Tuesday, 24 February 2009

Bernanke Says Bank Nationalisations Only If Necessary. Majority Stakes Not Needed to Make Bankers Do What They Have to Do. Uhhhmmm ...

Here is an excerpt of a Bloomberg News story on Federal Reserve Governor Ben Bernanke's response to insisting rumours about massive bank nationalisations in the U.S.

Federal Reserve Chairman Ben S. Bernanke rejected the idea that officials plan to use reviews of banks’ balance sheets as a pretext for government takeovers of the nation’s largest lenders. The Treasury will buy convertible preferred stock in the 19 largest U.S. banks if stress tests determine they need more capital to weather a deeper-than-forecast recession, Bernanke told lawmakers in Washington today.

The shares would be converted to common equity stakes only as extraordinary losses materialize, he said. “I don’t see any reason to destroy the franchise value or to create the huge legal uncertainties of trying to formally nationalize a bank when it just isn’t necessary,” Bernanke said at the Senate Banking Committee hearing.

The Fed chairman’s remarks eased concern among some investors that the Treasury’s capital-injection plan would hurt banks’ shareholders and lead to nationalization. The Standard & Poor’s 500 Banks Index climbed 13 percent, the most in more than two weeks, to 66.88 at 3 p.m. in New York. “Today at least there seems to be a growing sense of relief that nationalization was de-emphasized and put into perspective,” said Marshall Front, who oversees $500 million as chief executive officer of Front Barnett Associates in Chicago. “There’s a bit of relief that that’s not going to happen.”

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