US Recharges Banks, India Fights Crunch

America gives $250-b capital support to prompt banks to lend. It could well mark a new age in banking. Back home, the Sensex shed early gains and a tight money market clamoured for more liquidity

 AMERICA has dramatically changed its plans to make the recession less painful. Instead of just buying sticky mortgage assets, for which there are no takers, the US government will spent $250 billion to buy shares in thousands of banks and financial firms — a move that could prod them to lend to consumers and corporates. It will not only dip into taxpayers' fund to buy preferred stock, but also guarantee future bond issues of banks as and when they tap the market to raise more capital. Such sweeping state support to iconic institutions and banks in the Mecca of capitalism marks the beginning of a new age in banking.
    To begin with, top banks like Citigroup, Goldman Sachs, Wells Fargo, JPMorgan Chase, Bank of America, Merrill Lynch, Morgan Stanley, State Street and Bank of New York Mellon will receive $125 billion capital. Since banks have been hoarding cash, it was felt that recapitalising them by as much as one-third of the $700-billion rescue package would quicken lending. Treasury secretary Henry Paulson urged the banks to "use the funds to spur economic growth", rather than hoard it. The deal entails that these banks will have to cap executive pay and "golden parachute" payments made to CEOs.
    Meanwhile, European markets rose 2-9% as money market rates softened a little. Dow, however, was choppy in early trades amid profit concerns. At 0045, the index was down 205 points. In Asia, Bank of Japan promised its banks an unlimited amount of dollars, similar to the offer made by its counterparts in Europe. Asian stocks rose, with Japan surging over 14%. It seemed that the markets, rattled by fears of recession and banking collapse, were willing to ignore the possible consequences of these measures.
    In comparison, the Indian market gave up most of the gains made during the day, even as FIIs net bought nearly Rs 900 crore worth of shares. Many traders used Tuesday's upswing to trim their long positions causing the Sensex to close with a gain of just 174.31 points at 11,309.09. During the day it had surged to 11,870.22. The 50-share Nifty slipped from the day's high of 3,648.25 to close at 3,518.65, up just 27.95 points over the previous close.
    "The go-go days are behind us. I do not expect a strong recovery anytime soon," said Ramesh S Damani, BSE broker, who expects the Sensex to trade in the range of 10,500-13,500 near term. "The global economy still looks shaky despite the measures by central banks. (Back home) investors will be looking for cues from the GDP numbers before committing money in a big way," he added.
    Among the other big announcements on Tuesday was South Korea's decision to keep pumping liquidity into the banking system till the market stabilised. The South Korean government is also contemplating a move to guarantee foreign currency debts of the country's banks.
Latest Rescue Packages
US govt buys shares of banks
Japan, S Korea promise unlimited $ supply
Hong Kong guarantees bank deposits
How're Markets Taking It?
Some relief, but bracing for recession
Earning concerns mount
Fear more problems if crisis spreads to Middle East
The Story On Dalal Street
Stocks are up, but some liquid funds show negative returns
Mutual funds still scrambling for cash
Govt may unveil new liquidity doses GOVT, SEBI KEEP TABS ON SHORT-SELLING
The government and Sebi are keeping a close watch on short-selling in the Indian stock market, report Deepshikha Sikarwar & Soma Banerjee in New Delhi. The finance ministry is understood to have sought data on short-selling from Sebi. While there is no immediate move to ban short-selling, both the regulator and the government are examining if there was a need to further improve disclosure norms. PAGE 7