President Obama’s “bad bank” became Wall Street traders’ new best friend yesterday, sparking a rally over hopes of better rewards ahead in a banking rescue.
Also yesterday, the Federal Reserve left the benchmark interest rate as low as zero, and said it’s prepared to purchase Treasury securities to resuscitate lending.
The Fed is ready to buy “longer-term Treasury securities if evolving circumstances indicate that such transactions would be particularly effective in improving conditions in private credit markets,” the Federal Open Market Committee said.
Wells Fargo rallied 31 percent to $21.19, after saying it doesn’t need any more federal rescue aid and that it took a quarterly loss of $2.55 billion from the takeover of Wachovia without cutting its dividend.
Citigroup surged 19 percent to $4.21, Bank of America jumped 14 percent to $7.39 and JPMorgan Chase added 10 percent to $27.66. Fifth Third Bancorp and State Street Corp. soared 36 percent and 31 percent, respectively.
Those results helped the S&P 500 index add 3.4 percent, or 28.38 points, to 874.09, in its fourth-straight winning session. Financial stocks accounted for 19 of the top 20 gaining shares.
The Dow Jones industrials rose 2.5 percent, or 200.72, to 8.375.45 and the Nasdaq composite gained 3.6 percent, or 53.44, to 1,558.34.
Optimism abounded over Obama’s emerging bank rescue plan – now likely to approach $1 trillion – that will create an entity to mop up tainted assets and unclog lending.
The bad bank could be funded from the government’s Troubled Asset Relief Program and Fed funds. The New York Fed has set up a $200 billion lending facility, backed by $20 billion in TARP money, to support the consumer debt securities market.
