US plans to take over up to USD1 trillion in US banks' legacy assets unveiled

1. US Market Recap

• US Treasury Secretary’s bank rescue plan was warmly welcomed by the market:
• DOW up 497 points (+6.8%) to 7,776 (-11.4% YTD)
• S&P 500 up 54 points (+7.1%) to 823 (-8.9% YTD)
• NASDAQ up 99 points (+6.8%)  to 1,556 (-1.4% YTD)

All ten sectors of the S&P 500

• Policies:
• US Treasury Secretary unveiled his plans to take over up to USD1 trillion in US banks’ legacy assets, a strategy in which former Secretary Paulson had abandoned due to the central question of “pricing”:
• A public-private partnership will take USD75b-USD100b from the government’s existing USD700b TARP funds to match private investment dollar-for-dollar, and an asymmetrical loans (of up to 1:12) from the FDIC and the Fed to generate up to USD500b in purchasing power; the purchases could eventually grow to USD1 trillion, roughly half the est. USD2 trillion of legacy assets on bank books now.
• How it works: Under a typical transaction, for every USD100 in assets purchased from banks, the private sector would put up USD7 and that would be matched by USD7 from the government; the remaining USD86 would be covered by the government loan.
• FDIC expects to finance as much as USD500b in purchases of residential and commercial real estate loans, but also reiterates its view that there will be more bank failures.
• White House National Economic Council Director Lawrence Summers said some of the major firms have suggested a willingness and eagerness to take part; private institutions of asset under management of USD10b have been targeted as potential participants; BlackRock, Carlyle, and PIMCO had indicated interests to come onboard.
• Secretary Geithner will testify before the House Financial Services Committee on Tue; the administration will unveil its plan for financial regulation overhaul later this week.

 

2) European Update

• ARCELOR MITTAL : Eu750m convertible offering to refinance debt…Q1EBITA guidance confirmed
• UBS: agreed to sell as many as 55 of its US retail branches (USD 15bn of AUM) to Stifel Fincl. Corp
• CREDIT SUISSE: says it had a “strong” start in 2009. Looks to issue 100m new shares (9% of capital) and to cut cost base by CHF2Bn
• GENERALI: Moody’s affirms AA3 (IFSR) rating with stable
• VINCI: led a group which won a Eur1Bn contract (30 years) in Slovak Republic
• DEUTSCHE BOERSE: may look at targets in the US derivatives (Handelsblatt)
• METRO: Q4 net Eur691m missing short of analysts estimates (Eur729m)
• SIEMENS: CEO expects the company’s sale of green technology to rise on government stimulus programme money

 

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