Henry Paulson pried open the jaws of resistant banks and crammed billions of dollars down their hatch, like a caring mother forcing her child to eat peas. So far, so good for the banks:
AP: U.S. bank stocks soared on Tuesday after the government set plans to inject $250 billion into the battered sector, hoping to restore confidence after exposure to toxic debt pummelled share prices.
While the capital infusion is lifting stock prices, it could dilute shareholders.
Clusterstock: Some reports have said that the Treasury’s equity-injection program is “not dilutive” to common shareholders. Of course it is. The injection won’t vaporize common shareholders, but in most cases it will be modestly dilutive (from the warrants). And common shareholders will still be exposed if and when the banks decide to raise new capital and/or write down the value of assets again.
Hold still…After Hank Paulson convened the heads of nine major banks to tell them he was force-feeding them capital, whether they wanted it or not, tomorrow the government plans to announce a more comprehensive $250 billion injection.
NY Times: The Treasury Department, in its boldest move yet, is expected to announce a plan on Tuesday to invest up to $250 billion in banks, according to officials. The United States is also expected to guarantee new debt issued by banks for three years — a measure meant to encourage the banks to resume lending to one another and to customers, officials said…
And the Federal Deposit Insurance Corporation will offer an unlimited guarantee on bank deposits in accounts that do not bear interest — typically those of businesses — bringing the United States in line with several European countries, which have adopted such blanket guarantees…
Of the $250 billion, which will come from the $700 billion bailout approved by Congress, half is to be injected into nine big banks, including Citigroup, Bank of America, Wells Fargo, Goldman Sachs and JPMorgan Chase, officials said. The other half is to go to smaller banks and thrifts. The investments will be structured so that the government can benefit from a rebound in the banks’ fortunes.
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