Interest Rate Roundup

Monday, October 27, 2008

Taxpayer money raining down on the banking sector

The mega-banks and brokers have already gotten their share of taxpayer dollars, courtesy of Treasury Secretary Henry Paulson. Now, smaller regional and super-regional banks are getting their share of the take. From Bloomberg today ...

"Fourteen regional U.S. banks, including SunTrust Banks Inc. and Capital One Financial Corp., accepted at least $31 billion in government cash as the Treasury rolled out the second half of its $250 billion package to shore up lenders and thaw frozen credit markets.

"Treasury Secretary Henry Paulson is doling out cash to recapitalize struggling lenders and jump-start takeovers in an industry suffering from the worst housing crisis since the Great Depression. SunTrust, Capital One, KeyCorp and PNC Financial Services Group Inc. are among regional lenders that have taken cash so far by selling preferred shares to the government.

"This is just unprecedented,'' said BMO Capital Markets analyst Peter Winter. "What the government has said is that you can't let the financial system fail, and if this doesn't work they'll come up with another plan."

"The U.S. capital infusions come as governments worldwide do all they can to ensure the stability of banks. Kuwait's central bank said it will guarantee deposits at Gulf Bank KSC, which remains solvent after clients defaulted on currency derivatives contracts, the state-run Kuwait News Agency reported. Paulson already gave $125 billion to nine of the biggest U.S. lenders.

"Some banks are raising money on their own. Mitsubishi UFJ Financial Group Inc., the Japanese bank investing $9 billion in Morgan Stanley, said it will sell as much as 990 million yen ($10.7 billion) of stock to replenish its capital. Japan's biggest bank may sell as much as 600 billion yen of common shares in the 12 months starting Nov. 4.

The latest U.S. banks to benefit from the government's Troubled Asset Relief Program, or TARP, spanned the nation, ranging from City National Corp., in Beverly Hills, California, to First Niagara Financial Group Inc., based in upstate New York near Niagara Falls. The banks were joined by State Street Corp., the world's largest money manager for institutions, which is selling a $2 billion stake. Northern Trust Corp., a custody bank that oversees $3.53 trillion, plans to sell the government a $1.5 billion stake.

"We're happy to do our part to support the financial and economic stability of the U.S.,'' Capital One spokeswoman Tatiana Stead said in an e-mailed statement. The McLean, Virginia-based bank is raising $3.6 billion."

Meanwhile -- as bankruptcy fears swirl -- General Motors and Chrysler have their hands out, looking for some aid in their rumored merger transaction. From the Wall Street Journal:

"The auto makers and Michigan political delegations have proposed at least three plans in recent weeks to unlock federal cash for a merged GM-Chrysler, including seeking an equity investment from the government or unlocking funds from its Troubled Asset Relief Program, or TARP.

"GM and Chrysler estimate that a combined entity would need $10 billion in new equity to lay off workers, close plants, integrate the two companies and provide liquidity, according to several people involved in the talks or briefed on them.

"Without external intervention, from consolidation or government assistance, we expect GM to reach its minimum cash position in under 12 months," Deutsche Bank auto analyst Rod Lache wrote last week. In an interview, Mr. Lache added that Chrysler is also running dangerously low on funds. "We believe Chrysler is in the same position. It's either August 2009 or December 2009 they run out. Both have a limited runway."

and ...

"Several people involved in the GM-Chrysler merger discussions say the companies have talked to federal officials about their proposed transaction. But there are no specifics yet about what role the government could, or will, play. There is no indication that Treasury, which oversees the TARP program, is currently considering proposals for anything but financial institutions.

"GM and Chrysler, through a network of 10,000 dealers, have combined U.S. sales of between $110 billion and $130 billion, a figure that approaches 1% of the U.S. gross domestic product. They employ an estimated 145,000 people in the U.S. at more than 110 assembly, stamping and parts plants. An additional 600,000 retirees depend on the two car makers for health care and pensions.

"GM and Chrysler "are basically waiting on the government," said one person involved in the merger talks. "The three choices are bankruptcy, a big intervention from the government or some big deal like this that has massive cost-cutting possibilities," this person said. "That's it. And even the big deal may require government help."


Post a Comment

<< Home

Site Meter