US bank rescue plan leaves markets cold
Posted: 24 February 2009 1854 hrs
The US bank rescue plan got a sceptical reception at world stock markets
HONG KONG : The latest Obama administration plan to shore up the ailing US banking sector got a sceptical reception on Tuesday, heralding another grim day on world stock markets.
There was further pain in store in the mining sector as British group Lonmin, the world's third-biggest platinum producer, announced plans to cut up to 5,500 jobs in South Africa.
And in Germany, the eurozone's largest economy, business confidence as measured by the Ifo index fell to its lowest ever reading in February.
In France household confidence dropped a point in February, according to the national statistics body INSEE, which also reported a 1.8 percent rebound in January household spending compared with December.
A sell-off in Asia followed an overnight rout on Wall Street and came just ahead of a weak opening on European exchanges after a new US aid plan offered relief to banks but stopped short of the nationalisation that some market players had expected.
A joint statement on Monday from the US Treasury, Federal Reserve and banking regulators said the new plan could lead to bigger government stakes but with a "strong presumption" that banks "remain in private hands."
Authorities said the Capital Assistance Program would offer "mandatory convertible preferred shares" that could be turned into common shares "only as needed over time to keep banks in a well-capitalized position."
Analysts said the plan was the first step in the so-called "stress test" announced by the administration of President Barack Obama for banks hammered by the US housing meltdown and global credit crisis.
But the statement provided no details on capital injections to individual banks despite reports that the government might effectively take over some large lenders on the brink of insolvency.
"The government will ensure that banks have the capital and liquidity they need to provide the credit necessary to restore economic growth," the statement said.
The details were released following a report that the US government was considering taking a 25-40 percent stake in banking behemoth Citigroup.
Analysts said the rescue plan triggered market confusion about the government's handling of the nationalisation debate.
Investors "are selling (shares and the greenback) without being clear whether they should be afraid of banks being nationalised or whether they want it," said Sumitomo Mitsui Banking Corp. chief strategist Daisuke Uno.
Robert Eisenbeis, an economist at Cumberland Advisors, said the administration "has gotten itself trapped" in a debate on nationalisation even as it increases control of the sector.
"Once you have government ownership, it is hard to say that doesn't constitute a form of nationalisation," Eisenbeis said.
"Once the government money is in there, government can start to call the tune on policies, salaries. I think a lot of this debate is semantics."
Markets were also unsettled by reports that insurance giant American International Group -- which is owned 80 percent by the US government -- may seek more aid and report the biggest US corporate loss yet.
Tokyo shares closed down 1.46 percent on Tuesday after Wall Street had hit near 12-year lows on Monday on investor disenchantment with the new US bank plan.
The benchmark Nikkei-225 index fell 107.60 points to end at 7,268.56. At one point the benchmark briefly slipped below last October's closing low of 7,162.90, which was the weakest since 1982.
Other Asian markets joined the sell-off on Tuesday. In Seoul the benchmark KOSPI index closed down 3.24 percent while Sydney shed 0.6 percent and Taiwan gave up 1.06 percent.
Hong Kong shares ended a gruelling morning 3.5 percent lower while in Shanghai, Chinese shares closed down 4.56 percent.
Europe's main stock markets fell in opening trading.
In initial deals, London's FTSE 100 index of leading shares slid 0.36 percent to 3,837.01 points and in Paris the CAC 40 sank 1.01 percent to reach 2,700.42.
Frankfurt's DAX 30 index dipped 0.37 percent to 3,9902.02 points after closing below 4,000 points for the first time in four years on Monday.
Posted: 24 February 2009 1854 hrs
The US bank rescue plan got a sceptical reception at world stock markets
HONG KONG : The latest Obama administration plan to shore up the ailing US banking sector got a sceptical reception on Tuesday, heralding another grim day on world stock markets.
There was further pain in store in the mining sector as British group Lonmin, the world's third-biggest platinum producer, announced plans to cut up to 5,500 jobs in South Africa.
And in Germany, the eurozone's largest economy, business confidence as measured by the Ifo index fell to its lowest ever reading in February.
In France household confidence dropped a point in February, according to the national statistics body INSEE, which also reported a 1.8 percent rebound in January household spending compared with December.
A sell-off in Asia followed an overnight rout on Wall Street and came just ahead of a weak opening on European exchanges after a new US aid plan offered relief to banks but stopped short of the nationalisation that some market players had expected.
A joint statement on Monday from the US Treasury, Federal Reserve and banking regulators said the new plan could lead to bigger government stakes but with a "strong presumption" that banks "remain in private hands."
Authorities said the Capital Assistance Program would offer "mandatory convertible preferred shares" that could be turned into common shares "only as needed over time to keep banks in a well-capitalized position."
Analysts said the plan was the first step in the so-called "stress test" announced by the administration of President Barack Obama for banks hammered by the US housing meltdown and global credit crisis.
But the statement provided no details on capital injections to individual banks despite reports that the government might effectively take over some large lenders on the brink of insolvency.
"The government will ensure that banks have the capital and liquidity they need to provide the credit necessary to restore economic growth," the statement said.
The details were released following a report that the US government was considering taking a 25-40 percent stake in banking behemoth Citigroup.
Analysts said the rescue plan triggered market confusion about the government's handling of the nationalisation debate.
Investors "are selling (shares and the greenback) without being clear whether they should be afraid of banks being nationalised or whether they want it," said Sumitomo Mitsui Banking Corp. chief strategist Daisuke Uno.
Robert Eisenbeis, an economist at Cumberland Advisors, said the administration "has gotten itself trapped" in a debate on nationalisation even as it increases control of the sector.
"Once you have government ownership, it is hard to say that doesn't constitute a form of nationalisation," Eisenbeis said.
"Once the government money is in there, government can start to call the tune on policies, salaries. I think a lot of this debate is semantics."
Markets were also unsettled by reports that insurance giant American International Group -- which is owned 80 percent by the US government -- may seek more aid and report the biggest US corporate loss yet.
Tokyo shares closed down 1.46 percent on Tuesday after Wall Street had hit near 12-year lows on Monday on investor disenchantment with the new US bank plan.
The benchmark Nikkei-225 index fell 107.60 points to end at 7,268.56. At one point the benchmark briefly slipped below last October's closing low of 7,162.90, which was the weakest since 1982.
Other Asian markets joined the sell-off on Tuesday. In Seoul the benchmark KOSPI index closed down 3.24 percent while Sydney shed 0.6 percent and Taiwan gave up 1.06 percent.
Hong Kong shares ended a gruelling morning 3.5 percent lower while in Shanghai, Chinese shares closed down 4.56 percent.
Europe's main stock markets fell in opening trading.
In initial deals, London's FTSE 100 index of leading shares slid 0.36 percent to 3,837.01 points and in Paris the CAC 40 sank 1.01 percent to reach 2,700.42.
Frankfurt's DAX 30 index dipped 0.37 percent to 3,9902.02 points after closing below 4,000 points for the first time in four years on Monday.
