GEITHNER SAYS RESULTS OF BAIL-OUT ‘MIXED'

US bank rescue efforts are only showing “mixed” signs of success, Tim Geithner, Treasury secretary, conceded yesterday.

Appearing before a congressional oversight panel, Mr Geithner said it was hard to know how the financial markets would have operated without such programmes. Interbank lending, corporate issuance and credit spreads were showing some signs of a thaw in credit, he added. But he said: “To date, frankly, the evidence is mixed.”

His comments came as the International Monetary Fund issued a report warning that global banks and financial institutions would eventually have to write down assets by $4,100bn before stability was restored.

In its global financial stability report, the IMF forecast total writedowns on US assets would reach $2,700bn, up from the $2,100bn estimate it made in January and almost double the forecast in October last year. When loans originated in Japan and Europe were included, the writedowns would hit $4,100bn, it said.

Financial sector shares rallied in New York after Mr Geithner said that the “vast majority” of banks had sufficient capital.

Speaking ahead of stress test results on the 19 biggest US banks due in the next few days, Mr Geithner indicated that the conversion of the government's preferred equity stakes to common equity could prove part of the solution for those that needed reinforcement at the base of the capital structure.

Jeb Hensarling, a member of the panel, said he worried that such a move would convert “Uncle Sam into a control shareholder of many of our largest financial institutions”.

“That risk worries me too,” said Mr Geithner.

But he said the Federal Reserve needed to conclude the stress tests before deciding who needed more capital. Some institutions were likely to raise capital privately while others could need additional support.