Page last updated at 08:14 GMT, Wednesday, 11 February 2009

Shares fall after US banking plan

Treasury Secretary Timothy Geithner
Global investors have yet to be impressed by the bail-out plan

Global investors have given the $1.5 trillion (1.02 trillion) US bank bail-out plan a muted response, following sharp falls overnight on Wall Street.

Analysts says there is scepticism over whether the proposal will work, and worries over both a perceived lack of detail and the sums of money involved.

At the core of the plan is a new $500bn fund to absorb toxic bank assets.

The UK's FTSE 100 was down 0.4% in early trading. America's main Dow Jones slumped 4.6% on Tuesday.

"This is not a clear-cut plan," said analyst Bucky Hellwig.

Mr Hellwig, who works for Morgan Asset Management, added that it wasn't "what investors are looking for", and that the package was "convoluted".

Dow slump

In early Wednesday trading in London, the FTSE 100 was 0.4%, or 18 points, lower at 4,195, while France's Cac had lost 1%.

Hong Kong's Hang Seng index was down 431 points, or 3.1%, in afternoon trading at 13,450.

Investors want clarity, simplicity, and resolution. This plan is seen as convoluted, obfuscating, and clouded
James Ellman, Seacliff Capital

Meanwhile, the top index of Australian shares closed down 10.3 points, or 0.3%, at 3,418. The Japanese stock market was closed for a public holiday.

The falls came after the US Dow Jones index slumped 382 points, or 4.6%, to 7,889 on Tuesday.

Mr Geithner said the new bank bail-out package was vital as "critical parts of our financial system are damaged".

"Instead of catalyzing recovery, the financial system is working against recovery, and that's the dangerous dynamic we need to change," he added.

'Critical aid'

The new plan is aimed at restoring confidence in the damaged financial system and restarting bank lending.

Absorbing toxic assets from a weakened banking system
Unfreezing the credit market
Softening the housing crisis
Transparency and accountability

The key question now is how eager the private sector will be to participate both in the new fund to absorb toxic assets and the new Federal Reserve lending programme, which will be expanded to $1 trillion from $200bn to help banks lend more.

Mr Geithner said the new bank bail-out plan should unfreeze the credit market, strengthen banks and "provide critical aid for homeowners and for small businesses".

"And as we do each of these things, we will impose new higher standards for transparency and accountability," he added.

Analyst James Ellman of Seacliff Capital said investors were disappointed, as they had wanted "clarity, simplicity and resolution".

"This plan is seen as convoluted, obfuscating, and clouded," he added.

Others say that the plan is not perfect, but in general they agree with many of its proposals.

"I think the idea of more or less buying back some of the debt, monetizing it, is a good idea. I think that's probably a good move," said Carl Birkelbach, head of Birkelbach Management.

Meanwhile, the US Senate has backed an $838bn economic stimulus package which will now have to be reconciled with the House of Representatives version.

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