FDIC May Run ‘Bad Bank’ in Plan to Purge Toxic Assets (Bloomberg Update)

FDIC May Run ‘Bad Bank’ in Plan to Purge Toxic Assets (Update2)

By Robert Schmidt and Alison Vekshin
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Jan. 28 (Bloomberg) -- The Federal Deposit Insurance Corp. may manage the so-called bad bank that the Obama administration is likely to set up as it tries to break the back of the credit crisis, two people familiar with the matter said.

U.S. stocks gained, extending a global rally, on optimism the bad-bank plan will help shore up the economy. The Standard & Poor’s 500 Stock Index rose 1.9 percent to 861.63 as of 9:54 a.m. in New York. Bank of America Corp., down 54 percent this year before today, rose 87 cents, or 13 percent, to $7.37. Citigroup Inc., which had fallen 47 percent this year, climbed 18 percent.

FDIC Chairman Sheila Bair is pushing to run the operation, which would buy the toxic assets clogging banks’ balance sheets, one of the people said. Bair is arguing that her agency has expertise and could help finance the effort by issuing bonds guaranteed by the FDIC, a second person said. President Barack Obama’s team may announce the outlines of its financial-rescue plan as early as next week, an administration official said.

U.S., European Bank Stocks Surge on Obama’s Plan for ‘Bad Bank’


By Andrew MacAskill and Jon Menon

Jan. 28 (Bloomberg) -- U.S. and European bank stocks surged on speculation the Obama administration may set up a so-called bad bank to absorb toxic assets, and Wells Fargo & Co. said it won’t need additional government aid.

Wells Fargo rose 12 percent, Citigroup Inc. jumped 21 percent, Deutsche Bank AG climbed 22 percent and Lloyds Banking Group gained 46 percent. The Federal Deposit Insurance Corp. may manage the bad bank, buying distressed assets that are clogging balance sheets, two people familiar with the situation said.

“A catalyst for banks everywhere is the expected announcement out of the U.S.,” said Simon Willis of NCB Stockbrokers Ltd in London. “We are seeing a rebound after a sharp selloff in banks last week.”

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Wells Fargo jumped $2.42 to $18.61 at 8:40 a.m., and Citigroup climbed to $4.14 in New York.

London-based Lloyds rose the most in at least two decades to 94.4 pence after Citigroup Inc. analysts led by Tom Rayner in London raised it to “buy” from “hold.” The possibility of nationalization “is more than adequately discounted in the current valuation,” he said in a note today.