Sept. 25 (Bloomberg) -- U.S. Treasury Secretary Henry Paulson's proposed $700 billion bank rescue aims to help ``poorly run'' companies and the primary beneficiaries would be Goldman Sachs Group Inc. and Morgan Stanley, said BB&T Corp. Chief Executive Officer John Allison in a critique of the plan.

Treasury ``is totally dominated by Wall Street investment bankers'' and ``cannot be relied on to objectively assess'' the impact of government policy on the financial industry, Allison wrote in a Sept. 23 letter to Congress. The letter was verified by Bob Denham, a spokesman for BB&T, North Carolina's third- largest bank.

Allison, 60, said Congress should ``hear from well-run financial institutions'' as lawmakers consider the plan, which seeks to ease the credit crunch by buying troubled mortgage- related assets. Under Allison, Winston-Salem, North Carolina- based BB&T avoided the subprime mortgage market, whose collapse led to the credit crisis. BB&T has risen 26 percent this year, the best showing in the 24-company KBW Bank Index.

The BB&T chief's rebuke to the Paulson plan may be unique among U.S. regional banks. While lenders such as New Jersey's Hudson City Bancorp and Minnesota's U.S. Bancorp also have said they kept lending standards intact and avoided making highly leveraged loans, few have publicly opposed the bailout plan.

The American Bankers Association, the industry's trade group, has urged members to lobby against ``rash actions'' including bankruptcy reform and new regulations that will hurt community banks. Members of the Washington-based group have taken various positions on the Treasury plan, both pro and con, spokesman Peter Garuccio said. He wasn't aware of any letters from members similar to Allison's. Spokespersons at U.S. Bancorp and Hudson City didn't immediately return calls today.

`No Panic'

Paulson, the former chairman and CEO of Goldman Sachs, and Federal Reserve Chairman Ben S. Bernanke are working on a package that would be acceptable to Congress. President George W. Bush, in a national address last night, said the rescue plan is crucial to stabilize U.S. financial markets. Allison questioned the need for the bailout.

``There is no panic on Main Street and in sound financial institutions,'' Allison wrote. ``The problems are in high-risk financial institutions and on Wall Street.''

Treasury spokeswoman Jennifer Zuccarelli declined yesterday to respond to Allison's letter, other than referring to comments Paulson made to Congress. Goldman spokesman Lucas van Praag and Morgan Stanley's Mark Lake declined to comment.

Bernanke disclaimed allegiance to Wall Street in congressional testimony on Sept. 23 when he said the U.S. faces ``grave threats'' to its financial stability.

Smart People

``I don't have those interests or those connections,'' he said. ``My interest is solely for the strength and the recovery of the U.S. economy.''

``This bold approach will cost American families far less than the alternative -- a continuing series of financial institution failures and frozen credit markets unable to fund everyday needs and economic expansion,'' Paulson said.

``The Treasury has a number of smart individuals, including Hank Paulson,'' Allison wrote. ``However, Treasury is totally dominated by Wall Street investment bankers. They do not have knowledge of the commercial banking industry.''

Goldman and Morgan Stanley, both based in New York, said this week they are converting to bank holding companies. Morgan Stanley has taken $15.7 billion of writedowns and losses on mortgage-related securities and other types of loans since the credit crunch started last year. Goldman's tally stands at about $4.9 billion.

Allison's Alternative

Allison is retiring in December after 19 years leading BB&T, the 14th-biggest U.S. commercial bank, with assets of $136.5 billion. BB&T avoided subprime lending, option adjustable-rate mortgages and complex debt securities that have slammed Wachovia Corp., Washington Mutual Inc. and other lenders.

Still, BB&T more than tripled the money it set aside for loan losses in the second quarter, mainly because of loans to builders and developers in Georgia, Florida and the Washington, D.C., metropolitan area.

Rather than buying distressed assets, the U.S. government could offer a ``significant'' tax credit for home purchases, or even purchase vacant lots or houses under construction, Allison said. The market should be allowed to eliminate ``irrational competitors,'' he said.

``There were a number of poorly managed institutions and poorly made financial decisions during the real estate boom,'' Allison wrote. ``It is important that any rules post-`rescue' punish the poorly run institutions and not punish the well-run companies.''

He said the mortgage crisis was caused primarily by Freddie Mac and Fannie Mae. The government-chartered companies, which own or guarantee more than 40 percent of the $12 trillion of U.S. home loans, ``distorted normal market-risk mechanisms,'' and were abetted by a Federal Reserve that made the wrong decisions on interest rates, Allison wrote.

To contact the reporter on this story: David Mildenberg in Charlotte at dmildenberg@bloomberg.net

Last Updated: September 25, 2008 09:55 EDT