According to US reports we will see the final shape of the global bank bailout and guarantee program tonight with the Bush Administration revealing a $US250 billion first stage to inject capital into sound but needy groups and to guarantee some bank debt for three years. The announcement is expected around 11.30 pm (Australian eastern Daylight Time).
The news came as the Australian market rose strongly for a second day, up nearly 6% or more than 240 points just before 11.30 am. Japan’s Nikkei futures were showing a 12% jump in late US trading ahead of the market opening later today. The Japanese market fell 24% last week. Our market was up 5.6% yesterday so if sustained, today’s rise will trim last week’s nasty 16% loss to less than 4%.
US media groups say the plan will see the Government commit to spending as much as $US250 billion on non- voting shares of banks and other financial companies, while the chief bank deposit regulator, the Federal Deposit Insurance Corp will expand deposit insurance beyond the current limit of $US250,000 and back newly issued senior bank debt.
It’s believed around half the money will be invested in a handful of major banks, Bank of America, JPMorgan Chase, Citigroup, Well Fargo, Goldman Sachs and Morgan Stanley, and the remainder in a group of smaller, unspecified institutions. the biggest injection will be around $US25 billion, from what has been reported in US media.
The banks will be offered a specific amount of three-year preferred stock on a take-it-or-leave-it basis. Some of the banks are yet to decide if they will be in the program, or follow the example of Barclays in the UK by seeking to raise capital independent of the scheme. .
Treasury Secretary Hank Paulson, Federal Reserve Chairman, Ben Bernanke and the head of the FDIC, Sheila Bair are due to hold a press conference at 8.30am Washington time to reveal details of the plan, which will follow a day of dramatic announcements across Europe overnight,
Governments in the UK, France, Germany, Spain, the Netherlands and Austria committed up to $US2.54 trillion to guarantee bank loans and take stakes in lenders.
Heads of major US banks met the US Government yesterday to discuss the move as Wall Street had its biggest day in history, jumping more than 11% for the Dow and the Standard And Poor’s 500’s surge was less in evidence in banks and financials which rose around 4.5%, making the rally far more broad-based than anyone had forecast.
President Bush meets his working group on financial markets at 7:30 a.m. at the White House and will then delivery his statement outlining the broad details make his statement 35 minutes later, the White House press office said in a statement.
It will mean the US will fall into line with measures also agreed to and announced by governments in Australia, Europe, the US, Asia and the Middle East agreed to support banks and combat the credit crisis.
The European bailout packages were costed at more than $US2.5 trillion, a sum that obviously finally convinced investors that Government’s were at last serious.
Wall Street was up more than 11% and European markets closed up 8%-11%. the futures market had our market up more than 7% this morning, or more than 300 points. The Dow jumped more than 900 points, a huge surge that accelerated in the last hour. The Standard & Poor’s 500 Index jumped 11.58%. London’s Footsie finished up closed up 8.3%, the second biggest one-day gain on record, after the UK Government revealed its plans to inject £37 billion into three of the country’s biggest banks. Other European stock markets followed as Germany, France, Spain, Austria and the Netherlands announced their plans, Italy’s cabinet passed a new decree offering more support to the financial sector, and the Spanish government approved a guarantee for issues of new bank debt. Frankfurt’s Xetra Dax closed up 11.4%, while the CAC 40 in Paris rose 11.2%.
The UK revealed plans to bailout its banks, taking big stakes in Royal Bank of Scotland and the combined HBOS/Lloyds TSB bank.
Senior management were sacked in some cases and the banks being helped agreed to eliminate dividends until the loans had been paid back.
With the new US scheme (which will use money from the $US700 billion bailout package agreed to by Congress finally on October 3, analysts will be looking for evidence that bank boards and executives, not to mention shareholders, will pay a cost as they have in the UK by some losing jobs, bonuses to be paid in shares and dividends cut of eliminated.
In Germany, the Government said it would guarantee up to 400 billion euros of lending between banks and set aside 20 billion euros to cover potential losses. It will also provide as much as 80 billion euros to recapitalize banks.
In France, the Government will guarantee 320 billion euros of bank debt and set up a fund allowed to spend up to 40 billion euros to recapitalize banks.
Spain’s cabinet approved measures to guarantee up to 100 billion euros of bank debt this year and authorized the government to buy shares in banks in need of capital.
The Austrian government will set up an 85 billion-euro clearinghouse run by the central bank to provide cash by holding illiquid bank assets as collateral. Austria also pledged to buy banking shares if and when domestic financial institutions seek to sell new stock.
The Dutch government will guarantee up to 200 billion euros of interbank loans, it said in a letter to parliament.
Italy will guarantee some bank debt and buy preferred stock in banks if necessary, but didn’t provide any figures.
Britain wasn’t part of the moves because it doesn’t use the euro. It had earlier used its own scheme to inject funds into Royal Bank of Scotland, HBOS, and Lloyds TSB .They will get 37 billion-pound ($US64 billion) bailout from the and Royal Bank of Scotland and HBOS will cede majority control to the government; give the government seats on their boards; the right to halt dividends and power to limit executives’ bonuses. RBS CEO, Sir Fred Goodwin and HBOS CEO ANDY Hornby will step down.
The US Federal Reserve promised that the world’s major central banks will offer financial institutions unlimited US dollar funds in an effort to ease tensions in money markets.
The European Central Bank, the Bank of England and the Swiss central bank will conduct dollar auctions at maturities of seven days, 28 days and 84 days at a fixed interest rate, Fed said on its Web site today. The Bank of Japan is considering “similar measures.”
Sometimes a picture really does say a 1000 words.
http://www.nytimes.com/imagepages/2008/10/13/business/14bailout.2.inline.ready.html
But two would do.
Smug bastards.