Stocks soar on rescue plans, bank deal
Stocks soar on rescue plans, bank deal 
The Treasury Department outlines plans to use its new authority to help rebuild the financial markets. Mitsubishi UFJ closes its deal to buy a stake in Morgan Stanley. The United Kingdom will inject up to $65 billion in several of its biggest financial companies.
By Charley Blaine and Elizabeth Strott
The bulls are back in action today, with U.S. stocks surging after worldwide efforts to battle the crisis were announced. The Treasury Department also outlined this morning how it will move forward with the $700 billion rescue package enacted less than two weeks ago.
At 10:35 a.m. ET, the Dow Jones Industrial Average soared 445 points to 8,896. The Nasdaq Composite Index was up 89 points to 1,738, and the Standard & Poor’s 500 Index had gained 50 points to 949.
Light, sweet crude oil was up $3.54 to $81.24 barrel this morning.
The Dow suffered its worst week ever last week, losing 1,874 points, or 18.2%, and erasing $612 billion in market capitalization. The index also saw its most volatile day ever, swinging 1,000 points in Friday’s session.
The S&P 500 was down 18.2% for the week, its worst since May 21, 1933; the Nasdaq lost 15.3%, its worst weekly performance since April 10, 2000.
“The law empowers Treasury to design and deploy numerous tools to attack the root cause of the current turmoil: the capital hole created by illiquid troubled assets. Addressing this problem should enable our banks to begin lending again,” Interim Assistant Treasury Secretary for Financial Stability Neel Kashkari said this morning to the Institute of International Bankers.
“We are designing a standardized program to purchase equity in a broad array of financial institutions,” Kashkari said. “As with the other programs, the equity purchase program will be voluntary and designed with attractive terms to encourage participation from healthy institutions. It will also encourage firms to raise new private capital to complement public capital.”
The United Kingdom this morning announced plans to inject up to $65 billion into the Royal Bank of Scotland (RBS, news, msgs) and HBOS, the country’s biggest mortgage lender. HBOS also said its merger with Lloyds is still moving forward.
“If this works, this will be known as the time that Gordon Brown saved the world, because it seems like everybody is going to be adopting the U.K. plan, which is the only thing that makes sense,” Boris Schlossberg of GFT Forex told CNBC. “If Paulson does follow, I think we have a chance here to stabilize.”
A U.S. plan to directly inject capital into the banking system is expected to be announced Tuesday. The U.S. bond markets are closed today.
In Europe, London’s FTSE 100 Index was up 4%, Germany’s DAX 30 Index gained 7.9%, and the broader Dow Jones Stoxx 600 Index rose 6.2%.
Stocks in Asia also rebounded. The MSCI Asia Pacific Index was up more than 5%, and Hong Kong’s Hang Seng Index rose 3.2%.
Japan’s markets were closed today.
“Taken together, the latest moves increase the chances that we will begin to see some relaxation of the intense funding stresses,” Goldman Sachs global economists wrote in a note this morning. “This is because bank solvency risk should decline as the government offers protection.”
Central banks move again
Meantime, the Federal Reserve announced further action to add liquidity to the international banking system.
The Fed — along with the European Central Bank, the Bank of England and the Swiss National Bank — removed all limits on the currency-swap arrangements among central banks, to make sure European banks can meet the demand for dollars there.
“Sizes of the reciprocal currency arrangements (swap lines) between the Federal Reserve and the BoE, the ECB, and the SNB will be increased to accommodate whatever quantity of U.S. dollar funding is demanded,” a joint statement said.
The Bank of Japan said it may introduce similar measures.
“By providing unlimited dollar funds, they are acting on the back of the G7 plan to ensure the system is fully liquidized,” Lena Komileva, an economist at Tullet Prebon in London, told Bloomberg. “We’re going to see even more liquidity provided, and more aggressive rate cuts are coming.”
The currency move is the latest in a series of aggressive moves by the Fed, all aimed at containing fears of bank defaults and encouraging banks to lend. Last week, the Fed took historic steps in announcing plans to buy commercial paper directly and joining with other central banks around the globe in a coordinated cut of interest rates.
Morgan, Mitsubishi deal closes
Morgan Stanley (MS, news, msgs) announced this morning that it had closed a deal to give Japan’s Mitsubishi UFJ an equity stake in Morgan; the two companies had been busy over the weekend renegotiating a plan.
Morgan Stanley stock jumped $4.75, or 49.1%, to $14.43 on the news.
On Sept. 29, Mitsubishi announced plans to buy a 21% stake in the U.S. company for $9 billion. Worries that the deal might come unraveled sent Morgan Stanley’s shares plunging 60% last week, shrinking Morgan Stanley’s total market value to $10.3 billion on Friday, a total that only narrowly exceeds the price Mitsubishi agreed to pay for one-fifth of the company.
New terms of the deal would have Mitsubishi pay $9 billion for convertible preferred shares representing 21% of the equity in Morgan Stanley — but also guaranteed to pay a 10% dividend.
World prepares rescue plans
After a period of indecision by Europe’s central bank, the euro-zone countries are now committed to action. Leaders of the 15 nations spent the weekend hammering out a move to temporarily guarantee future bank debt.
Heads of state assembled in Paris on Sunday for an emergency summit and at the conclusion of the meeting announced concerted action.
“Today we discussed a comprehensive plan that would involve not only cash in financial markets but also recapitalize our financial system,” United Kingdom Prime Minister Gordon Brown told reporters in Paris late Sunday. “There will be agreement that the liquidity provided by the European Central Bank is essential and that the recapitalization of the banks is necessary and there should be rules attached to doing that.”
Sunday’s European meeting followed an announcement Friday from the Group of Seven. The G7 announcement emphasizes solidarity but lacks specifics. The G7 includes the U.S., Japan, Germany, France, Italy, the United Kingdom and Canada.
Robert Brusca, chief economist at FAO Economics, told MarketWatch that the G7 announcement was “fluff — good fluff, but fluff.”
The Group of 20 and the International Monetary Fund also met over the weekend.
The G20 also includes China, Brazil, Russia, India, Mexico, South Korea, Saudi Arabia, Argentina, Australia, Indonesia, South Africa and Turkey. Combined, the G20 account for about 90% of global gross domestic product.
After urgent calls to action over the weekend, the International Monetary Fund sounded optimistic about a global plan to resolve the financial crisis. On Sunday, IMF managing director Dominique Strauss-Kohn said that a plan to recapitalize banks is “absolutely needed.”
GM in talks with other automakers
General Motors (GM, news, msgs) is reportedly talking with Chrysler about joining forces.
The merger of two U.S. automakers would be historic, but given the pain the industry has endured over the past year — and the worrisome outlook going forward — it would not be a huge surprise.
GM shares plunged nearly 46% last week as worries about the company’s future weighed on investors. The stock was up $1.39, or 28.4%, to $6.28 in morning trading. Chrysler is majority-owned by private-equity firm Cerberus Capital Management.
One analyst was skeptical about a deal.
“There’s got to be more in it for GM than just Chrysler,” Erich Merkle, an auto industry analyst with Crowe Horwath, told The Associated Press. “If you put two auto companies together, both that are losing money, both that are losing market share, you’ve just got an auto company that’s losing market share faster and losing more money.”
GM’s U.S. sales fell by 18% through September, and Chrysler’s plunged 25%. Automakers have been slammed by soaring gasoline prices and an extremely tight credit market, which has restricted loans to buyers.
The Chrysler talks come after reports surfaced that GM approached Ford Motor (F, news, msgs) about merging.
Sovereign in talks with Banco Santander
Sovereign Bancorp (SOV, news, msgs) this morning confirmed talks with Spain’s Banco Santander but said it will not give details until a deal is reached.
Banco Santander would likely pay $3.81 per share for Sovereign, its closing price on Friday, according to published reports. Sovereign stock was down 7 cents, or 1.8%, at $3.74 this morning.
Sovereign reportedly turned to Banco Santander last week as the thrift struggled to survive amid the market turmoil.
Santander bought a 24.9% stake in Sovereign three years ago.
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