Business | Markets
Bailout architects urge Congress to act
Sale of Lehman's European arm looms as Japanese firms rush to pick up us assets.
- Reuter
- Published: 00:06 September 24, 2008
- Image Credit: Bloomberg News
- United Nations Secretary-General Ban Ki-Moon yesterday warned that the global financial crisis endangers the UN campaign to fight poverty. He called for global leadership to restore order to international financial markets, make trade concessions and act on climate change.
London/New York: The architects of a $700 billion bailout for the US financial system urged lawmakers yesterday to move quickly, and the sale of Lehman Brothers' European arm loomed as the next step in the industry's dramatic transformation.
Federal Reserve Chairman Ben Bernanke and Treasury Secretary Henry Paulson called for immediate action on a plan for the government to buy up hundreds of billions of dollars of tainted mortgage-related securities, but world markets remained on tenterhooks.
US stock index futures fell in early New York trading, with the S&P 500 futures down 2.20 points, shadowing losses in European and Asian markets on uncertainty over what price the government will pay for the securities, when it would start buying them, and how confidence can be restored.
"Action by Congress is urgently required to stabilise the situation and avert what could otherwise be very serious consequences for our financial markets and our economy," Bernanke said in remarks prepared for delivery to the Senate Banking Committee.
He said global financial markets "remain under extraordinary stress."
A copy of his remarks was obtained by Reuters.
Paulson said market turmoil was already spilling into the broader US economy. "We must now take further, decisive action to fundamentally and comprehensively address the root cause of this turmoil," he said.
Democrats are pushing back. Senate Banking Committee Chairman Christopher Dodd said lawmakers must limit executive pay for companies participating in the bailout or risk the wrath of voters.
"Taxpayers deserve to be first in line in all of this," Dodd told CNN.
US lawmakers and the Bush administration are trying to resolve differences so that legislation authorising the proposed bailout can begin to move through Congress.
"I just don't think the American public is sold," said David Dietze, chief investment officer of Point View Financial Services in New Jersey. "I think they are sceptical of the need and they are fearful of the cost."
Japanese firms are leading the rush to acquire US investment banking assets. Japan's top bank, Mitsu-bishi UFJ Financial Group Inc, said on Monday it would buy up to 20 per cent of Morgan Stanley for as much as $8.5 billion, and Nomura Holdings bought Lehman's franchise in Japan and Australia, with some 3,000 employees.
Speculation is growing that Goldman Sachs, which like Morgan Stanley is transforming itself into a commercial bank, might turn to Sumitomo Mitsui Financial Group (SMFG), Japan's No. 3 bank, with which it has a long relationship.
"SMFG has always had very close ties with Goldman Sachs, so you can't rule out some sort of a more comprehensive tie-up there," said Jason Rogers, credit analyst at Barclays Capital.
Lehman's European investment banking operations, which employ about 6,000 people, are next on the block. Insurance giant American International Group should have a list of assets it wants to sell by next week, new chief executive Edward Liddy said.
Canada's Toronto-Dominion Bank was among those weighing a bid for Washington Mutual, a source familiar with the situation said.
Singapore sovereign fund GIC said it still has plenty of cash after investing nearly $18 billion in UBS and Citigroup and would consider opportunities to invest in US distressed assets.
Some analysts and investors harbour deepening doubts over whether Paulson and Bernanke can steer the world's largest economy out of its worst crisis of confidence since the Great Depression.
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