Global Stocks Soar as Countries Plan Rescues
Tuesday, October 14, 2008
LONDON, Oct. 13 -- Stock markets worldwide surged Monday as governments outlined bank rescue plans that in Europe alone amounted to more than $2 trillion.
The Hong Kong stock market's main index shot up 10 percent, while Mumbai's gained 7 percent. In London, the rise was 8 percent; the gains in Paris and Frankfurt, Germany, both topped 11 percent.
The Dow Jones industrial average, following this exuberant lead, rose more than 11 percent.
Investor confidence was buoyed Monday by unprecedented coordination among officials in London, Paris, Berlin, Madrid and other cities, who on Monday announced new bank guarantees and emergency measures.
The Bank of England, the European Central Bank and the Swiss National Bank took joint action to thaw frozen money markets by offering unlimited short-term dollar loans at fixed rates.
The British government said it was becoming a major shareholder in two banks, the Royal Bank of Scotland and the bank to be created by the merger of Lloyds and HBOS. In exchange, the British government said, it would insist on restrictions on executive pay and guarantees that the banks increase lending to home buyers and businesses.
The partial nationalization of the British banks is part of a broad strategy to provide at least 400 billion pounds, or nearly $690 billion at current exchange rates, in capital and loan guarantees to jump-start bank lending.
"For savers, for small businesses and for homeowners, we must in an uncertain and unstable world be the rock of stability on which the British people can depend," said Prime Minister Gordon Brown.
The prime minister said the government's intention was to be "not a permanent investor in U.K. banks." The plan, he said, "over time, is to dispose of all the investments it is making as part of this scheme in an orderly way."
"In extraordinary times, with financial markets ceasing to work, the government cannot just leave people on their own to be buffeted about," Brown said.
"The markets had to pick up," said Rajesh Jain, vice president of SMC Global Securities, an Indian brokerage firm. "It's been overbeaten the whole of last week . . . All the confidence-boosting measures seem to have worked."
In Paris, French President Nicolas Sarkozy announced that the government would set aside nearly $450 billion to guarantee loans among banks and $56 billion more to serve as capital injections for banks at risk of collapse.