In the United States, Wall Street closed with one of its biggest single-day gains ever, with the Dow Jones industrial average closing at 9,387.61, a jump of 936.42 points, or 11.08 percent. The S&P 500 closed at 1,003.35, up 104.13 points, or 11.58 percent.
U.S. Treasury Secretary Henry Paulson worked to finalize plans to buy ownership shares in banks to help unfreeze lending and jumpstart the economy. An announcement could come as early as Tuesday, Reuters reported. The new approach by the U.S. government seeks to inject capital in the country’s financial institutions faster than purchasing bad mortgage-backed assets as previously proposed in a $700 billion rescue plan approved by Congress.
On Sunday, the U.S. Federal Reserve approved Wells Fargo’s takeover of Wachovia Corp. after federal antitrust regulators approved the deal Friday. The $11.7 billion deal was brokered after Citigroup, Inc. walked away from its previous effort to buy the troubled bank and paved the way for Wells Fargo to seal the deal.
In Europe, 15 members of the European Union agreed Sunday on a coordinated rescue package that will guarantee inter-bank loans through the end of 2009 and allow governments to purchase preferred shares in banks. The plan aims to encourage reluctant banks to lend to each other and restore confidence in the banking system. Specific implementation of the agreement was left up to individual governments. All 27 members of the EU will meet on Wednesday.
“I want to tell our compatriots in all the countries of Europe that they can and should have confidence,” said French President Nicolas Sarkozy, host of the emergency summit in Paris, according to the Associated Press.
Sarkozy said on Monday the French government will inject a maximum of 360 billion Euros, or $491 billion, into its banking system to guarantee bank refinancing and to provide banks with the capital.
Earlier Monday, Germany and Britain announced similar plans with other European government expected to follow suit. The German cabinet passed a plan to provide 400 billion Euros, or $543.4 billion, in bank guarantees. It will add 100 billion Euros in state funds to recapitalize banks. Britain’s plan will use 37 billion pounds, or $63.85 billion, to bail out three of the country’s major banks. The British government will likely become the largest stakeholder in Royal Bank of Scotland and lender HBOS.
British Prime Minister Gordon Brown called upon world leaders to craft a new global financial system, similar to the Bretton Woods agreement after World War II.
In another coordinated effort, the European Central Bank, the Bank of England and the Swiss National Bank announced they would offer unlimited short-term funding in U.S. dollars for banks at fixed interest rates in order to increase liquidity. The Bank of Japan considered taking similar steps.
“Counterparties… will be able to borrow any amount they wish against the appropriate collateral,” read a statement from the central banks according to Dow Jones Newswires.
Markets across the globe rallied in early trading on Monday in reaction to the package of rescue plans. Hong Kong’s Hang Seng index rose 10.2 percent, while Britain’s FTSE 100 surged 3.83 percent. Germany’s DAZ index posted a 6.84 percent gain and France’s CAC-40 jumped 4.37 percent.
“The global markets are giving a nod of approval to what the governments, central banks and the U.S. Treasury are doing to boost confidence in the market place,” said Peter Cardillo, chief market economist at Avalon Partners in New York, according to Reuters.