U.S. stocks soared early today on news the U.S. government will invest $250 billion in banks and guarantee interbank lending to thaw credit markets and restore confidence.
The blue-chip Dow Jones industrial average surged 379.12 points, or about 4%, to 9,766.73 off the opening bell. The broad market S&P 500 index gained 35.56 points, or 3.5%, to 1,038.91 and the Nasdaq composite rallied 40.95 points, or 2.2%, to 1,885.2.
The gains came after the Dow on Monday scored its biggest single-day point gain of 936.42 points or 11.08%. Overnight, Japans Nikkei 225 index posted its greatest one-day jump as well.
Treasury Secretary Henry Paulson, Federal Reserve Chairman Ben Bernanke and Federal Deposit Insurance Corp. Chairman Sheila Blair today jointly presented the plan, which also involves guaranteeing business deposits at banks.
The capital injection is part of the $700 billion rescue of the financial system approved by Congress on Oct. 3 and involves restrictions on bank executives compensation.
We regret having to take these actions, Mr. Paulson said in prepared remarks at the Treasury Department, referring to the governments part-ownership in banks. Todays actions are not what we ever wanted to do but todays actions are what we must do to restore confidence to our financial system.
All bank applications to participate are valid until Nov. 14. Treasury will receive non-dilutive preferred shares in exchange; the preferred stock cannot be redeemed for three years.
Treasury will divide $125 billion among Citigroup Inc.; JPMorgan Chase & Co.; Bank of America Corp. and Merrill Lynch & Co., which are merging; Wells Fargo & Co.; Goldman Sachs Group Inc. and Morgan Stanley, the two investment banks that survived the credit crisis and are converting into bank holding companies; Bank of New York Mellon Corp.; and State Street Corp.
Another $125 billion will be used to shore up smaller banks, as warranted.
The plan is similar to other measures announced by a number of countries to guarantee bank deposits and inject capital. As stock markets surged around the world, money market rates fell anew in London.
Contact Isabelle Clary at [email protected]