Some banks may have to be nationalized, Sen. Dodd says

Wall Street already is convinced that some significant chunk of the nation's banking industry will be nationalized. Sen. Chris Dodd just bolstered that view this morning.

From Bloomberg News:

Senate Banking Committee Chairman Christopher Dodd said it may be necessary to nationalize some banks for a short time, as Citigroup Inc. and Bank of America Corp. tumbled today on concern the U.S. may take over both banks.

"I don’t welcome that at all, but I could see how it’s possible it may happen," Dodd said in an interview on Bloomberg TV’s "Political Capital with Al Hunt" to be broadcast later today. "I’m concerned that we may end up having to do that, at least for a short time."

Nationalize, then de-nationalize? That sounds like a wipeout for current bank shareholders.

Bank of America shares were down $1.11, or 28%, to a 24-year low of $2.82 about 10:30 a.m. PST. Citigroup crashed 80 cents, or 32%, to $1.71. Wells Fargo & Co. dived $2.88, or 24%, to $9.13.

The BKX index of 24 major bank stocks was down 9%, bringing its year-to-date loss to 55%. The broader stock market is crumbling with the financials; the Dow industrials were down 184 points, or 2.5%, to 7,281, a new six-year low.

BofA CEO Ken Lewis insisted on Feb. 6 that nationalization of the bank was "not even a remote possibility." But Lewis obviously has lost nearly all credibility with the market.

More from Bloomberg:

Treasury Secretary Timothy Geithner’s refusal to clarify his intentions regarding either bank "is allowing for the absolute decimation of the values of Bank of America and Citigroup on a daily basis," said William Smith of Smith Asset Management in New York. "All he has to do is come out and say there is no nationalization."

Regarding bank nationalization, "I don’t think that’s an option that’s on the table at all," Edward Yingling, president of the American Bankers Assn., said on the CNBC network today.

Yingling met with Geithner recently and said the Treasury chief wouldn’t directly comment on nationalization. But "he’s been clear that he thinks that nationalization is a bad idea," Yingling told CNBC. "I see no signs that they’re interested in nationalization."

-- Tom Petruno

Photo: Sen. Chris Dodd. Credit: Matthew Cavanaugh / EPA

Comments

[Conservative Professor]

WHERE ARE CHRIS DODD'S MORTGAGE PAPERS??? ALL THIS IS FLACK IN AN ATTEMPT TO KEEP THE SPOTLIGHT OFF OF DODD. WHERE ARE HIS MORTGAGE PAPERS? HE PROMISED US THEM, AND HE'S NOT FOLLOWED THROUGH.

[Conservative Professor]

LA Times -- Where are the COMMENTS on this article? You keeping them under wraps for some reason?

[Tom Petruno]

@Conservative Professor: Comments are published as they come in.

Tom Petruno

[Michael Snyder]

We'd all be over $700 billion richer if these banks were given the same consideration they give everybody else. The depositors are covered by the FDIC. All boosting a stock price does is pay off the top management that created this debacle in the first place. It's time for these institutions to go the way of the gooney bird. They and their management are a cancer in our financial system and until they're excised in their entirety there can be no systemic healing.

[JS]

Should check Dodd's portfolio - looks like he's shorted bank stocks.

[Brian]

I own stock in Citibank and Wells Fargo. I am not a fan of nationalization, but it is hard to see how the government could do a worse job running these banks than the geniuses in charge now. Nationalization doesn't have to wipeout current shareholders; use the bailout money to buy them out instead of letting management piss it away on bonuses and parties for their "best people" who got us here.

[America]

"Nationalization doesn't have to wipeout current shareholders; use the bailout money to buy them out"

Why in hell should taxpayer dollars be used to buy you out? You should have sold your shares many months ago. It's not as if nobody saw this coming. Lots of people saw it coming.

You gambled. You lost. That's the stock market, baby.

[regulararmyfool]

Wow, all over yesterdays news.

Peek into a couple of insurance companies books if you want to go all wow wow wow.

[Susan]

Who do you think got us into ths mess, the government of course. Gov't told banks they had to make these risky loans to people who couldn't afford their morgages if not the banks would be penalized. All of this happened under the Clintion administration. Look up the facts people, the government caused the problem. What makes you think they will fix it? Say no to BIGGER GOVERNMENT!!!!

[Sam Jackson]

yup...
it was the clinton administration...they told the banks to make all these 5 year ARMs...but not until after Bush had been in power...so when they matured fools would hold Bush responsible. Luckily Susan is here to lift the veil.
She will also explain why commercial real estate is crashing...it must be the Clinton administrations forcing all these developers to build office complexes and malls in South Central. That is why there is a huge glut of office space...all that CRE development in Watts

[MattR]

Susan - Here is a fact. More than half of the subprime mortgages were made by institutions that are not subject to those rules.

Here is another fact. The amount of subprime lending increased after the Bush administration exempted smaller instiutions from the rules you mentioned in late 2004. If those rules forced people to create more and more subprime loans, shouldn't exempting institutions from the rules lead to fewer subprime loans, not more?