Treasury Weighs Capital Injections for More Finance Firms

WASHINGTON(Reuters) – The Treasury Department is exploring how best to expand itscapital injection program to provide more liquidity to credit marketsand is considering specialty finance firms in the process, a sourcefamiliar with the government’s thinking said on Tuesday.

The source said the Treasury is working diligently behind the scenesbut is not expected to announce any program expansion in the comingdays. The government is trying to figure out its next step afteralready allocating to U.S. banks the bulk of the $250 billion it hasfor capital infusions.

Under the current equity purchase program, federally regulated banksmay sell the Treasury a stake of preferred shares in a program that isexpected to drain $250 billion of the $700 billion financial rescueprogram passed by Congress last month.

A possible next step for Treasury investment could be extending helpto specialty finance arms such as General Electric’s (GE.N: Quote, Profile, Research, Stock Buzz) GE Capital unit, CIT Group Inc (CIT.N: Quote, Profile, Research, Stock Buzz) and others that provide financing to the broad economy, the source said.

A GE spokesman said on Tuesday the company does not expect theTreasury to offer it money from the bailout fund, but would listen to aproposal if one were made.

"This is not something we expect," said Russell Wilkerson, aspokesman for the U.S. conglomerate. "If it were offered, we wouldevaluate it."

CIT did not immediately respond to a request for comment.

GE shares were up 7.7 percent to $20.79, and CIT Group shares were up 33.4 percent to $6.03 on the New York Stock Exchange.

The news of a possible expansion of the Treasury’s plan was first reported by the Wall Street Journal.

"We are looking at many ideas for strengthening the financial systemand for restoring lending," Treasury spokeswoman Jennifer Zuccarellisaid. "We are weighing ideas and have made no decisions."

A possible expansion of its aid programs could involve the Treasuryaiding insurance companies and financial arms of other companies thatdo not have a federal regulator.

David Nason, U.S. Treasury assistant secretary for financialinstitutions, last week declined to rule out capital injections forinsurers and other companies.

"We started with the banks because that’s targeted to providingcredit to the economy, but there are a lot of industries coming insaying they need federal assistance, so we’re willing to listen totheir asks," Nason said.

The Treasury is also examining how to purchase troubled assets fromU.S. firms. Treasury Secretary Henry Paulson originally pitched the$700 billion bailout as a plan to soak up toxic mortgage-related assetsthat were weighing down balance sheets, likely through an auctionprocess.

But government officials have not ruled out the possibility of directly purchasing assets to provide relief.

Federal Reserve Chairman Ben Bernanke has told lawmakers thegovernment could "have auctions or other mechanisms to purchase theseassets."

(Reporting by Karey Wutkowski and Patrick Rucker, additionalreporting by Rachelle Younglai, David Lawder, Scott Malone, DanWilchins, and Ajay Kamalakaran; Editing by Dan Grebler)