NEW YORK – Most U.S. stocks rose for a second consecutive day as federal officials unveiled details of their plans to buy equity in financial institutions, buy “high-quality” commercial paper and guarantee certain inter-bank lending.
Losers roughly equaled gainers at 11:59 a.m. in New York Stock Exchange trading, according to Bloomberg News, as the Standard & Poor’s 500 Index extended its biggest one-day point gain ever and the Dow Jones Industrial Average continued its biggest rally since 1933. (READ MORE)
As of 11:59 a.m., the S&P 500 was up 7.8 points, or 0.8 percent, to 1,011.15; and the Dow was up 79.57 points, or 0.9 percent, to 9,467.18, after rising 936 points yesterday. Meanwhile, the Nasdaq Composite Index was down 20.8 points, or 1.1 percent, to 1,823.45.
Financial-services industry shares led the rally, on further details of the federal plan to buy a $250 billion stake in ailing banks.
The investments will go to “a broad array of financial institutions,” according to the statement issued this morning in Washington, D.C., by leaders of the U.S. Treasury, Federal Reserve and Federal Depositors Insurance Corporation (FDIC). And Treasury Secretary Henry M. Paulson Jr. urged those institutions to quickly “deploy” the new funds to unfreeze the global credit markets.
“Under the authority of the Emergency Economic Stabilization Act of 2008, the U.S. Treasury will make available $250 billion of capital to U.S. financial institutions,” he said in a statement today expanding on the joint announcement. “This facility will allow banking organizations to apply for a preferred stock investment by the U.S. Treasury,” Paulson added. “Nine large financial organizations have already indicated their intention to subscribe to the facility, in an aggregate amount of $125 billion.”
The Treasury investments will go to buy senior preferred shares, which will be non-voting but “will pay cumulative dividends at a rate of 5 percent per year for the first five years, and thereafter at a rate of 9 percent per year,” Paulson said. And they will come with limits on the nature and amount of compensation for the top five executives at each institution, including a ban on “golden parachute payments,” he added.
Treasury Secretary Henry M. Paulson Jr. urged the institutions to quickly “deploy” the new funds to unfreeze the global credit markets.
He had been joined in the earlier statement by Fed Ben Bernanke and FDIC Chairman Sheila C. Bair, who also are members of the President’s Working Group on Financial Markets. “The overwhelming majority of banks in the United States are strong and well-capitalized,” the trio said in their joint statement. “These actions will bolster public confidence in our system to restore and stabilize liquidity necessary to support economic growth.”
Losing ground in New York trading were both Royal Bank of Scotland Group plc (London Stock Exchange: RBS.L; NYSE: RBS), Citizens Financial Group Inc.’s Edinburgh-based parent company, which this weekend accepted a U.K. government investment that required an executive-suite shakeup; and Philadelphia-based Sovereign Bancorp Inc. (NYSE: SOV), which yesterday agreed to be acquired by Spain’s Banco Santander S.A. in a deal valued at $1.9 billion. (READ MORE) At 12:31 p.m., RBS shares were down 61 cents, or 31.61 percent, at $1.32; while Sovereign was down 8 cents, or 2.17 percent, at $3.60 per share.
But gainers included Morgan Stanley (MS), whose shares were up 20.28 percent to $21.77; Merrill Lynch & Co. Inc. (MER), up 17.37 percent to $20.68; Citigroup Inc. (C), up 17.21 percent to $18.42; and Goldman Sachs Group Inc. (GS), which was up 12.22 percent to $124.56.
In another sign the plan may be working, the London interbank offered rate (LIBOR) that banks charge each other for interbank loans was down another 12 basis points today to 4.64 percent, continuing its decline from the 2008 high of 4.82 percent it had reached on Friday, Bloomberg said. Money-market rates also fell today, on expectations of a lessening of the global credit crunch.
“There’s no doubt a huge sense of relief that we’ve taken a step back from the edge,” James Dunigan, who helps oversee $66 billion as managing executive of investments at PNC Wealth Management in Philadelphia, told Bloomberg News. “We still have a list of woes to work through, but now they seem manageable instead of out of control.”
The latest information about U.S. monetary policy, the Emergency Economic Stabilization Act of 2008 and the administration’s latest efforts to stabilize the financial markets is available from the Federal Reserve System at www.FederalReserve.gov and the U.S. Treasury Department at www.treas.gov.
