THE EVENT: U.S. Treasury Secretary Timothy Geithner unveiled
Monday the Public-Private Investment Program, aimed at helping
banks sell troubled real estate-related assets to public-private
partnerships. News of the plan drove U.S. stocks sharply
higher.
THE DETAILS: The Treasury Department plans to contribute up to
$100 billion from its Troubled Asset Relief Program to the program
to remove troubled real-estate-related assets from bank balance
sheets. The Federal Reserve and the Federal Deposit Insurance Corp.
will provide other forms of financing, including low-risk
loans.
Total purchasing power will be $500 billion, with the
possibility of that expanding up to $1 trillion.
Targeting mortgages that banks no longer want to hold, the
Treasury and the FDIC will provide financing to buyers. The FDIC
will auction off pools of loans that a bank wants to sell and will
become a co-owner by forming a partnership with the highest
bidder.
The partnership will then raise FDIC-guaranteed debt to finance
a portion of the purchase price, with the Treasury willing to kick
in half of the equity needed to buy the assets. The Treasury will
be an equal investor in the partnerships.
The Treasury will create several investment funds run by private
asset managers. The managers will not be subject to executive
compensation limits set by the government
WHAT IT MEANS: The government is hoping that by taking troubled
assets off of banks' balance sheets, banks will be willing to lend
more to jump-start the economy. By having private investors
determine the price of the troubled assets through an auction, the
government hopes the price of the assets will be fair - not too
high to burden taxpayers or too low to force banks to take big
write-downs.
MARKET REACTION: Stocks in the U.S. rallied on news of the plan.
The Dow Jones Industrial Average was up 442 points, or 6%, at 7720.
The S&P 500 index jumped 6%, and the Nasdaq Composite Index
gained 5.6%.
Bank stocks surged. Citigroup rose 18%, Bank of America climbed
20%, JPMorgan Chase was up 19% and PNC Financial Services increased
17%.
Shares of asset managers that stand to benefit from the plan
also rose. Blackstone Group was up 25%, BlackRock was up 14%, and
Fortress Investment Group was up 44%.
Treasury prices weakened modestly and gold was slightly lower.
The dollar gained against the euro and the yen.
WHAT THEY'RE SAYING:
"It's the next step in the series of efforts we're taking to
make sure that the banking system is doing what it should do, which
is to provide credit for the economy," Geithner said.
"The Public-Private Investment Program looks like an innovative
plan from Treasury and we expect the plan could have a positive
impact on the credit markets," Morgan Stanley said.
"This is perhaps the first win-win-win policy to be put on the
table and it should be welcomed enthusiastically," said PIMCO
founder Bill Gross. "We intend to participate and do our part to
serve clients as well as promote economic recovery."
"I talked to two guys who said their firms would normally be
involved who said, 'You know what? Maybe I'm not as interested in
being involved now; I don't want them coming back and saying, 'You
bought this from us, now we have the right to look at it,'" said
Joe Kinahan, chief derivatives strategist at thinkorswim Group
(SWIM).
"Traders and portfolio managers don't want to be investing with
career bureaucrats," said Kevin Hebner, strategist for global macro
investment fund Third Wave Global Investors.
For more Dow Jones coverage, please see:
Cautious Curiosity As Investors Digest Public-Private Plan
US STOCKS OUTLOOK: Bull Market Hinges On Public/Private Trust
Treasury Rescue Plan Boosts Battered Subordinated Bank Debt
Tsy's Geithner: Bad-Asset Plan Next Step To Revive Credit
Treasury Reveals Details Of Plan To Address Toxic Assets
US Banks Cautiously Optimistic As Treasury Unveils Debt Plan
Pimco's Gross: Firm Seeks To Buy, Manage Assets Via Tsy
TECHNICALLY SPEAKING: Proof Remains In Pudding For Banks
Obama: 'Confident' New Plan Can Revive US Credit Mkts
Pension Funds May Invest In Treasury Program
Bond Insurers Ambac, MBIA Look Over Asset Programs
BofA: In Favor Of Treasury Plan's Concept, Studying Details
Morgan Stanley Calls US Treasury Plan 'Innovative'
Citi, BofA, JPMorgan Rise As Geithner Inspires Bank Rally
Tsy Secy Geithner: Not Asking Congress For More Money Now
US Treasury's Toxic Assets Plan Offers Investor Incentives
US Geithner: Govt Can't Resolve Fincl Crisis Alone
Geithner Banks On Private Cash
-Compiled by Mark Nacinovich, Dow Jones Newswires;
201-938-5134