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Saturday, 11 October 2008
Paulson Indicates Need to Purchase Bank Equity ‘Soon as We Can’
U.S. Treasury Secretary Henry Paulson indicated that pumping government funds into banks is a priority and said financial markets will remain volatile. PDF
Paulson Indicates Need to Purchase Bank Equity ‘Soon as We Can’
By John Brinsley and Rebecca Christie 11 October 2008
(Bloomberg) – U.S. Treasury Secretary Henry Paulson indicated that pumping government funds into banks is a priority and said financial markets will remain volatile.
“We see the need – a clear, present need – to raise capital,” Paulson said yesterday at a press conference after a meeting in Washington of finance ministers and central bankers from Group of Seven countries.
The purchases of stock, the newest part of a rescue plan engineered by Paulson, would be aimed at sustaining banks and other financial institutions through the worst credit crisis in seven decades.
The U.S. Congress last week passed legislation allowing the Treasury secretary to spend as much as $700 billion to buy mortgage securities and other troubled assets and to purchase equity in banks. Paulson declined yesterday to give a timetable or details about the purchases.
“We’re going to do it as soon as we can do it and do it properly and do it effectively and right,” Paulson said. “Trust me, we are not wasting time; people are working around the clock to deal with this.”
Paulson would be following U.K. Prime Minister Gordon Brown’s plan to help beleaguered banks in that country. Brown is pursuing a 50 billion pound ($87 billion) program that partly nationalizes at least eight lenders.
Neel Kashkari, the Treasury official Paulson picked to manage the rescue operations, is scheduled to give a speech Oct. 13 to discuss the way forward.
Falling home prices and illiquid securities tied to mortgages in the past 14 months led to the collapse of some of the country’s biggest financial firms and to takeovers by the Treasury of American International Group Inc. and Fannie Mae and Freddie Mac, the largest U.S. mortgage finance companies.
‘Broad’ Purchases
Under the equity purchase program, the Treasury would not be involved in bank management, Paulson said. Equity purchases would take place alongside Treasury’s coming program of “broad” mortgage asset purchases, he said.
The Treasury is “working to develop a standardized program that is open to a broad array of financial institutions,” Paulson said. “Such a program would be designed to encourage the raising of new private capital to complement public capital.”
Buying senior preferred shares of non-voting stock from financial companies is “the quickest way to inject liquidity into the markets, get credit flowing again and protect the taxpayer at the same time,” Senator Bob Corker, a Republican from Tennessee on the banking committee, said yesterday in a statement.
Fresh Capital
The International Monetary Fund earlier this week said banks around the world would need $675 billion in fresh capital in the next several years to recover from the credit crisis. The IMF also raised its estimate of losses tied to U.S. loans and securitized assets to $1.4 trillion – roughly half of which have already been written down or recognized as losses.
Paulson declined to say how Treasury would divide the $700 billion toward purchases of troubled assets and injections of equity capital. “I am not prepared to say anything today with the kind of detail as to relative sizes of the two efforts,” he said.
“Any equity the government purchases through a broadly available equity program would be on a non-voting basis, except with respect to the market-standard terms to protect our rights as investors,” Paulson said.
The Dow Jones Industrial Average posted its biggest weekly drop in the history of the 30-stock average as officials from the U.S., Japan, Germany, U.K., France, Canada and Italy met for the first time since the financial crisis spread last month. Stocks in Europe and Japan had the biggest weekly drop in at least 21 years.
“We’ll have some volatility for a while” Paulson said. “We need to restore confidence.
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Paulson Indicates Need to Purchase Bank Equity ‘Soon as We Can’
By John Brinsley and Rebecca Christie
11 October 2008
(Bloomberg) – U.S. Treasury Secretary Henry Paulson indicated that pumping government funds into banks is a priority and said financial markets will remain volatile.
“We see the need – a clear, present need – to raise capital,” Paulson said yesterday at a press conference after a meeting in Washington of finance ministers and central bankers from Group of Seven countries.
The purchases of stock, the newest part of a rescue plan engineered by Paulson, would be aimed at sustaining banks and other financial institutions through the worst credit crisis in seven decades.
The U.S. Congress last week passed legislation allowing the Treasury secretary to spend as much as $700 billion to buy mortgage securities and other troubled assets and to purchase equity in banks. Paulson declined yesterday to give a timetable or details about the purchases.
“We’re going to do it as soon as we can do it and do it properly and do it effectively and right,” Paulson said. “Trust me, we are not wasting time; people are working around the clock to deal with this.”
Paulson would be following U.K. Prime Minister Gordon Brown’s plan to help beleaguered banks in that country. Brown is pursuing a 50 billion pound ($87 billion) program that partly nationalizes at least eight lenders.
Neel Kashkari, the Treasury official Paulson picked to manage the rescue operations, is scheduled to give a speech Oct. 13 to discuss the way forward.
Falling home prices and illiquid securities tied to mortgages in the past 14 months led to the collapse of some of the country’s biggest financial firms and to takeovers by the Treasury of American International Group Inc. and Fannie Mae and Freddie Mac, the largest U.S. mortgage finance companies.
‘Broad’ Purchases
Under the equity purchase program, the Treasury would not be involved in bank management, Paulson said. Equity purchases would take place alongside Treasury’s coming program of “broad” mortgage asset purchases, he said.
The Treasury is “working to develop a standardized program that is open to a broad array of financial institutions,” Paulson said. “Such a program would be designed to encourage the raising of new private capital to complement public capital.”
Buying senior preferred shares of non-voting stock from financial companies is “the quickest way to inject liquidity into the markets, get credit flowing again and protect the taxpayer at the same time,” Senator Bob Corker, a Republican from Tennessee on the banking committee, said yesterday in a statement.
Fresh Capital
The International Monetary Fund earlier this week said banks around the world would need $675 billion in fresh capital in the next several years to recover from the credit crisis. The IMF also raised its estimate of losses tied to U.S. loans and securitized assets to $1.4 trillion – roughly half of which have already been written down or recognized as losses.
Paulson declined to say how Treasury would divide the $700 billion toward purchases of troubled assets and injections of equity capital. “I am not prepared to say anything today with the kind of detail as to relative sizes of the two efforts,” he said.
“Any equity the government purchases through a broadly available equity program would be on a non-voting basis, except with respect to the market-standard terms to protect our rights as investors,” Paulson said.
The Dow Jones Industrial Average posted its biggest weekly drop in the history of the 30-stock average as officials from the U.S., Japan, Germany, U.K., France, Canada and Italy met for the first time since the financial crisis spread last month. Stocks in Europe and Japan had the biggest weekly drop in at least 21 years.
“We’ll have some volatility for a while” Paulson said. “We need to restore confidence.
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