Margareta Pagano: Wall Street must wait for the Messiah to speak

Markets look for a miracle from Obama's government

If President Obama was seen as the world’s messiah, it has fallen to Timothy Geithner to be his messenger on earth. After Friday’s hysteria in the financial markets, the pressure is piling on the new US Treasury Secretary to pull off the miracle that his heavenly master has yet to achieve.

Despite the most sincere assurances from the White House on Friday that the banking industry is sound, the shares of the big US banks plunged in the most febrile and emotional trading as investors deserted bank stocks. All they could talk about in New York was about whether Citigroup and Bank of America – whose shares plunged to new lows – would ultimately end up being nationalised. Denials from both banks did absolutely nothing to restore the confidence that had been collapsing again all week, forcing New York stock market prices down to its lowest levels since last November.

The rout was sparked by the big institutional investors who claim they don’t know enough about the administration’s plan to prop up the banks and want more detail if they are to continue investing in the banks. They are worried that Washington is running out of both time and options. Understandably, investors are terrified that if the government goes ahead and nationalises the banks, they will be left with nothing.

That’s why all eyes will be on Geithner this week as he is due to spell out the details of the banks’ rescue plan in another attempt to draw a line under the crisis. He’s already spelled out that there is capital available if needed, and that it can be provided as private capital rather than public money. Another important bit of the jigsaw which Geithner will unveil is a new “stress test” for the US banks that the regulators hope will provide investors with assurances on the financial fitness of the banks. If presented properly, this should help restore some confidence. But, as always, the devil will be in the detail.

What Geithner says is just as important for us in the UK as our markets are linked to each other more than ever. In fact the mood here in the UK mirrored that of the US in the most extraordinary fashion last week. Just about everyone I spoke to, whether banker or industrialist, seems to have become resigned to the idea that full nationalisation of RBS – and possibly Lloyds – is the only way that trust will come back into the system. Many see it as the only way that the banks are going to starting to lend to each other again. If the politicians really can’t bear to take the nationalisation route, then it may be time to revisit a “bad” bank into which all the toxic debt is placed. As all the other initiatives are failing, this could be the one that ungums the system.

One of the first people to suggest a clearing house for bad debts – pretty much the same as a bad bank – was the legendary investor, George Soros. The maverick investor was his usual controversial self at the weekend, warning that financial capitalism, as we have known it, is over for decades. Soros is right. Creating the boom took years to achieve and it will take years, if not decades, to unwind. It’s why investors around the world should calm down and wait for Geithner’s plans.

Giving him the role of miracle-maker is too heavy a burden even for this bright young man. Give him a break.

Now is a good time to invest as old-fashioned capitalism is alive and kicking

Stock markets around the world are tanking but they are at least working as they should. UK’s biggest companies have raised nearly £18bn of capital over the past few months as they restructure their debt while there have been several big cash-calls from some of Europe’s most distressed companies. Land Securities was the latest to take the plunge last week, raising £775m. What was interesting is that while Land’s shares fell, it was by only 7 per cent to 511p – not bad considering the dilution.

Now rumours are swirling around HSBC. Europe’s biggest bank is said to be deciding whether it should go to investors for up to £13bn with a rights issue. HSBC is one of the few banks that has not had to raise money from governments or investors since the crisis. At 8.9 per cent, its tier one ratios are robust, but with the crisis deepening it does look as though it needs to bolster its balance sheet. It has not ruled out raising any new money and its shares slipped 4 per cent on Friday to 477p on the back of these rumours. Once investors get a clearer picture of HSBC’s US exposure to sub-prime when the bank presents results next week, they might even be jumping over themselves to buy at such a bargain price compared with last year’s high of 938p.

There couldn’t be a better time to back winners. As study after study shows, shares bought in distressed companies during troubled times usually end up outperforming the market. It’s why many of the “long-only funds”, and the hedge funds, are reallocating cash to take up some of these issues while they are at such a discount to market value – and will no doubt make juicy returns over the years. Corporate bonds, yielding up to 5 per cent, are also back in demand.

It is also a good time for private investors, but be prepared for a bumpy ride – this is the good part of the casino working.

Shut that door: Don’t call Yvette if you want to stop Harriet

Attempts to get Yvette Cooper, Chief Secretary to the Treasury, to put herself forward as the “Stop Harriet!” candidate in the phoney battle for the Labour leadership are delightfully Machiavellian. Clearly Jack Straw wants to stop Harriet Harman while others are pushing Cooper only to expose her ambitions.

But the most irritating aspect is the spin from both camps which says these women appeal to the women’s vote. When will the spin-meisters grow up and realise that women don’t vote for other women per se but those who offer pragmatic and inspirational policies. Cooper hasn’t won any votes with her ludicrous home information packs, while the way she has constantly blamed only “global” factors for the financial crisis has been risible.

Start your day with The Independent, sign up for daily news emails
News
Sir David Attenborough
people
Life and Style
Young girl and bowl of cereal
food + drink
Arts and Entertainment
Henry VIII played by Damien Lewis
tvReview: Scheming queens-in-waiting, tangled lines of succession and men of lowly birth rising to power – sound familiar?
Sport
football
PROMOTED VIDEO
Arts and Entertainment
'The Archers' has an audience of about five million
radioA growing number of listeners are voicing their discontent; so loudly that even the BBC's director-general seems worried
News
i100
Arts and Entertainment
Ready to open the Baftas, rockers Kasabian are also ‘great film fans’
musicExclusive: Rockers promise an explosive opening to the evening
Life and Style
David Bowie by Duffy
fashion
Arts and Entertainment
Hell, yeah: members of the 369th Infantry arrive back in New York
booksWorld War Z author Max Brooks honours WW1's Harlem Hellfighters in new graphic novel
News
advertisingVideo: The company that brought you the 'Bud' 'Weis' 'Er' frogs and 'Wasssssup' ads, has something up its sleeve for Sunday's big match
ebooks
ebooksA year of political gossip, levity and intrigue from the sharpest pen in Westminster
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Ashdown Group: Market Research Executive

£23000 - £26000 per annum + Benefits: Ashdown Group: Market Research Executive...

Recruitment Genius: Technical Report Writer

£25000 - £35000 per annum: Recruitment Genius: A Technical Report Writer is re...

MBDA UK Ltd: Indirect Procurement Category Manager

Competitive salary & benefits!: MBDA UK Ltd: MBDA UK LTD Indirect Procurement...

Recruitment Genius: Web Developer - PHP

£16500 - £16640 per annum: Recruitment Genius: This fast growing Finance compa...

Day In a Page

Isis hostage crisis: Militant group stands strong as its numerous enemies fail to find a common plan to defeat it

Isis stands strong as its numerous enemies fail to find a common plan to defeat it

The jihadis are being squeezed militarily and economically, but there is no sign of an implosion, says Patrick Cockburn
Virtual reality thrusts viewers into the frontline of global events - and puts film-goers at the heart of the action

Virtual reality: Seeing is believing

Virtual reality thrusts viewers into the frontline of global events - and puts film-goers at the heart of the action
Homeless Veterans appeal: MP says Coalition ‘not doing enough’

Homeless Veterans appeal

MP says Coalition ‘not doing enough’ to help
Has The Archers lost the plot with it's spicy storylines?

Has The Archers lost the plot?

A growing number of listeners are voicing their discontent over the rural soap's spicy storylines; so loudly that even the BBC's director-general seems worried, says Simon Kelner
Human skull discovery in Israel proves humans lived side-by-side with Neanderthals

Human skull discovery in Israel proves humans lived side-by-side with Neanderthals

Scientists unearthed the cranial fragments from Manot Cave in West Galilee
World War Z author Max Brooks honours WW1's Harlem Hellfighters in new graphic novel

Max Brooks honours Harlem Hellfighters

The author talks about race, legacy and his Will Smith film option to Tim Walker
Why the league system no longer measures up

League system no longer measures up

Jon Coles, former head of standards at the Department of Education, used to be in charge of school performance rankings. He explains how he would reform the system
Valentine's Day cards: 5 best online card shops

Don't leave it to the petrol station: The best online card shops for Valentine's Day

Can't find a card you like on the high street? Try one of these sites for individual, personalised options, whatever your taste
Greece elections: In times like these, the EU has far more dangerous adversaries than Syriza

Greece elections

In times like these, the EU has far more dangerous adversaries than Syriza, says Patrick Cockburn
Holocaust Memorial Day: Nazi victims remembered as spectre of prejudice reappears

Holocaust Memorial Day

Nazi victims remembered as spectre of prejudice reappears over Europe
Fortitude and the Arctic attraction: Our fascination with the last great wilderness

Magnetic north

The Arctic has always exerted a pull, from Greek myth to new thriller Fortitude. Gerard Gilbert considers what's behind our fascination with the last great wilderness
Homeless Veterans appeal: Homeless in Wales can find inspiration from Daniel’s story

Homeless Veterans appeal

Homeless in Wales can find inspiration from Daniel’s story
Front National family feud? Marine Le Pen and her relatives clash over French far-right party's response to Paris terror attacks

Front National family feud?

Marine Le Pen and her relatives clash over French far-right party's response to Paris terror attacks
Pot of gold: tasting the world’s most expensive tea

Pot of gold

Tasting the world’s most expensive tea
10 best wildlife-watching experiences: From hen harriers to porpoises

From hen harriers to porpoises: 10 best wildlife-watching experiences

While many of Britain's birds have flown south for the winter, it's still a great time to get outside for a spot of twitching