U.S. bailout comes at steep price

By Joseph A. Giannone

NEW YORK (Reuters) - The U.S. government plan to inject $250 billion (143 billion pounds) into the troubled banking industry will repair balance sheets and help restore market confidence, but the banks and investors will pay a hefty price.

U.S. officials announced on Tuesday a plan to inject capital by acquiring preferred stock and warrants to purchase significant stakes across a number of banks.

Half that amount will go to nine banks: Citigroup (C.N), JPMorgan Chase (JPM.N), Morgan Stanley (MS.N), Goldman Sachs Group (GS.N), Bank of America Corp (BAC.N) and Merrill Lynch & Co MER.N, Wells Fargo & Co (WFC.N), State Street Corp (STT.N) and Bank of New York Mellon (BK.N).

"I think it helps. It helps everyone who is participating," said Benjamin Wallace, a money manager at Grimes & Co. "These banks have to support others. They all have their share of exposures."

U.S. Treasury Secretary Hank Paulson, under pressure to restore order to the financial markets, pushed these top tier banks to participate so that there would be no stigma associated with the plan as it was rolled out throughout the industry.

Still the government's support, comes at a cost.

Fox-Pitt, Kelton analyst David Trone estimates that earnings per share for participating banks will be reduced by as much as 22 percent, at Wells Fargo, or as little as 6 percent, at Bank of New York.

Some bank executives, notably JPMorgan chief Jamie Dimon, contended they did not need the additional capital. JPMorgan, which recently raised funds for its acquisition of Washington Mutual, faces 11 percent dilution from the plan.