White House, Treasury Dismiss Nationalization Talk
The White House and Treasury Department late Friday sought to shoot down persistent rumors Citibank and Bank of America are about to become wholly owned subsidiaries of Uncle Sam.
The White House said it strongly believed in a privately held bank system, after rumors that the U.S. government could nationalize banks saw shares in Bank of America
"Let me reassure as best I can on banks," White House spokesman Robert Gibbs told a news conference.
"This administration continues to strongly believe that a privately held banking system is the correct way to go, ensuring they are regulated sufficiently by this government. That's been our belief for quite some time and we continue to have that."
The White House spokesman's comments helped lift U.S. stocks from their lows of the day, traders said. The Nasdaq Composite index briefly turned positive, and the Dow Jones industrial average and Standard & Poor's 500 index both cut deep losses.
Separately, Treasury spokesman Isaac Baker said in a prepared statement that there are rumors in the market, but they should not be regarded as an indication of the administration's policy.
"As Secretary (Timothy) Geithner has said, we will preserve a financial system that is owned and managed by the private sector," Baker said.
Earlier Friday, executives at both Citigroup and Bank of America both said they are not in danger of nationalization. But the comments did little to soothe markets.
BofA CEO Ken Lewis attributed speculation about the government taking over his institution to a "lack of understanding" regarding the company's operations.
"Our company continues to be profitable," Lewis said in a statement. "We see no reason why a company that is profitable with strong levels of capital and liquidity and that continues to lend actively should be considered for nationalization.
Investors dumped shares in droves Friday, sending shares tumbling about 20 percent. The stocks had been weak, but sunk lower after statements from Sen. Christopher Dodd indicating that while the government would prefer to avoid it, nationalizing some banks was a possibility.
Still, Lewis held resolute about his bank's position.
"Speculation about nationalization is based on a lack of understanding of our bank's financial position as well as a lack of appreciation for the adverse ramifications for our customers and the economy," he said.
Meanwhile, two sources close to Citi said the bank has not held talks with the U.S. government about nationalization.
The U.S. Treasury has not disclosed much more to Citigroup than it has to the broader public about its plans for the banking sector, the people said.
—CNBC Senior Economics Reporter Steve Liesman and Reuters contributed to this report.