Are Your Assets Safe At The Banks?
It’s starting to happen. Slowly the government’s nationalizing the banks. They don’t want to admit it to the investing public… but slowly they’re taking control of each big institution. Citigroup’s (C) a perfect example.
First they gave them $25 billion to “increase lending.” Now the preferred stock is being converted into shares. This effectively makes the US government the largest shareholder out there.
Now remember, this money didn’t come for free. They had to pay a regular dividend to the government. Then the government put limits on what the money could be used for. Then the government changed the corporate compensation structure.
I don’t know about you, but it seems to me the government’s making more of the day to day operation decisions.
With the conversion of the preferred shares into common, the government now owns about 36% of Citigroup.
It’s not a big deal (if you don’t own any of the stock). But heaven forbid you should own stock in this company. All the government is doing is massively diluting the shareholders. As a shareholder, your slice of the Citigroup pie just got a whole lot smaller.
Now, I’m not going to argue these government actions are wrong… the big banks and insurance companies who over-leveraged themselves are getting what they deserve. (In my opinion some should just be pushed into bankruptcy… AIG). With Citibank, it’s just so much more painful because of their once dominant size.
Now let me ask a critical question.
Can Bank of America (BAC) be far behind?
Picking a winner in today’s market environment is tough. I think short of massive and catastrophic bank failures, we’re in the belly of the beast on this recession. We’ve seen the worst of the news. Once a few more of these big financial groups either fail or are split-up and sold off (Citigroup and AIG), then we’ll see the market stabilize.
In times like these the biggest question investors have is simply: Are my assets safe?
As far as the banks go… Yes. Provided you put your money with an FDIC insured bank, and limit your account size to under $250,000. In those cases, the government guarantees your money.
Now, your investments are another thing entirely.
If you hold Citigroup stock, don’t blame me. I’ve been saying it for more than a year… get out of all the financial stocks. It’s really ugly and everyday investors are being caught up in the crossfire.
So who wins in the financial industry? There has to be a winner or two in the financial industry. Really, all the banks can’t go away. In my opinion, we’re going to learn who the winners are in the financial industry this year. I’m going to monitor the major banking institutions.
The strongest and healthiest are going to exit this market turmoil bigger, stronger, and I believe more profitable than ever. Like vultures in the desert, they’ll scoop up the good pieces of other failing banks. The new assets and business they purchase this year (on the cheap) will be worth billions a few years from now.
To me the early winners will be Goldman Sachs (GS), JP Morgan (JPM), and Wells Fargo (WFC). I’m sure there will be others, but these are the most obvious. Now, I’m not saying rush out and buy these right now. I’m saying watch them closely. When we find a good entry point that’ll be the time for action.
For now, keep your head down… and stay away from the financial industry.
Category: Stocks
