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The Bush administration will invest about $125 billion in nine of the biggest U.S. banks, including Citigroup Inc. and Goldman Sachs Group Inc., in the government's latest attempt to shore up confidence in the financial system.

The proposed cash injections in exchange for preferred shares are part of a $700 billion rescue approved by Congress and follow similar moves by European leaders to unfreeze credit markets by helping beleaguered banks. The other companies are Wells Fargo & Co., JPMorgan Chase & Co., Bank of America Corp., Merrill Lynch & Co., Morgan Stanley, State Street Corp. and Bank of New York Mellon Corp., said people briefed on the plan.

“They've decided they need to do something drastic and this is drastic,'' said Gerard Cassidy, a bank analyst at RBC Capital Markets in Portland, Maine.

The purchases represent a new approach for Treasury Secretary Henry Paulson, who first promoted a bailout targeted at illiquid mortgage-related assets. The urgency for a more immediate infusion has grown as banks struggle to regain the confidence of investors, counterparties and clients after bad loans caused more than $635 billion of writedowns across the industry. Paulson will discuss his plan at a press conference at 8:30 a.m. today in Washington.

The prospect of government support sent stocks higher around the world. The Standard & Poor's 500 Index rebounded from its worst week in 75 years with an 11.6 percent advance. Asian stocks also surged, with the Nikkei 225 Stock Average jumping 13.4 percent, the most ever.

`Big Wallop'

“The government has gone to Plan B and it packs a big wallop,'' said Frederic Dickson, who helps oversee $25 billion as chief market strategist at D.A. Davidson & Co. in Lake Oswego, Oregon.

The Treasury plans to spend $25 billion each for stakes in Citigroup and JPMorgan, people said. Another $25 billion will be divided between Bank of America and Merrill, which agreed last month to be acquired by Bank of America. Wells Fargo is to get at least $20 billion, Goldman and Morgan Stanley will each get $10 billion, and State Street and Bank of New York will get about $3 billion each, people said.

The government will obtain its stakes with a type of security designed not to dilute the value of common shares.

None of the nine banks getting government money was given a choice about it, said people familiar with the plans. All of the banks involved will have to submit to compensation restrictions as mandated by Congress, people said.

`Healthy' Firms

Another $125 billion will be used to recapitalize other financial institutions around the country, the people said. Neel Kashkari, the U.S. Treasury official overseeing the rescue of the financial system, yesterday said the equity purchases will be aimed at “healthy'' firms best payday advance.

Under the plan to be announced today, the government will also guarantee for three years banks' newly issued senior unsecured debt, making it easier for them to refinance their liabilities, the people said.

Paulson, Federal Reserve Chairman Ben S. Bernanke and FDIC Chairman Sheila Bair scheduled a press conference at 8:30 a.m. today in Washington. The U.S. initiative follows an announcement that France, Germany, Spain, the Netherlands and Austria committed $1.8 trillion to guarantee bank loans and take stakes in lenders.

“Steps to restore confidence in our institutions and markets will go far toward resolving the current market stress,'' Bernanke wrote today in a column in the Wall Street Journal. “We will not stand down until we have achieved our goals of repairing and reforming our financial system, and thereby restoring prosperity to our economy.''

Bigger FDIC Role

Another part of the plan to be announced today would let the government expand FDIC coverage of non-interest bearing accounts, which are commonly business deposits.

Yesterday, Paulson summoned chief executive officers of the nine banks to the Treasury's headquarters in Washington to lay out the government's plans. The executives sat across the table with the heads of the Treasury, the Fed and other regulators.

After climbing for weeks, money-market rates in London yesterday fell after policy makers offered banks unlimited dollar funding and European governments pledged to take “all necessary steps'' to shore up confidence among lenders.

The London interbank offered rate, or Libor, for three- month dollar loans dropped 7 basis points to 4.75 percent, tied for the largest drop since March 17, the British Bankers' Association said.

Similar to Buffett

The government plan to buy preferred shares with warrants is similar to investments that Berkshire Hathaway Inc., the company run by billionaire Warren Buffett, made recently in Goldman and General Electric Co. Rather than buying common stock in the companies, which has declined in recent weeks, Buffett bought preferred stock paying a 10 percent dividend and received warrants that allow him to buy common stock at a pre-set price.

John Paulson, the founder of hedge fund Paulson & Co., wrote in a Sept. 26 editorial in the Wall Street Journal that the Treasury should adopt Buffett's approach rather than buying troubled assets.

Scott Talbott, chief lobbyist of the Financial Services Roundtable in Washington, which represents 100 of the biggest firms in the industry, said the group “is very supportive of using all these tools in varying degrees to help restore liquidity to the market.''

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