US bank stocks plunge on nationalization concerns

 2009-02-21 06:54:53  

    NEW YORK, Feb. 20 (Xinhua) --

Shares of major U.S. banks plunged for the sixth day on Friday due to concerns that the U.S. government will take over lenders.

    The Dow Jones average dived below its lowest close since 1997 to 7,249.47 after Senate Banking Committee Chairman Christopher Dodd said Friday it may be necessary to nationalize some banks for a short time.

    Citigroup fell than 30 percent to as low as of 1.61 U.S. dollars in the New York Stock Exchange midday trading, the lowest since 1991. Bank of America plunged 34 percent to 2.53 dollars, the lowest levels in more than 18 years.

    New York-based Citigroup and Charlotte, North Carolina-based Bank of America, have so far received 90 billion dollars from the U.S. government aid. After losing more than 90 percent of their value, the market capitalization of the two big financial firms (less than 30 billion dollars) are now well below the amount of government assistance.     

    NATIONALIZATION CONCERNS

    Concerns on bank nationalization have mounted as Alan Greenspan, the former Federal Reserve chairman, said earlier this week that the U.S. government may have to nationalize some banks on a temporary basis to fix the financial system and restore the flow of credit.

    Greenspan, who for decades was regarded as a free-market fundamentalist, said nationalization could be the least bad option left for policymakers in an interview with the Financial Times.

    Panic amid investors even increased as Fed Chief Ben Bernanke considered nationalization as an option.

    Bernanke said at the national press club this week that "whatever actions may need to be taken at one point or another, I think there's a very strong commitment on the part of the administration to try to return banks, or keep banks private or return them to private hands as quickly as possible."

    Proponents of nationalization cite the Sweden government's use of the concept in the 1990s, which is widely regarded as successful crisis management. The Swedish government injected capital into some institutions, separated bad assets from good ones, replaced management, ran them as long as necessary and sold them back into the market.

    The U.S. government accomplished much of the same in resolving the savings and loan crisis of the late 1980s and early 1990s.     

    GEITHNER'S NEW PLAN

    Fiancials turned to bearish last week as Treasury Secretary Timothy Geithner failed to convince investors that his financial rescue plan will work.

    Geither's plan would use a "stress test" for banks with assets over 100 billion dollars as part of the financial aid process is seen as a prelude to some nationalization process. Such thinking has dragged on financial stocks.

    The Obama administration has yet to address some "obvious issues," said Meredith Whitney, founder and CEO of The Meredith Whitney Advisory Group, early this week in an interview with CNBC.

    There needs to be moves to disaggregate the concentration of loans from top banks, but I haven't heard anything like that going on in D.C., added Whitney.

    The White House said on Friday it strongly believed in a privately held bank system, after rumors of bank nationalization hit Wall Street.

    "This administration continues to strongly believe that a privately held banking system is the correct way to go, ensuring they are regulated sufficiently by this government," White House spokesman Robert Gibbs told a news conference on Friday afternoon.

    CNBC reported that the U.S. Treasury Department would release more details of the Obama administration's bank rescue plan next week.

    Citigroup and Bank of America both said they are not in danger of nationalization later Friday.

    Bank of America CEO Ken Lewis attributed speculation about the government taking over his institution to a "lack of understanding" regarding the company's operations.

    "We see no reason to nationalize a bank that is profitable, well-capitalized and actively lending," Lewis said in a statement.

    Citigroup said the bank has not held talks with the U.S. government about nationalization. 

Editor: Mu Xuequan

White House rejects rumors of bank nationalization

2009-02-21 06:37:44  

    WASHINGTON, Feb. 20 (Xinhua) --

The Obama administration said Friday it is not trying to take over Citigroup Inc. and Bank of America Corp., two ailing financial institutions.

    "This administration continues to strongly believe that a privately held banking system is the correct way to go, ensuring that they are regulated sufficiently by this government," said White House Press Secretary Robert Gibbs.

    "That's been our belief for quite some time, and we continue to have that," he said, rejecting market rumors of impending nationalization of troubled banks.

    On Wall Street, Citigroup plunged 20 percent while Bank of America dropped 12 percent in afternoon trading as rumors of nationalization prompted investors to sell.

    A Treasury Department spokesman also rejected the rumors on Friday.

    "There are a lot of rumors in the market, as always, but you should not regard these as any indication of the policy of this administration," said the spokesman.

    As Treasury Secretary Timothy Geithner has said, "we will preserve a financial system that is owned and managed by the private sector," he said.

    The U.S. government has already provided significant aid to Citigroup and Bank of America in its efforts to save the nation's financial sector, which has been choked by bad assets.