Bank stocks surge on 'bad asset' plan

Treasury plan to clear banks of $500 billion worth of bad assets fuels stock surge.

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By Aaron Smith, staff writer

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NEW YORK ( -- Bank stocks rallied Monday, leading a marketwide rally as the Treasury unveiled its plan to wipe the banks clean of $500 billion worth of bad assets.

Bank stocks, among the most badly pummeled sectors in this recession, easily outperformed the 7% gains of the Dow Jones Industrial Average and Nasdaq.

Citigroup (C, Fortune 500) made some of the headiest gains, surging more than 20% in the first five minutes of trading. It closed Monday up 51 cents, or 19.5%, at $3.13.

Wells Fargo (WFC, Fortune 500), Bank of America (BAC, Fortune 500), Goldman Sachs (GS, Fortune 500), JPMorgan Chase (JPM, Fortune 500) and Morgan Stanley (MS, Fortune 500), as well as large regional banks like KeyCorp. (KEY, Fortune 500) and Fifth Third (FITB, Fortune 500), also made double-digit gains and maintained them through the market close.

Investors were reacting to the Treasury's "Public-Private Investment Program," under which taxpayer funds will be used to foment partnerships with private investors to buy up the so-called toxic assets. These toxic assets, backed by mortgages in danger of going into default as well as other loans, are largely to blame for triggering the recession.

But Richard Staite, bank analyst with Atlantic Equities in London, was skeptical of the rally's lasting power beyond Monday, saying that it was based on the premature assumption that the bad assets will sell.

"I'm not surprised to see this initial reaction, but I think we really have to wait until we actually put the plan into practice," said Staite. "We still haven't seen any investors who are willing to buy these toxic assets."

Despite the stock gains seen for regional banks, they are unlikely to benefit from the government-brokered purchase of toxic assets, said Terry McEvoy, an analyst for Oppenheimer who covers KeyCorp. and Comerica Inc. (CMA)

The regional banks "have traditional loans and safer securities," said McEvoy. "They don't have exposure to these toxic assets. People think banks are all the same, but that's simply not the case."  To top of page

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