By Omoh Gabriel
The US Senate yesterday approved a revised $700 billion U.S. plan to stabilise the financial industry and kick-start credit, just two days after the House defied President Bush and leaders of both political parties to reject the original package. The financial revival plan is expected to calm the financial market and restore confidence in both mortgage and credit system in the US, Europe and other markets.
Despite US senate approval of the bail out plan, most Asian markets ended down Thursday as the U.S. Senate’s approval for a $700 billion financial-rescue package failed to ease fears about a slowing global economy, while Japanese automakers such as Toyota Motor Corp. were hit especially hard by a dismal U.S. sales report for September.
European stocks have risen in Thursday trading following the US Senate’s decision overnight to back the revised American financial rescue plan. Analysts said investors were hopeful the US House of Representatives will now back the revised scheme this week.
The UK’s FTSE 100 index was up 1.3% in lunchtime trading in London, while Germany’s Dax had gained 0.7%. The share gains also came after France confirmed that it will host a summit on the financial crisis on Saturday.
French President Sarkozy’s office said the special meeting would discuss a co-ordinated response to the financial turmoil amongst European members of the G8 ahead of a meeting of world finance leaders in Washington next week. UK Prime Minister Gordon Brown is due to attend, together with German Chancellor Angela Merkel, Italian Prime Minister Silvio Berlusconi, and European Central Bank President Jean-Claude Trichet.
Investors are still concerned about the efficiency of this rescue plan and how it can help the global economy But with just two days to go before the talks start, EU members are deeply divided.
France and Holland favour a European response to help banks hit by the credit crisis while Germany and Luxembourg believe a joint rescue plan isn’t necessary. European leaders have denied speculation that they wanted to establish a unified 300bn euro ($418.4bn; ¬£236bn) banking rescue deal along the same lines as the US plan.
In Hong Kong stocks advanced after a volatile session, with Ping An Insurance (Group) Co. of China soaring more than 17 per cent after the insurer said it won’t proceed with plans to buy a 50 per cent stake in Fortis’s asset-management arm for $3 billion. Japan’s Nikkei 225 Average ended the day 1.9 per cent lower at 11,154.76, its lowest finish in more than three years, while the broader Topix index lost 2.2 per cent to 1,076.97. Both benchmarks had advanced earlier in the day. Masanaga Kono, a strategist at SG Asset Management in Tokyo, said the decline probably stemmed from liquidation by some hedge funds, which affected the demand-supply equation of shares and hammered down valuations of even fundamentally strong companies.
Australia’s S&P/ASX 200 index fell 0.7 per cent to 4,761.10, South Korea’s Kospi lost 1.4 per cent to 1,419.65 and Taiwan’s Taiex gave up 1.1 per cent to 5,703.72. Singapore’s Straits Times Index also wavered between gains and losses, and was recently up 0.3% at 2,364.79. The decline came despite the U.S. Senate’s approval to the U.S. government’s plan to stabilise the financial industry and kick-start credit. See full story.
“It is perhaps too early for celebrations, as the bill still needs to be approved by the House of Representatives, which is potentially the biggest hurdle to overcome,” Moody’s economist Sherman Chan wrote in a note.
A final approval from the House “will mean a lot to the Asia-Pacific region because its export and investment outlook has been clouded by the U.S. recession, the severity of which is heavily dependent on policy actions.
” Stock markets on mainland China are closed this week for National Day holidays, while Indian markets closed Thursday. Hang Seng overcomes volatility. In Hong Kong, the Hang Seng Index finished 1.1 per cent higher at 18,211.11, after sliding as low as 17,631.70 earlier in the day. The Hang Seng China Enterprises Index ended up 2.9 per cent at 9,331.05. Benjamin Collett, head of hedge-fund sales trading at Daiwa Securities SMBC, said the gains came probably because investors covered their short sales – bets that stocks would drop. However, the gains were unlikely to last.
“I don’t think any moves we see today are to be trusted,” said Collett. “We are seeing a global reduction of risk across the board. I really think what we’re seeing is that any positive news is being used to reduce risk.”
Shares of Japanese automakers dropped after a shaky economy and tightly constricted credit markets took a toll on September auto sales in the U.S. See full story. In Tokyo, Toyota fell 3.4 per cent after the automobile giant’s monthly sales slumped 32 per cent and Nissan Motor Co. lost 4 per cent in the wake of a 37 per cent tumble in sales. In Seoul, Hyundai Motor Co. gave up 1 per cent after the company’s monthly sales fell 25 per cent.
Financial stocks were mixed, with Mitsubishi UFJ Financial Group losing 2.9 per cent in Tokyo and Korea Exchange Bank dropping 1.8 per cent in Seoul after gaining earlier in the day. In Hong Kong, Industrial & Commercial Bank of China dropped 1.1 per cent, while HSBC Holdings.
HBC rose 1.5 per cent, Commonwealth Bank of Australia advanced 1.2 per cent in Sydney and United Overseas Bank inched up 0.1 per cent in Singapore, after dipping into losses earlier in the day. In Hong Kong, shares of Ping jumped 13.8 per cent. The drop came after the shares were suspended in the morning session, after the insurer said it will drop plans to buy a 50 per cent stake in an asset-management unit of Fortis due to changes in market conditions.
However, by a vote of 74-25, US senators authorised the Treasury secretary to buy bad assets from companies’ books, allowed the Federal Deposit Insurance Corp. to raise its deposit-insurance cap to $250,000 from $100,000, extended several tax breaks and required government agencies to modify troubled mortgages.
President Bush, Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke pressed lawmakers hard to approve the bill, and members of both parties huddled earlier in the week to hammer out a compromise plan after the failure of the vote in the House on Monday.
Sens. John McCain, R-Ariz., and Barack Obama, D-Ill., left the presidential campaign trail to cast their votes for the plan. Sen. Judd Gregg, R-N.H., a key participant in negotiation, said failure by the Senate to act would result in “a great period of trauma for our nation, especially for just everyday Americans who don’t deserve it.”
The measure now moves to the House, where a vote is expected tomorrow Friday. But its fate at the lower House may be complicated by possible opposition from some Democrats to tax breaks for businesses. Paulson urged the House to act “promptly” to approve the bill in a short statement on Wednesday night, as did President Bush. “I commend the Senate for tonight’s strong, bipartisan vote. This sends a positive signal that we stand ready to protect the U.S. economy by making sure that Americans have access to the credit that is needed to create jobs and keep businesses going,” Paulson said.
“With the improvements the Senate has made, I believe members of both parties in the House can support this legislation,” Bush said. “The American people expect — and our economy demands — that the House pass this good bill this week and send it to my desk,” he said. A massive plan to bail out the faltering U.S. financial system is being considered by Congress. Officially called the Emergency Economic Stabilisation Act of 2008, here are the bill’s major actions:
‚Ä¢ Authorises Treasury Secretary to buy $700 billion of troubled assets from financial companies.
‚Ä¢ Increases deposit insurance at banks to $250,000 from $100,000.
‚Ä¢ Limits executive pay and “golden parachutes” at participating firms.
‚Ä¢ Requires government agencies to modify troubled mortgages.
‚Ä¢ Includes tax relief measures and tax credits for business.
House Majority Leader Steny Hoyer said the House leadership will likely bring the bill to the floor on Friday. The defeat of the measure in the House on Monday touched off a 777-point drop in the Dow
‘The bill has continued to get better from our standpoint.’ ‚Äî Kevin Smith, spokesman for House Republican Leader John Boehner “We think we’ll have a better shot at passing this bill than we did on Monday,” said Kevin Smith, a spokesman for House Republican Leader John Boehner. “The bill has continued to get better from our standpoint.” Stocks traded lower Wednesday as investors remained wary about whether the package will make it through Congress. See Market Snapshot. The revamped Senate bill sticks to the core plan developed by Paulson and Bernanke to have the government buy and hold toxic mortgage assets, freeing up funds for banks to begin lending again. It gives Paulson the $700 billion in phases, with $250 billion up front, then $100 billion pending presidential approval and another $350 billion pending congressional approval.
The most sweeping change is language to raise the limit for insured bank deposits sought by the FDIC, which asked to raise the cap temporarily to $250,000 from $100,000. This was designed to attract votes of some members of Congress who said that little was being done for Main Street.
Regional banks had lobbied hard for increasing the deposit-insurance limit, as they said that the government-backed sales of Washington Mutual Inc. (WAMUQ:
had given consumers the impression that bigger banks were a safer place to hold their savings.
Separately, the bill also temporarily would allow the FDIC to borrow unlimited amounts of money from the Treasury, up from the current limit of $30 billion. The unlimited borrowing ability would expire in 2009. Executive pay would also be limited in some cases under the bill, as would “golden parachutes” for some corporate chiefs. Government agencies would also be required to modify some troubled mortgages as part of the legislation. Read a summary.
The bill also includes tax relief such as an extension of the fix for the alternative minimum tax and extensions of R&D credits. On Wednesday morning, groups representing large and small businesses and retired persons urged the Senate and House to approve the legislation. Leaders of the Business Roundtable, the National Federation of Independent Business and the AARP said that businesses and retirement savings are at risk without passage of the rescue package.
File : bailout 02/10/08