(Source: Datamonitor)
The US federal government is following the lead of British and European governments by announcing a $250 billion rescue fund to be pumped into major financial institutions in a bid to shore up the country's struggling financial sector.
The US Treasury has said that the plan would involve the government picking up stakes in banks including Bank of America, Citigroup, Goldman Sachs, Wells Fargo and JP Morgan Chase. The treasury will also guarantee all bank deposits and fresh debt issues by banks over a three-year period.
In return for its bailout of each bank, the US Treasury is expected to receive preferential shares which pay a dividend without diluting the existing shareholder ownership structure.
Larger banks such as JP Morgan Chase, Citigroup, Bank of America and Wells Fargo are expected to receive $25 billion each, while investment banks Goldman Sachs and Morgan Stanley are expected to receive $10 billion each.
This $250 billion cash injection, in exchange for preferred shares, forms part of a $700 billion rescue package that has been approved by the US Congress. This move follows in the footsteps of similar European initiatives which aim to shore up beleaguered banks in a bid to ease the credit crunch.
