(Adds details of plan, comment)
By Deepa Seetharaman
NEW YORK, March 22 Wall Street's attempt to
recover further from 12-year lows faces its biggest test yet
this week in the Treasury's long-delayed bank rescue plan.
But skeptics abound after reports this weekend revealed a
plan coupling old approaches with several new twists.
Concerns about the lack of investor interest last week in
the government's new fund aimed at reviving consumer and small-
business lending, called the Term Asset-Backed Securities Loan
Facility (TALF), rippled through the U.S. stock market, sending
major indexes down about 2 percent on Friday.
"I don't think the market will jump up and down on this
(new plan)," Chip Hanlon, president of Delta Global Advisors
Inc, in Huntington Beach, California, said on Sunday.
"This is an alphabet soup of brilliant new ideas" that come
on the heals of several failed efforts, he added.
The plan incorporates a three-pronged approach that
includes the Federal Deposit Insurance Corp offering
low-interest loans to private investors for buying up banks'
soured assets, a source familiar with the plan said on
The Treasury Department will also revive a recent idea to
hire fund managers to run a public-private fund that invests
for potential profit in troubled mortgages, with government
capital matching private capital contributions and the Federal
Reserve will expand the $1 trillion TALF to buy old assets
weighing on bank balance sheets. For details see
Analysts herald the toxic-asset plan as integral to jolting
the recession-hit economy at a time when unemployment and
jobless claims notch multiyear highs.
The weakness of the economy will likely be highlighted by
reams of economic data, including sales of new and existing
homes, a final reading on fourth-quarter gross domestic product
and weekly jobless claims.
Indications on the consumer's state of mind may come from
quarterly results from closely watched names such as
electronics retailer Best Buy Co (BBY.N) and an expected wave
of pre-announcements about earnings, as well as a final reading
on March consumer sentiment and a report on February personal
income and consumption.
Still, the bank plan more than any other factor probably
will be in the forefront of investors' minds.
"Pretty much everything else is going to be background
noise to the core issue: confidence in banks," said Eric Kuby,
chief investment officer for North Star Investment Management
Corp, in Chicago.
ALL ABOUT BANKS
Stocks rose last week, emboldened by news that the Federal
Reserve would take bold steps to expand its balance sheet and
purchase mortgage-backed securities. Still the Fed move
underscored the extent of the economy's weakness and worries
over unintended consequences of the central bank's decision,
which spurred a sell-off late in the week.
For the week, the Dow gained 0.75 percent and the S&P 500
added 1.58 percent, while the Nasdaq climbed 1.80 percent.
Before news of the new three-pronged effort, investors had
been anticipating details on the closely related Public Private
Investment Fund, or PPIF -- first proposed last month in only
very broad terms by U.S. Treasury Secretary Timothy Geithner.
Some government officials have said the plan could be
modeled on the Fed's $200-billion Term Asset-Backed Securities
Loan Facility, known as TALF.
But the lackluster reception of the first TALF auction on
Thursday suggests there will be challenges for the bank
recovery plan. Additionally, lobbyists said the drama over
bonuses for workers at American International Group (AIG.N) was
prompting private investors to hesitate about participating in
Funding for the bank plan and the pricing of those bad
assets are key issues that investors will be keen to get more
details on, Praveen said.
A disappointing plan could set the stage for a sharp, swift
slide in the stock market, but a well-designed one could serve
as a catalyst for further gains.
"Two things have really roiled the market place throughout
the cycle -- the lack of clarity at the policy-maker level and
the pattern of the rules changing in the middle of the game,"
said Craig Peckham, equity trading strategist at Jefferies &
Company in New York.
"If we can assuage those concerns with the 'bad bank-good
bank' plan, that will help."
CHECKING THE CONSUMER'S PULSE
Friday's reports on March consumer sentiment and February
personal income, as well as earnings from companies like
Walgreen WAG.N and Tiffany & Co (TIF.N), may provide further
clues on consumer psychology. Existing home sales for February
are due on Monday, while new home sales for that month will be
released on Wednesday.
"By and large, things are getting less bad overall,"
Peckham said. "Dare I say it? We're starting to scratch the
bottom of consumer spending."
But obstacles could come from Wednesday's data on February
durable goods orders and the final reading on fourth-quarter
gross domestic product on Thursday.
Last month's preliminary reading showed the economy
contracted at an annual rate of 6.2 percent in the final three
months of 2008.
Economists polled by Reuters on average expect the final
reading on fourth-quarter GDP to show a drop of 6.5 percent,
but some estimates call for a decline of 6.9 percent.
A downward revision "might give some negative sentiment
that things are even much worse than what we were looking for,"
But "a positive revision might give a little bit of a
(Wall St Week Ahead runs weekly. Questions or comments on
this one can be e-mailed to:
(Additional reporting by Chris Sanders, Edward Krudy and Leah
Schnurr; Editing by Jan Paschal and Maureen Bavdek)