Treasury Injects $250 B in Banks

123jump.com Staff
14 Oct, 2008
New York City

U.S. Treasury pressured nine large banks to accept $125 billion in exchange of stakes that will limit executive pay and collect dividend and invest $125 billion in smaller banks. The Treasury action is in sharp contrast to the promise of investing in battered securities owned by banks.

[R]10:45AM New York – U.S. Treasury pressured to nine large financial institutions to accept $250 billion in exchange of stakes that limit executive pay and sustain lending to homeowners.[/R]

Stocks around the world rebounded sharply after European governments committed $1.5 trillion to support banking system and set aside plans to invest directly in banks. U.S. Treasury decided to invest $250 billion in nine largest financial institutions.

Secretary Henry Paulson announced a plan to invest $250 billion immediately in nine largest banks and financial companies but did not name them. The investment will be exchanged for preferred stocks, curtail executive pay and also take warrants that will convert to common stocks.

The move is designed to restore confidence in the banking system and not force the government to choose one over the other. Treasury also expects to invest additional $250 billion in another 1,000 banks.

Sources in U.S. Treasury and FDIC confirm that nine institutions that have agreed to take capital after pressured by Treasury Secretary include Bank of America, Merrill Lynch, Morgan Stanley, JP Morgan Chase, Bank of New York, State Street Corp, Wells Fargo, Goldman Sachs and Citigroup.

His action to support banks may fall flat in lifting consumer sentiment. Banks are likely to keep the new capital to strengthen balance sheets and not increase the lending. To encourage banks to keep money flowing Secretary urged banks not to hoard money and, “We expect all participating banks to continue and to strengthen their efforts to help struggling homeowners who can afford their homes avoid foreclosure.”

The Treasury action lifted the sentiment in New York and European trading as the benchmark indexes scaled higher.

Asian Markets Review

The Nikkei 225 Index in Tokyo closed higher 1,171.14 or 14.15% to 9,447.57, Hang Seng index in Hong Kong increased 520.72 or 3.19% closed to 16,832.88. CSI 300 index in China higher 50.87 or 2.56% closed to 1,934.62. ASX 200 index in Australia increased 154.50 or 3.70% to close 4,335.20. The KL Composite index in Malaysia higher 15.30 or 1.61% closed to 966.06.

The Kospi Index in South Korea increased 79.16 or 6.14% to close at 1,367.69. SET index in Thailand closed higher 24.44 or 5.13% to 500.77, and JSE Index in Indonesia increased 94.09 or 6.44% to 1,555.97. The Sensex index in India increased 174.31 or 1.54% closed to 11,483.40.

Europe Markets Review

In London FTSE 100 Index traded higher 258.90 or 6.08% to 4,515.80, in Paris CAC 40 Index increased 197.94 or 5.60% to 3,729.44 and in Frankfurt DAX index traded higher 267.14 or 5.28% to 5,329.59. In Zurich trading SMI increased 300.19 or 5.04% to 6,256.51.