WASHINGTON (AFP) — The US bank rescue program kicked into gear Monday with news that nine major banks will receive 125 billion dollars in capital injections this week from the government.
Several smaller banks also announced plans to join the program in which the Treasury would purchase shares to help free up funds to ease a credit squeeze.
Assistant Treasury Secretary David Nason told CNBC television that "we executed the agreements for the nine (major) institutions late last night so the money will go out the door for these institutions early this week."
The nine will get half of the 250 billion dollars to be invested by the government in the banks as part of a massive rescue of the financial system.
The nine banks are Citigroup, JPMorgan Chase, Bank of America, Goldman Sachs, Morgan Stanley, Wells Fargo, Bank of New York Mellon, State Street and Merrill Lynch, soon to be taken over by Bank of America.
The remaining 125 billion dollars will go to smaller banks and lenders which agree to the capital for equity program, which includes mandated limits on executive compensation.
The Financial Services Roundtable said 14 regional banks had received preliminary approval for a total of 25.9 billion dollars in capital.
The capital injections are from a 700-billion-dollar US government rescue plan approved by Congress that had initially focused on the problem of liquidity for banks by offering to buy up their toxic assets.
Nason, asked if insurers would qualify for rescue plan, said: "It is something we have to consider. We started with the banks ... but there are a lot of industries that are coming and saying they need federal assistance, so we are willing to listen."
Among the banks participating, State Street said it agreed to a plan in which the Treasury will invest two billion dollars in preferred shares and also receive warrants to obtain additional stock.
SunTrust Banks, another big regional lender in Atlanta, Georgia, said it would get 3.5 billion dollars from the Treasury in new capital.
The action "will permit us to further expand our business and take advantage of growth opportunities," said James Wells III, SunTrust chairman and chief executive.
Wells said he would anticipate "prudent deployment" of some of the capital in areas such as expansion of careful lending, expansion of business capabilities and the exploration of potential acquisitions.
Ohio-based Huntington Bancshares announced it would get 1.4 billion dollars in capital and Texas-based Comerica said it would receive an infusion of 2.25 billion dollars.
On Sunday, Fifth Third Bancorp said it was expecting as much as 3.4 billion dollars.
Friday, PNC Financial Services Group of Pennsylvania agreed to 7.7 billion dollars in capital as it acquired Ohio-based National City.
New York state-based First Niagara said Monday it would be eligible for up to 186 million dollars.
Peter Cohan, a management consultant with Peter Cohan & Associates, said the criteria for the program remained unclear, with some capital going to money-losing banks.
"Is there any logic to why the US is giving taxpayer money to banks that are losing money?" he said.
"Wouldn't it be better to merge the money-losing banks with profitable ones? And does the government know whether the ones that are currently profitable will stay that way over the next year?"
In a related action, the Federal Reserve set terms for purchases of commercial paper, short-term debt from companies that has been frozen in the credit crunch.
The Fed said it would buy unsecured corporate debt at a rate of 1.88 percent and, 3.88 percent for asset-backed debt.
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