The recession in the United States may drag on until 2010 unless the new Obama Administration succeeds in stabilising the banking industry, Federal Reserve Chairman Ben Bernanke said overnight.
“To break the adverse feedback loop, it is essential that we continue to complement fiscal stimulus with strong government action to stabilise financial institutions and financial markets,” Bernanke told the Senate Banking Committee.
“If actions taken by the Administration, the Congress, and the Federal Reserve are successful in restoring some measure of financial stability – and only if that is the case, in my view – there is a reasonable prospect that the current recession will end in 2009 and that 2010 will be a year of recovery.”
Bernanke also said regulators are putting banks under “stress tests” to determine whether they can continue lending during the downturn.
“The purpose of these assessments that we’re going to do going forward is to make sure that banks have enough capital, not only to be well-capitalised in what we expect to be the weak conditions that we will see in the next year, but even under conditions that are weaker than expected.”
Bernanke’s comments came before Wall Street rebounded after plunging to 12-year lows yesterday.
The Dow Jones Industrial Average closed 235.76 points higher, or 3.31%, to 7350.54. Oil prices also rose 4% to $US39 a barrel.
Local shares rebound
The positive lead from Wall Street saw the Australian sharemarket opening 1.4% higher today after Wall Street recorded a light recovery from yesterday’s 12-year-low.
The benchmark S&P/ASX200 index was up 24.5 points or 0.7% to 3356.5 at 12.15 AESDT. The dollar also gained slightly to US65 cents.
Westpac shares have dropped 1.3% to $16.46, while ANZ lost 1% to $12.75. AMP dropped 2.1% to $4.89, and NAB shares slipped back 0.8% to $17.70.
OZ Minerals shares have dropped 20.5% after concerns its bankers may demand repayments of a loan this week, despite a takeover bid from Chinese group Minmetals.
The company, which is the world’s second-largest zinc miner, is due to pay $140 million in loans this Friday. While Minmetals has made a $1.7 billion takeover offer, it has yet to be approved by Australian officials.
In other mining news, Chinese steel maker Hunan Valin Iron & Steel Group has announced it will spend more than $1 billion to acquire a 16% stake in Australia’s third largest iron ore miner, Fortescue Metals.
In a subsequent announcement, Fortescue has agreed to quadruple iron ore sales to the Chinese steel company.
Shares in online jobs advertising group SEEK have risen 15.16% to $2.43 despite the company recording a 9% fall in first half profit to just $32.47 million. The company says short-term outlooks are grim but the market is becoming increasingly competitive.
“We anticipate that when operating conditions improve, SEEK’s revenue and earnings should rebound rapidly given its strong market position and exposure to favourable structural growth,” it said.
Shares in Seven Network have risen 3.27% to $5.68 after it posted an 84% decline in first half net profit to just $20 million. The group blames weakness in financial and advertising markets for the loss.