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Markets and the public are all holding their breath waiting for the decision by the US Congress on the $700 billion rescue plan (the Emergency Economic Stabilization Act). In the meantime, household names such as Bradford & Bingley, Fortis Group and Wachovia all tumble towards take-over or nationalisation.
It appears that, after a weekend of talks, the US Treasury’s plan to buy up to $700bn of troubled assets from financial institutions and set up a so-called “toxic bank” will go ahead. However, the expectation is that this deal will include major restrictions on executive pay and that there will be restrictions allowing the US government to recover profits from the participating financial institutions. There is expected to be a Congressional vote today with the Senate voting Tuesday or Wednesday. But there is still no assurance that all will vote in favour with many conservatives against the bill, with the presidential candidates only giving lukewarm support and with a recent poll showing only 35% of Americans believe the bail-out will solve the crisis.
In the meantime the markets are hovering between stagnation and collapse whilst they wait on the US decision. Bradford & Bingley is being taken over by Banco Santander with the British government nationalising £50 billion of mortgages and personal loans. Banking and insurance giant, Fortis, will receive £9 billion of funds for equity – a partial nationalisation – to avoid its collapse, and will also have to put its recently acquired share of ABN AMRO up for sale, a move that could cause problems for Royal Bank of Scotland. Although the European Union appears to have decided against an American-style bail-out, these actions are close to a de-facto toxic-bank at a national level.
In the USA, Washington Mutual, the US’s largest savings bank (thrift) was taken over by JPM Chase last week and the take-over of Wachovia (Citigroup, Wells Fargo and Santander are said to be in the bidding) is likely to be delayed until the results of the US government bail-out are announced.
Where will we be on Thursday when the next Chase Cooper News comes out?
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