Shares of banks including Citigroup Inc and Bank of America Corp soared on hopes a US government plan to rid lenders of up to $US1 trillion ($1.44 trillion) of troubled assets will resuscitate lending, earnings and the economy.
In afternoon trading, Bank of America was up 18.3% to $7.32, while Citigroup was up 15.7% to $3.03. The 24-member KBW Bank Index of large lenders was up 11.1%, though it remained well in the red for 2009.
The Public-Private Investment Program calls for the government to provide financing for private investors to buy assets from banks, with the government shouldering much of the risk. Those assets have been illiquid because investors and banks have been far apart in assessing what they are worth.
While it is unclear how assets would be priced, opening the market could allow banks to free up capital, lend more and perhaps raise new private capital on their own.
"It relieves an anchor around the necks of investors concerned about the viability of these institutions," said Andre Bakhos, president of Princeton Financial Group in Princeton, New Jersey.
BlackRock Inc and Allianz SE's Pacific Investment Management Co, two of the largest and most influential US asset managers, told Reuters they intend to participate in the program.
"This is perhaps the first win-win-win policy to be put on the table, and it should be welcomed enth$USiastically," Pimco co-chief investment officer Bill Gross said in an interview.
Early support
Barclays Capital analyst Jason Goldberg wrote that Bank of America, Citigroup, JPMorgan Chase & Co, PNC Financial Services Group Inc, State Street Corp and Wells Fargo & Co could be large beneficiaries of the program because they have already taken large writedowns on eligible assets. This might make them more amenable to asset sales.
Large banks welcomed the government's efforts, while stopping short of endorsing the details.
Bank of America spokesman Scott Silvestri said "we are in favor of the concept." Morgan Stanley spokeswoman Jeanmarie McFadden said "the program looks innovative, and we expect it could have a positive impact on credit markets."
Wells Fargo spokeswoman Julia Tunis Bernard said her bank supports any Treasury plan to help banks "efficiently sell troubled assets, while still providing an investment return to the US taxpayer."
Goldman Sachs Group Inc spokesman Michael DuVally declined to comment. The other banks had no immediate comment.
Investor distrust
Through Friday, bank shares had fallen 41% this year, as housing and other credit losses, and worries about future losses, continued to soar. Banks lost $US32.1 billion in the fourth quarter, their first quarterly loss since 1990, the Federal Deposit Insurance Corp said.
The government in November agreed to share losses on $US300.8 billion of troubled assets at Citigroup, and two months later entered a similar agreement covering $US118 billion of assets at Bank of America.
Treasury Secretary Timothy Geithner told reporters that for the latest program to work, "investors have to be prepared to take some risk."
Analysts said the political climate might also dissuade private investors from getting involved.
The Treasury Department said participation in the program would not subject those investors, many of which are less regulated than banks, to tough limits on executive pay.
Banks obtaining capital under the government's Troubled Asset Relief Program have criticized Congress for imposing new executive pay limits. And hysteria over bonuses paid out by insurer American International Group Inc has led to legislation that could heavily tax bonuses on thousands of workers who played no role in fueling the credit crisis.
David Trone, an analyst at Fox-Pitt Kelton, said the new program may fail to unclog the financial system absent a "miraculous reversal" of what he called deep distrust among private investors about partnering with the government.
In afternoon trading, JPMorgan Chase was up 15.6% to $US26.75; Wells Fargo 16.6% to $US16.31; PNC 14.6% to $US30.85; State Street 13.6% to $US28.04; Goldman Sachs 9.6% to $US106.62, and Morgan Stanley 14.3% to $US23.13.
Reuters
