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US passes bailout, focus shifts to fallout

Bush signs into law, Treasury vows quick action; US stocks turn lower to end at 4-year lows, dollar drift down.

NEW YORK / WASHINGTON - The U.S. government enacted a landmark USD 700 billion bank bailout on Friday, but investors questioned whether it could contain a panic that began on Wall Street and spread to become a global financial crisis.

The U.S. House of Representatives approved the rescue plan by a vote of 263-171 on Friday. That sent the measure to President George W. Bush, who quickly signed it into law, concluding two weeks of high-stakes haggling over the plan that had roiled and captivated global markets.

Markets pivoted on passage of the U.S. bailout, as investors' attention turned to signs of a gathering recession. President George W. Bush said on Saturday that benefits from the recently passed financial bailout will take time to show up in the U.S. economy. Stocks, which had been higher before the vote, dropped, with the S&P 500 index closing at its lowest level in almost four years. The dollar was also in retreat. U.S. crude settled at USD 93.88 a barrel, down 9 cents, after dropping USD 4.56 on Thursday on concerns about slumping demand. London Brent crude settled at USD 90.25 a barrel, down 31 cents. High fuel prices and the wider economic crisis has hurt consumption in top consumer the United States, knocking crude off a record peak over USD 147 a barrel struck in July. U.S. Treasury Secretary Henry Paulson, who had been the administration's chief lobbyist for the plan, said he would move quickly to buy up distressed assets from banks. Analysts cautioned it was still unclear whether the U.S. plan would work as advertised. The U.S. government has run up a bill of USD 1 trillion in recent weeks as it rushed to stabilize its banks, including the seizures of Fannie Mae and Freddie Mac. That cost is equal to over 7 percent of the world's largest economy.

Obama and McCain say more action needed after bailout

The White House race turned back to the ailing economy on Friday with Democrat Barack Obama and Republican John McCain praising the vote in Congress to pass a Wall Street bailout but pushing for further action. After the House of Representatives gave final approval to the $700 billion bailout of U.S. financial institutions, Obama urged the Bush administration and Treasury Secretary Henry Paulson to use their authority wisely to protect taxpayers. "Even if this rescue package works exactly as it should, it's only the beginning, it's not the end," Obama told reporters while campaigning in Pennsylvania.

McCain told reporters in Arizona the bailout was not a permanent solution and it was "an outrage" it was even necessary.

A collapse in the U.S. housing market and resulting bad mortgages have shattered confidence in the financial sector, with banks across the United States and Europe needing support from governments or outside investors this week. Interbank lending and credit to businesses and private individuals has all but seized up. Central banks have injected billions of dollars to maintain some flow of funds. Bad news mounted in the European financial sector. Dutch-Belgian banking and insurance giant Fortis was broken up on national lines, with the Dutch government taking over its operations in the Netherlands, after an earlier rescue effort and asset sale failed.

In Switzerland, UBS AG, hardest hit among European banks by its exposure to subprime holdings, said it would cut 2,000 investment banking jobs. Divisions have emerged within Europe over the past week, with Ireland offering guarantees on bank deposits, prompting a flight of capital from British lenders to Irish banks.

Forced sales seen slamming euro property markets

A wave of forced sales is likely to pummel Europe's wilting commercial property market in the coming months, despite a bevy of potential buyers on the sidelines, property experts said on Friday.

In a note to clients, JP Morgan analysts said the market was braced for an "explosion" of property sales, with EUR 340 billion (USD 471.2 billion) in assets potentially hitting the market, including assets offloaded by the European administrators of Lehman Brothers.

Property sales linked to the financial industry's ongoing convulsions were also in the mix, including USD 15 billion of property assets in Britain and across Europe which had so far been identified by Lehman's administrators.

In the case of listed property firms, about three-quarters of the estimated EUR 20 billion in assets prepared for sale were likely to be forced sales, JP Morgan said.

Nick Axford, head of European research at CB Richard Ellis (CBRE), said forced sales of commercial property had been limited to date but were set to pick up before the year was out.

The amount of European commercial property bought and sold in the first half of 2008 - at EUR 66.5 billion - was almost half what it was in the same period of 2007, according to CBRE.

 

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Tags: european sales property bailout banks billion financial assets euro

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