The United States is expected to announce Tuesday it will invest in top banks and thousands of others in a partial nationalization of the finance sector that mirrors British Prime Minister Gordon Brown's plan. Meanwhile, European governments are moving forward with similar bailouts. Washington is now hopping on the European bandwagon by partially nationalizing banks to rescue Wall Street. Henry Paulson is first expected to announce his new plan to solve the credit crisis on Tuesday, but details that the United States Treasury Secretary is planning to shift his strategy to combat the financial crisis began leaking on Monday night. According to reports in the Washington Post and Wall Street Journal, the Bush administration is planning to use much of the money provided in the first tranche of the Congressional bailout package to make direct government investments in US banks. According to the papers, Washington is planning to invest $250 billion in the banks, forcing nine of the country's biggest banks to accept Treasury Department stakes. The Wall Street Journal reports that stakes in "possibly thousands of other banks" are expected. The paper also claims that "some of the big banks were unhappy about the government taking equity stakes, but acquiesced under pressure" from Paulson. The "extreme steps," the paper writes, would "intertwine the banking sector with the federal government for years to come."
The United States is expected to announce Tuesday it will invest in top banks and thousands of others in a partial nationalization of the finance sector that mirrors British Prime Minister Gordon Brown's plan. Meanwhile, European governments are moving forward with similar bailouts.
Washington is now hopping on the European bandwagon by partially nationalizing banks to rescue Wall Street.
Henry Paulson is first expected to announce his new plan to solve the credit crisis on Tuesday, but details that the United States Treasury Secretary is planning to shift his strategy to combat the financial crisis began leaking on Monday night. According to reports in the Washington Post and Wall Street Journal, the Bush administration is planning to use much of the money provided in the first tranche of the Congressional bailout package to make direct government investments in US banks.
According to the papers, Washington is planning to invest $250 billion in the banks, forcing nine of the country's biggest banks to accept Treasury Department stakes. The Wall Street Journal reports that stakes in "possibly thousands of other banks" are expected. The paper also claims that "some of the big banks were unhappy about the government taking equity stakes, but acquiesced under pressure" from Paulson. The "extreme steps," the paper writes, would "intertwine the banking sector with the federal government for years to come."
U.S. Treasury Said to Invest in Nine Major U.S. Banks | Bloomberg | 13 Oct 2008
Oct. 13 (Bloomberg) -- The Bush administration will announce a plan to rescue frozen credit markets that includes spending about half of a total of $250 billion for preferred shares of nine major banks, people briefed on the matter said. The companies are Citigroup Inc., Wells Fargo & Co., JPMorgan Chase & Co., Bank of America Corp., Goldman Sachs Group Inc., Morgan Stanley, State Street Corp., and Bank of New York Mellon Corp., the people said. One of the people also said Merrill Lynch & Co. will receive an investment. [...] None of banks getting government money was given a choice about it, said one of the people familiar with the plans. All of the banks involved will have to submit to compensation restrictions, said the person. The government will also guarantee the banks' newly issued senior unsecured debt, making it easier for them to refinance their liabilities, the person said. The Treasury plans to spend $25 billion each for stakes in Citigroup and JPMorgan, people said. Another $25 billion will be divided between Bank of America and Merrill, which agreed last month to be acquired by Bank of America. Goldman and Morgan Stanley will each get $10 billion, while State Street and Bank of New York will get injections of about $3 billion each, people said.
The companies are Citigroup Inc., Wells Fargo & Co., JPMorgan Chase & Co., Bank of America Corp., Goldman Sachs Group Inc., Morgan Stanley, State Street Corp., and Bank of New York Mellon Corp., the people said. One of the people also said Merrill Lynch & Co. will receive an investment. [...] None of banks getting government money was given a choice about it, said one of the people familiar with the plans. All of the banks involved will have to submit to compensation restrictions, said the person. The government will also guarantee the banks' newly issued senior unsecured debt, making it easier for them to refinance their liabilities, the person said.
The Treasury plans to spend $25 billion each for stakes in Citigroup and JPMorgan, people said. Another $25 billion will be divided between Bank of America and Merrill, which agreed last month to be acquired by Bank of America. Goldman and Morgan Stanley will each get $10 billion, while State Street and Bank of New York will get injections of about $3 billion each, people said.
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