Oct

15

US Treasury to Invest in Nine Biggest Banks

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The United States Treasury is set to invest around $125 billion in nine of the country’s biggest banks as part of a series of measure intended to shore up investor confidence in the American financial system.

The Bush administration has directed the Treasury to acquire preferred shares in exchange of the cash injection into nine major US banks which are Citigroup Inc, Goldman Sachs Group Inc, Wells Fargo &Co, JPMorgan Chase & Co, Bank of America Corp, Merrill Lynch & Co, Morgan Stanley, State Street Corp as well as Bank of New York Mellon Corp.

The federal purchases into nine of the biggest banks form part of the $700 billion bank bail out plan approved by the US Congress last month. However this represents a new approach for Treasury Secretary Henry Paulson who had earlier promoted a mop up of loss-making mortgage-related assets. The need for a more urgent cash infusion was felt as banks strove to regain the confidence of investors, counterparties and customers after bad loans led to writedowns of more than $635 billion across the finance industry. Economic analysts expect that the substantial cash injections into the frontline banks will lead to a thaw in the credit market and lending will pick up again.