We saw the final shape of the global bank bail-out and guarantee program overnight, our time, 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 news came as the Australian market rose strongly for a second day.
The All Ords ended up 4%, the ASX200 3.7%. The Australian dollar was trading around 71 USc.
Our market was up 5.6% on Monday, so the half of last week’s nasty 16% loss has been pulled back.
Japan’s Nikkei futures showed a big 12% jump in late US trading after the market was shut Monday. The Japanese market fell 24% last week and when trading started, it surged yesterday to be up 13% and a bit more at times.
Europe rose, but the US faded in afternoon trading, sending our futures market down 99 points at the close of trading this morning, so we will open lower today.
The US market rose, then swung lower, at one stage the Dow was off 3% and a bit more, but recovered to close down less than 1%. Oil fell back to around $US78 a barrel; the dollar eased back under 70 US cents; copper rose again and gold eased a touch.
The US Government will spend $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.
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. State Street and Bank of New York Mellon will also be assisted.Merrill Lynch will be helped.
Citigroup and JPMorgan Chase were told they would receive injections of $US 5 billion each; Bank of America and Wells Fargo would get $US20 billion each; Goldman Sachs and Morgan Stanley would each receive $US10 billion; and Bank of New York Mellon and State Street were each due to get $US2-$US3 billion.
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. .
President Bush plans to ask Congress for another $US100 billion from the $U&S700 billion bailout package.
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.
It will mean the US will fall into line with measures also agreed to and announced by governments in Australia, Europe, Asia and the Middle East agreeing to support banks and combat the credit crisis.
The European bail-out packages were costed at more than $US2.5 trillion, a sum that obviously finally convinced investors that government’s were at last serious.
In Tokyo the country’s finance ministry unveiled a series of steps yesterday aimed at stabilising financial markets, including enacting a law enabling public fund injections into regional banks.
The Japanese government and Bank of Japan will also consider a temporary freeze on the sale of government-held shares on the secondary market.
The government will also further deregulate share buy-backs by companies, consider expanding disclosure rules on short-selling of shares, and extend a safety net for life insurers beyond April 2009. A private insurer, collapsed on Friday.
