"Timothy Geithner is well-respected by the banking industry and the US authorities. His appointment as the next US Treasury Secretary has ended the uncertainty around who should succeed Hank Paulson and is, in my view, a positive for the market.

"As head of the Federal Reserve Bank of New York, Geithner has played a major role in the authorities' response to the problems that engulfed Bear Stearns, Lehman Brothers and AIG. In 1997, he helped manage the financial upheaval caused by the Asian crisis.

"So unlike other candidates, who may have been as well-qualified in other respects, Geithner need not spend time getting up to speed with the vast complexity of the problems facing the government.

"These include determining the best use of the $700bn pool known as the Troubled Assets Relief Program (TARP), in whose creation Geithner was involved. Some of it may be spent on rescuing banks, and perhaps insurers, while the rest may buy up bad assets and bear their losses.
 
"For example, the Treasury is to take a $20bn stake in Citigroup in return for guaranteeing over $300bn of risky assets on the bank's balance sheet. This is in addition to $25bn the TARP plan has already made available to Citi.

"Recent events have been so unique that it is unrealistic to expect mistakes such as the Lehman Brothers collapse to be avoided entirely. But while the jury is still out on the success of TARP, it is important to have someone around like Geithner who has been deeply involved in the process and learnt from any mistakes.

"In choosing Geithner, Obama has shown he is sensitive to the crucial importance of not over-politicising the role of Treasury Secretary. Instead, he has focused on appointing someone who really understands banks and is capable of navigating through this increasingly tricky environment. The President-elect is also drawing up a bill for $500bn of federal spending and tax cuts.

"The Jupiter North American Income Fund has been defensive for some time, though less so in recent weeks as a greater number of valuation opportunities have emerged. However, rather than take new positions in the portfolio, I have chosen to add to existing ones.

"The main move in sector terms has been to reduce selectively my underweight position in financials towards a neutral position on the view that a number of stocks were trading at undeservedly distressed levels. I have, for example, added to my position in ACE, the insurer, which could be a beneficiary of business moving away from AIG."

NOTE
The above commentary represents the views of the Fund Manager at the time of preparation and may be subject to change and this is particularly likely during periods of rapidly changing market circumstances. Their views are not necessarily those of Jupiter and should not be interpreted as investment advice. Every effort is made to ensure the accuracy of any information provided but no assurances or warranties are given.