US to rescue partially Singapore-owned banks

Washington jumps to the rescue of partially Singapore-owned banks!

Government of Singapore Investment Corporation (GIC) has a 4 percent stake in Citigroup.

And Temasek Holdings will become one of the largest shareholders of Bank of America when the latter completes its purchase of Merrill Lynch next year, reports the Wall Street Journal. Temasek is the largest shareholder of Merrill Lynch, with a 14 percent stake.

Citigroup and Bank of America are both among the top nine US banks about to be partially nationalised. The US Treasury Department is expected to invest up to $250 billion in them, reports the New York Times. What’s more, Washington is expected to guarantee all new bank loans for three years, making banking a virtually no-risk business for their shareholders.

The Wall Street Journal reports:

The government is set to buy preferred equity stakes in Goldman Sachs Group Inc., Morgan Stanley, J.P. Morgan Chase & Co., Bank of America Corp. -- including the soon-to-be acquired Merrill Lynch -- Citigroup Inc., Wells Fargo & Co., Bank of New York Mellon and State Street Corp., according to people familiar with the matter.

Some of the big banks were unhappy about the government taking equity stakes, but acquiesced under pressure from Treasury Secretary Henry Paulson in a meeting Monday. During the financial crisis, the government has steadily increased its involvement in financial markets, culminating with a move that rivals the breadth of the government's response to the Great Depression. It intertwines the banking sector with the federal government for years to come and gives taxpayers a direct stake in the future of American finance, including any possible losses.

The New York Times reports:

The Treasury Department, in its boldest move yet, is expected to announce a plan on Tuesday to invest up to $250 billion in banks, according to officials. The United States is also expected to guarantee new debt issued by banks for three years — a measure meant to encourage the banks to resume lending to one another and to customers, officials said.