Positive Reaction To the Rescue Plan of the 15

news.ert.gr - Tuesday 14th of October 2008

European markets reacted positively to the rescue plan the Eurozone member states adopted to address the financial crisis, as they opened Monday morning with considerable profits.

The Dow Jones industrial average rose 579.52 points, or
6.86 percent, at 9,030.71. The Standard & Poor's 500 Index was up 64.17 points, or 7.14 percent, at 963.39. The Nasdaq Composite Index was up 120.26 points, or 7.29 percent, at 1,769.77.At the same time, the Share Price Index of the Athens Stock Exchange has risen by 5.71% to 2,507.47 points. The indices of almost all Asian Markets are surging, with Hong Kong closing at +10.2%.

At the unscheduled summit in Paris, the 15 Eurozone leaders and the British Prime Minister gave thumbs up for a six-point rescue plan that secures liquidity in the inter-bank market, offers state protection to banks and cements their borrowing capacity.

The International Monetary Fund offered its backing to the plan. Meanwhile, the European Commission has issued an announcement stressing that the finances of EU member-states would deteriorate due to the financial crisis, adding that the important thing is to restore confidence in the markets. At the same time, for the first time after four days, crude oil prices shot up to US$81 per barrel in New York.

IMF Backs the Plan

Based upon the measures already taken in Britain, the rescue plan:

-secures liquidity
-allows inter-bank lending with state guarantees
-foresees the recapitalization of banks
-consolidates bank operation
-modernise accounting standards

International Monetary Fund head Dominique Strauss-Khan offered his backing to the plan, arguing that the recent initiatives, the action plan adopted by the G7 nations and the rescue plan the Eurozone members agreed on were exactly the kind of initiatives that had to be undertaken.

World Bank Group President Robert B. Zoellick commented that the financial crisis highlighted the need for a joint action with a view to constructing a better system for the future.
Chief economist for the International Finance Cooperation (IFC) Michael Klein estimated that the global financial crisis would not assume greater dimensions provided that the experiment for the capital restructure of the world financial giant which is underway proved successful.

He then went on to note that the key to break the impasse, which he called rather serious, was to recapitalize financial groups, even nationalize banks, further stressing that recovery would be harsh.

In the framework of the plan, sources near the British government said that the country's central Bank could channel more that $46.6 billion into three major banks, Royal Bank of Scotland, HBOS and Lloyds TSB, hit by the crisis even within Monday.

Barclays, on its part, said it would gradually enhance its liquidity with more than 8.2 billion euros, without state help.

Fed Buys Out Wachovia

The US Federal Reserve has approved Wells Fargo's takeover of troubled banking rival Wachovia, a deal which would create the largest bank branch network in the United States.

Wells Fargo offered 15.1 billion dollars in an all-stock deal to buy all of Wachovia, and recently stressed that its proposal did not have any government involvement or taxpayer risk.

Citigroup had offered to pay 2.16 billion dollars in stock for Wachovia's banking activities and some of its debts.

But the giant bank said on Thursday it was ending court efforts to block the Wachovia-Wells Fargo merger, although it vowed to press legal charges against bank officials for breach of contract.

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