Is nationalisation of collapsing banks imminent?
Tuesday, 24 February 2009
Fazle Rashid in New York
THE news of the imminent nationalisation of the collapsing US banks beginning with Citigroup and Bank of America sent stock prices tumbling across the globe last Friday.
The government came in swiftly to assure the nervous investors that it remains committed to the private ownership of the financial institutions. However, officials stopped short of ruling out nationalisation in all circumstances, a reputed paper said.
Chris Dodd, chairman of the Senate Banking Committee stirred speculation about nationalisation by telling a TV channel, "I am concerned that we may end up having to do that (nationalisation) at least for a short time".
The share of the Citigroup was selling at $1.95 a piece and that of Bank of America, at $3.79 a piece. Investors rushed to buy gold. The gold prices peaked $1000 a troy ounce. It is all fear driven, a market watcher said.
The Wall Street reacted angrily stating it will be premature for the government to consider such a (nationalisation) radical step. "If the phrase height of stupidity has any meaning, it would be shown if they nationalise a US bank", said chairman of a law firm. Partial or full nationalisation could be the only options left for the Obama administration as it decides what to do with banks such as Citigroup that have been hit hardest. The government will conduct stress test that will show how large the capital hole would be at each bank, a reputed paper said in a report.
A Treasury department official said, "we will preserve a financial system that is owned and managed by the private sector". The administration plans to support banks by providing contingent capital. The weak banks need more equity. The growing realisation that there is no quick fix to the ailing global financial system and that some of the biggest banks might have to be taken over by government pushed stock markets round the globe to the lowest levels in years, an analyst said.
The eurozone recession has deepened further. The heads of Europe's leading industrial nations met in Berlin Sunday in the latest gathering aimed at forging a global response to the financial crisis. The meeting has been taking place amid apprehension that London might be backsliding on tighter regulation of financial markets. Full nationalisation could destabilise others.
Meanwhile, Royal Bank of Scotland will axe thousands of jobs and launch an auction of its Asian assets as it set out plans to slash its balance sheet after a decade of rapid growth. It may sound paradoxical but many financial institutions are willing to pay retention allowance to their staff if they stay with them even after axing.
In the aviation sector, Qantas has become the latest International airline to be downgraded by Moody's Investors Service. Qantas's rating has been downgraded to Baa2 from Baa1. There has been a deterioration in Qantas's credit profile.
Qantas said it has strong and stable investment grade rating. British Airways suffered similar setbacks.
In the US retail sector, JC Penney and Lowe's two of the largest US retailers set out gloomy sales forecast for 2009 underlining the fact the simulus plan has made little difference to their businesses. JC Penney has 1000 department stores and Lowes, the second largest home improvement retailer runs 1600 stores. JC Penney's earnings fell 51 per cent and Lowes suffered a 60 per cent earning loss.
The financial world, besides going through its worst period, also witnessed unfolding of frauds of "shocking magnitude ". The first was Bernard Madoff. The second was India's Satyam and the last in the line is Sir Allen Stanford. All duped thousands of innocent investors promising hefty returns.
THE news of the imminent nationalisation of the collapsing US banks beginning with Citigroup and Bank of America sent stock prices tumbling across the globe last Friday.
The government came in swiftly to assure the nervous investors that it remains committed to the private ownership of the financial institutions. However, officials stopped short of ruling out nationalisation in all circumstances, a reputed paper said.
Chris Dodd, chairman of the Senate Banking Committee stirred speculation about nationalisation by telling a TV channel, "I am concerned that we may end up having to do that (nationalisation) at least for a short time".
The share of the Citigroup was selling at $1.95 a piece and that of Bank of America, at $3.79 a piece. Investors rushed to buy gold. The gold prices peaked $1000 a troy ounce. It is all fear driven, a market watcher said.
The Wall Street reacted angrily stating it will be premature for the government to consider such a (nationalisation) radical step. "If the phrase height of stupidity has any meaning, it would be shown if they nationalise a US bank", said chairman of a law firm. Partial or full nationalisation could be the only options left for the Obama administration as it decides what to do with banks such as Citigroup that have been hit hardest. The government will conduct stress test that will show how large the capital hole would be at each bank, a reputed paper said in a report.
A Treasury department official said, "we will preserve a financial system that is owned and managed by the private sector". The administration plans to support banks by providing contingent capital. The weak banks need more equity. The growing realisation that there is no quick fix to the ailing global financial system and that some of the biggest banks might have to be taken over by government pushed stock markets round the globe to the lowest levels in years, an analyst said.
The eurozone recession has deepened further. The heads of Europe's leading industrial nations met in Berlin Sunday in the latest gathering aimed at forging a global response to the financial crisis. The meeting has been taking place amid apprehension that London might be backsliding on tighter regulation of financial markets. Full nationalisation could destabilise others.
Meanwhile, Royal Bank of Scotland will axe thousands of jobs and launch an auction of its Asian assets as it set out plans to slash its balance sheet after a decade of rapid growth. It may sound paradoxical but many financial institutions are willing to pay retention allowance to their staff if they stay with them even after axing.
In the aviation sector, Qantas has become the latest International airline to be downgraded by Moody's Investors Service. Qantas's rating has been downgraded to Baa2 from Baa1. There has been a deterioration in Qantas's credit profile.
Qantas said it has strong and stable investment grade rating. British Airways suffered similar setbacks.
In the US retail sector, JC Penney and Lowe's two of the largest US retailers set out gloomy sales forecast for 2009 underlining the fact the simulus plan has made little difference to their businesses. JC Penney has 1000 department stores and Lowes, the second largest home improvement retailer runs 1600 stores. JC Penney's earnings fell 51 per cent and Lowes suffered a 60 per cent earning loss.
The financial world, besides going through its worst period, also witnessed unfolding of frauds of "shocking magnitude ". The first was Bernard Madoff. The second was India's Satyam and the last in the line is Sir Allen Stanford. All duped thousands of innocent investors promising hefty returns.