By ANDREW MARKS
NEW YORK CORRESPONDENT
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STOCK markets in Europe reacted enthusiastically yesterday on word that the US government was readying a massive plan to rescue embattled US financial giant Citigroup.
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| Speading the cheer: Santa after ringing the opening bell yesterday at the New York Stock Exchange. By 11am, the Dow was up about 320 points, ahead of a noon speech by President-elect Barack Obama |
US markets then quickly joined the party as the government made official its radical and dramatic plan to stabilise Citi.
Analysts said that the government's action prevents what was shaping up to be an old-fashioned run on the bank from out of the history books, complete with depositors and lenders alike lining up to take their money from what was not long ago considered one of the world's strongest financial companies.
'The government finally understood it had to act big and act now,' said Hugh Johnson, chief investment strategist at Johnson Illington Advisors. Quoting from a book on the banking crisis of 1907, Mr Johnson said: 'But these weren't ordinary times and there was no point in fooling themselves. I think that says it all. In a financial crisis of this magnitude, you have to continue to put your finger in the dyke no matter the cost or eventual repercussions.'
Marc Pado, chief investment strategist at Cantor Fitzgerald, offered the prevailing consensus on Wall Street: 'Really, the government acted out of need - there was simply no choice but to ensure that a bank with US$2 trillion in assets and another US$1 trillion more in debts doesn't go under. We were getting to the point where the country could've woken up in the morning and found that Citigroup had failed, and the government has finally stepped up to announce to the world it won't let that happen.'
It was all too appropriate that Santa Claus rang the opening bell on the New York Stock Exchange yesterday morning, as investors reacted to the huge and dramatic gift from the US government by sending the Dow Jones Industrials soaring by 150 points within the first minute of trading.
By 11am, the Dow was 321.3 points up at 8,367.72, ahead of a noon speech by Barack Obama. The President-elect is expected to announce and detail his plans for a massive stimulus plan for the economy that is expected to match the US$700 billion TARP.
'Anything that creates jobs as so many in the private sector are being destroyed is fantastic news for the economy and stock market at this point. Obviously, we'll have an issue with inflation at some point down the road, but everyone understands that and agrees that this is not the time to worry about inflation,' said Mr Johnson.
Wall Street will have to deal with the repercussions of bailing out a bank whose bad decisions are largely responsible for bringing them to this point of crisis.
'Citi has been run incredibly poorly, and I'm not happy that the senior executives are not being forced out as a condition of this bailout,' said Frank Ayden, a portfolio manager at Durkin Capital Management.
'But the main fact is that the government is sending out a clear and strong signal that it will do whatever it takes and spend whatever it costs to keep the banks in business.'
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