Friday, Oct 24, 2008
Treasury Secretary Henry Paulson is preparing to take stakes in a number of regional U.S. banks as he seeks to halt the freeze of credit to businesses and households, according to a person briefed on the matter.
The Treasury may announce the plans as soon as today, the person, who was briefed by bankers and Treasury officials, said on condition of anonymity. The purchases would be the second round in a $250 billion program to inject capital into financial companies, after an initial $125 billion was allocated to nine of the largest banks.
Regional lenders, already suffering from the housing slump, are now getting hit by rising loan delinquencies as the economic downturn deepens, with unemployment at a five-year high. The 19- member Standard & Poor’s 500 Banks Index has lost half its value in the past year.
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“We’re going to give them initial indications very quickly,” Neel Kashkari, the interim Treasury assistant secretary running the department’s financial-rescue office, told lawmakers yesterday, referring to the next group of banks to get government stakes. “It will be a few weeks before the next batch are actually funded,” he told the Senate Banking Committee.
The decision to buy stakes in more lenders comes after some of the mid-sized American financial institutions report mounting losses. National City Corp., Ohio’s largest lender, Oct. 21 posted a wider loss, put aside more money for unpaid loans and announced plans to eliminate 4,000 jobs. Its third-quarter net loss widened to $729 million, from $19 million a year earlier.