Stock futures rise on toxic asset plan reports
S&P 500 stock index futures rose in electronic trading on Sunday after media reports detailed the U.S. Treasury's three-pronged bid to cleanse the financial system of toxic assets clogging banks' balance sheets.
The latest plan is aimed at banks and insurance companies given their large holdings of mortgages and other hard-to-price assets. The S&P financial index <.GSPF> has fallen 61 percent since the collapse of Lehman Brothers in September 2008.
The new measures face a skeptical market after concerns about the lack of investor interest in the Treasury and Federal Reserve'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 on Friday, sending major indexes down about 2.0 percent.
S&P 500 futures rose 4.4 points on Sunday night's open and were above fair value, a formula that evaluates pricing by taking into account interest rates, dividends and time to expiration on the contract. Dow Jones industrial average futures climbed 38 points, and Nasdaq 100 futures added 5 points.
The new bank plan will include setting up an entity to be used by the Federal Deposit Insurance Corp -- the main U.S. banking regulator -- to offer low-interest loans to private interests for buying up banks' soured assets, many of which are tied to mortgages and have tumbled in value, a source familiar with the plan told Reuters on Saturday.
Second, the Treasury Department will hire investment managers to run public-private funds to invest for potential profit in troubled mortgages, with government capital matching private capital contributions, according to the source.
Finally, the Federal Reserve will expand its new consumer loan-focused $1 trillion Term Asset-Backed Securities Loan Facility to buy legacy assets, the source said.
Legacy assets are older securities, many of them tied to mortgage assets that have plunged in value after housing prices fell and have racked up massive losses for the banking system.
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