Mr Steinemann says in a note.

“Although the policies described above will indeed slow the downward spiral, they will also postpone the real recovery,” he says.

Mr Steinemann concludes: “We shall stick to our defensive positions in our portfolios and remain underweighted in equities. As the topic of deflation is still very relevant, in our bond allocation we will continue to focus on high-quality government securities and selected corporate bonds.”

Last month, the International Monetary Fund raised its estimate of overall write-downs in the US banking system from its previous estimate of $1.4 trillion to $2.2 trillion. Banks have already written off about $800 billion of this amount, Vontobel said.

Vontobel predicts that the US banking system still has to write down another $1.4 trillion.