U.S. bailout plan fails to calm North American markets

Updated Mon. Sep. 22 2008 5:54 PM ET

CTV.ca News Staff
The Dow Jones dropped more than 370 points Monday as jittery
investors awaited details of a plan by the U.S. government to bail out
banks saddled with toxic assets.
The Bush administration is seeking a $700-billion bill from
lawmakers to buy the bad mortgage debt that has burdened lenders since
the sub-prime credit crisis hit over a year ago.
Despite the bailout, investors aren't sure the plan can successfully mop up the problem and boost the sagging housing market.
"It's just too big to analyze on a one-day view," John Haynes,
strategist at Rensburg Sheppards, told Reuters. "The Fed, I think, is
going to win in the end, but as to whether stocks go up or down in the
next three months, it's the toss of a coin."
In New York, the Dow Jones fell 372.75 points to finish at 11,015.69, while the Nasdaq dropped 94.92 points to end at 2,178.98.
North of the border, Toronto's S&P/TSX composite index dipped
274.92 points to 12,638.07, which marks a significant reversal from
Friday's massive gain of 848 points.
Meanwhile, the Canadian dollar closed at 96.77 cents US, up 1.53 cents.
In China, the main stock market climbed almost eight per cent on
Monday. In Hong Kong and Japan the main stock indexes gained more than
one per cent in early trading.
Wall Street shake-up
Over the weekend, investment banks Goldman Sachs and Morgan Stanley
applied to have their status changed to bank holding companies.
The U.S. Federal Bank granted the request allowing the firms to
operate as "ordinary old retail banks... (with) branches around the
country," said BNN's Michael Kane.
Kane told CTV's Canada AM the U.S. housing crunch has completely
collapsed the investment bank model, leaving many financial service
companies vulnerable to the volatile markets.
Another recent casualty was the Norfolk, West Virginia-based
Ameribank. On Friday it became the twelfth regional bank to become
insolvent, largely based on its reliance on the construction market.
"The regulator seized Ameribank on Friday," Kane said.
"They did open a couple of branches on Saturday. They're going to
open the rest today and the Federal Deposit Insurance Corporation which
insures people's deposits in regional banks, says people can use their
debit cards or write cheques today to get their money out. But wow this
is going to cost a lot of money for the regulatory agencies here."
Meanwhile, Canadian banks may also be able to tap into the American
bail out plan, following a weekend announcement from U.S. Treasury
Secretary Henry Paulson that "significant operations" outside of the
U.S. could also be eligible.
According to BMO Capital Markets chief economist Sherry Cooper,
"that seems to suggest that the Royal Bank of Canada, Toronto-Dominion
Bank and Bank of Montreal would qualify."
All three have big commercial banking subsidiaries in the United States.
"We will continue to see de-leveraging of the U.S. financial system;
as well, banks will be raising additional capital," Cooper added.
Paulson and U.S. Federal Reserve Chairman Ben Bernanke are due to
appear before Congress on Wednesday for a briefing on the economy.
With files from The Associated Press