Obama bringing "strong message" to ailing banks

WASHINGTON (Reuters) - The incoming U.S. administration and Britain on Sunday planned urgent and more forceful moves to reopen the world's clogged credit arteries and Barack Obama prepared a "strong message" for banks after he takes over the U.S. presidency this week.

Obama's senior adviser David Axelrod said there would be changes in the use of the second half of the $700 billion Troubled Asset Relief Program, or TARP, meant to clean out bad assets from the financial system, saying the use of the first half was ineffective and poorly accounted for.

"(Obama) is going to have a strong message for the bankers. We want to see credit flowing again. We don't want them to sit on any money that they get from taxpayers," Axelrod said on Sunday on ABC's "This Week" news program.

Obama, who takes office on Tuesday, is considering setting up a government-run bank to acquire bad assets clogging the financial system, a person familiar with the Obama team's thinking said on Saturday.

In London, media reports said Britain was poised to guarantee "toxic debt" worth up to 200 billion pounds ($298 billion) in a second bank bailout designed to boost lending.

Government officials and bank chiefs spent the weekend in talks, a finance ministry spokesman told Reuters, seeking a solution to a credit freeze crippling industry, small businesses and homeowners struggling in the worst economic downturn in 70 years.

Prime Minister Gordon Brown said details of the package would be announced "in the next day or two."

Axelrod, who said Obama's team would discuss TARP in the days after Tuesday's inauguration, said the aim was to get credit flowing to businesses and families. "That hasn't happened with the expenditure of the first $350 billion," he said.

POOR ACCOUNTABILITY

There would have to be more transparency. "No one can really tell you where the money went," he said. "We have to make sure the money doesn't go to excessive CEO pay and dividends when it should be going to lending."

A government-run "aggregator bank" is among options being discussed by the U.S. Federal Reserve, Treasury and Federal Deposit Insurance Corp as a way to ease a banking crisis that is once again deepening.

Outlining the idea on Friday, outgoing Treasury Secretary Henry Paulson and FDIC Chairwoman Sheila Bair said the government could use money from the Treasury-administered TARP fund to capitalize a new institution that would be able to absorb toxic assets weighing down bank balance sheets.

The hope would be that removing these bad assets would let banks attract needed private capital and renew lending.

Obama officials want to aggressively attack the underlying cause of the problem: the crisis in the U.S. housing market and the deterioration in mortgage-related assets.

Obama is also working with lawmakers on a $825 billion fiscal stimulus plan by mid-February to jolt the economy into life and shore up or create more than 3.5 million jobs.

Larry Summers, incoming head of the National Economic Council, said it should have a quick impact but told CBS's "Face the Nation": "There's no question, almost no question, that the economy is going to decline for some time to come."

He said he believed the U.S. jobless total would not top 10 percent. The U.S. unemployment rate for December surged to 7.2 percent, its highest in nearly 16 years.

But Obama will start out minus one of the key players on his economic team - his choice for treasury secretary, Timothy Geithner, who ran into trouble over some past taxes.

Obama's chief of staff, Rahm Emanuel, told NBC's "Meet the Press" that Obama "absolutely" stands behind Geithner and said his failure to pay some taxes a few years ago should not derail his nomination. Alexrod said he was confident Geithner will win Senate approval. A Senate hearing on his nomination is Wednesday.

BANKS IN TROUBLE

Investors around the world are worried about the fragility of the modest recovery in equities in early January amid rising concern over the health of major banks as the fourth-quarter earnings season gets underway.

The Swiss weekly newspaper Sonntag said Swiss banking giants UBS and Credit Suisse were both expected to cut thousands more jobs this year.

UBS, which shed around 9,000 jobs in 2008, may announce further job cuts when it reports annual results on February 10 and could shed as many as 5,000 jobs in 2009, Sonntag said. It said Credit Suisse, which announced it planned to axe 5,300 jobs in December, will cut by a similar amount in 2009.

A spokesman for UBS declined to comment on the report and a Credit Suisse spokesman said the bank has no plans to cut headcount further.

Shares in Europe's biggest bank, HSBC, have sagged to a 10-year low, as fears mounted it will cut its dividend and potentially have to raise more capital.

Denmark unveiled a 100 billion crown ($17.79 billion) bank aid package, offering to inject public credit into banks to jump-start their corporate and private lending.

(Additional reporting by Peter Griffiths and Jeremy Gaunt in London; Lisa Jucca in Zurich; Keith Weir in Sharm el-Sheikh, Egypt; the Copenhagen newsroom; Writing by David Storey; Editing by Eric Beech and Chris Wilson)