U.S. bank shares soar on toxic asset plan

U.S. bank shares including Citigroup Inc and Bank of America Corp soared on hope a government plan to rid lenders of up to $1 trillion of troubled assets will resuscitate lending, earnings and the economy.
In early trading, Citigroup rose 14.5 percent to $3.00 while Bank of America rose 16.3 percent to $7.20. The 24-member KBW Bank Index of larger lenders was up 8.9 percent, though it remained well in the red for 2009.
The Public-Private Investment Program announced Monday envisions the government offering financing for private investors to buy assets from banks, with the government shouldering much of the investment risk.
Those assets have been illiquid because banks and investors have been far apart in assessing what they are worth. While it is unclear how assets would be priced, opening the market could help banks free up capital, allowing them to lend more and perhaps raise new private capital on their own.
"It relieves an anchor around the necks of investors concerned about the viability of these institutions," said Andre Bakhos, president of Princeton Financial Group in Princeton, New Jersey.
BlackRock Inc and Allianz SE's Pacific Investment Management Co, two of the largest and most influential U.S. asset managers, said they intend to participate in the program.
Barclays Capital analyst Jason Goldberg wrote that Bank of America, Citigroup, JPMorgan Chase & Co, PNC Financial Services Group Inc, State Street Corp and Wells Fargo & Co could be large beneficiaries of the program because they have taken large writedowns on eligible assets. This might make them more amenable to asset sales.
Bank shares through Friday had fallen 41 percent this year, and by more than two-thirds since the end of 2007, as earnings sank, housing-related losses and writedowns soared, and many lenders ran short of capital.
Several analysts have said hundreds of lenders, mainly smaller ones, will fail in the next couple of years. Banks lost $32.1 billion in the fourth quarter, the first quarterly loss since 1990, the Federal Deposit Insurance Corp said.
The government in November agreed to share losses on $300.8 billion of troubled assets at Citigroup, and two months later entered a similar agreement covering $118 billion of assets at Bank of America. Both banks have also taken $45 billion of capital from the government's Troubled Asset Relief Program.
In morning trading, JPMorgan Chase shares rose 10.2 percent to $25.51; Wells Fargo rose 11.5 percent to $15.60; PNC rose 7.1 percent to $28.84; State Street rose 11.9 percent to $27.62; Goldman Sachs Group Inc rose 6.5 percent to $103.62, and Morgan Stanley rose 9.1 percent to $22.09.