U.S. explores converting stakes in banks:

Fri Feb 6, 2009 6:47am EST
(Reuters) - U.S. officials are examining ways to convert government stakes in banks into ordinary shares as banks accumulate losses, the Financial Times said, citing people close to the discussions.

Policymakers are considering an idea that the government change its existing holdings in the banks, which have taken the form of preferred shares -- non-voting stock that carries a fixed dividend -- into convertible preferred shares that could be converted into common stock, the paper said.

Under this proposal, the shares would automatically convert into common equity if there was a decline in the bank's health, as measured by its tangible equity ratio, for example, the paper reported.

The government may also make future capital injections in the form of such convertible preferred shares, the paper said.

The Obama administration is considering an expansion of the Federal Reserve's consumer-lending facility, known as the Term Asset-Backed-Securities Loan Facility (TALF) that could potentially buy up toxic assets clogging the system, the Wall Street Journal said, citing people familiar with the plans.

Under TALF, announced in November 2008, the Federal Reserve Bank of New York will lend up to $200 billion to holders of securities backed by student, auto, and credit-card loans.

The Obama administration is trying to expand the TALF to provide financing for other older assets, such as mortgage-backed securities, the WSJ said.

The Treasury did not immediately reply to a Reuters email, which was sent outside of normal business hours, seeking comment.

U.S. Treasury Secretary Timothy Geithner will unveil the Obama administration's intensely awaited plan for strengthening the financial system in a Monday speech, a Treasury official told Reuters on Thursday.

(Reporting by Ajay Kamalakaran in Bangalore; Editing by Andrew Macdonald)