« The Seven Laws of Money – Advice From “The Richest Man…” | Main | My Secret Financial Goal »
It’s Looking Like Every Financial Institution Wanted a Piece of the Subprime Action
By JLP | January 3, 2008
This from today’s Wall Street Journal:
Regional banks — long known for their consistent if unspectacular growth in plain-vanilla loans and deposits — are finding out the hard way that they should have stuck to their strengths during the housing bubble.
National City Corp., a Cleveland bank that barreled into originating subprime mortgages and the go-go Florida real-estate market, said it would slash its common-stock dividend by 49% and has hired an investment bank to advise it on ways to bolster capital levels now being sapped by souring loans.
The turnabout of fortune for the 15th-largest U.S. bank by stock-market value, with a reputation for Midwestern common sense, is a sign that the credit crisis is spreading deeper among traditional banks. National City had hoped that subprime loans and a larger geographic base would help it overcome slow growth closer to home, but the company now concedes that it made mistakes.
Source: How Safe Bank Tried Subprime And Got Singed ($) WSJ January 3, 2008
It’s scary to think that a bank known for it’s Midwestern common sense got sucked into the subprime mess. What’s even more amazing to me is the fact that these same financial institutions are the ones who want to manage our money for us because they are so much smarter than average Americans.
Funny (and sad) stuff.
Topics: Housing Market, Miscellaneous, Mortgages | 6 Comments »
January 3rd, 2008 at 3:22 pm
Concerning your comment, “. . . same financial institutions are the ones who want to manage our money for us . . .” I don’t know about you but I certainly don’t have any banks managing my money.
I have a bank account for some safe money that is guaranteed by the FDIC. I have a couple of shorter term CDs for emergency. Other checking/savings account type funds are with a credit union. The rest – I manage for myself via no load mutual funds.
January 3rd, 2008 at 3:27 pm
Al,
It’s not just banks I’m talking about. I’m also including brokerage firms in my assessment.
January 3rd, 2008 at 5:55 pm
For brokerage firms, this is a lot of the reason low expenses are important. Vanguard, for instance, was involved less in subprime because their low expenses allowed them to stay competitive with less risk.
Al, those no load mutual funds may very well be involved in subprime lending. How? Either directly thru bond and money funds, or indirectly by investing you in financial institutions that are doing so.
January 3rd, 2008 at 6:45 pm
Good point JLP. This crisis is not restricted to the big NY banks. This could end up like the S&L crisis where it hit banks across the country.
January 3rd, 2008 at 7:36 pm
I migrated from another country and noticed that every financial misadventure that happended, Citibank was involved big time. Funnily, it is the same in the US. But, they seem to have one of the best consumer accounts – Everything Counts or Citigold and so, I still keep most of my money there and it is my prime bank. Of course, I would not exceed the FDIC $100,000 any day though
January 6th, 2008 at 7:17 am
Put on your thinking caps.
Watch where the money flows and where it doesn’t.
Why is Citibank going to Abu Dhabi and paying 11% (holy cow!!!, yes, that is 11 “&*^%$!” %!!) for a money infustion when they will not offer hard working American savers (for those who do) an 11% CD?
Why is Merril Lynch going to Singapore for a bailout when they won’t offer Americans above market CD’s?
If these (and other companies) are so willing to offer percentages of themselves and high rates to others, why would ANYONE pay the market price (today) for their stocks? Why aren’t these companies worth vastly less than the market says as of the close last week?
Why would/could ING come in and offer such great savings packages for Americans for so long and no US bank would TOUCH the rates ING offered?
What is REAL inflation (not the junk numbers the US gov and policy makers report and make policy with) doing to your money and your future?
Why are banks and brokerages joined at the hip again?
I could go on and on. What’s going on here?
Are you sure you want to know?
Let the awake people be awake.