by Brian Brady
Commercial Real Estate Finance Expert
Structured Debt and Equity
Licensed Real Estate Broker in AL, CA, and FL
Bank of America is getting slaughtered by short sellers. The stock has plummeted to under 10% of its March, 2008 value. Of course, a few things happened on the way to the slaughterhouse:
- The bought Countrywide, America’s largest mortgage originator.
- They bought Merrill Lynch, America’s largest retail securities firm.
Ken Lewis took on a lot of crap on the road to ubiquity. 2009 promises to be more bad news for the financial supermarket as Countrywide option ARMs and subprime loans, originated in 2007 by Merrill Lynch unit First Franklin, become wallpaper.
Comrades Obama and Geithner will surely nationalize the Company, to better reflect its name, right?
“Not so fast” says Jason Schwartz of Seeking Alpha. Just because Obama admitted to sharing his toys in Kindergarten, that doesn’t necessarily make him a died-in-the-wool Marxist. Schwartz chalks the whole thing up to wishful thinking by our European cousins:
The market is running wild on some hyped up article written in the Financial Times that claims Obama is considering nationalizing the banks. If you actually read the article you’ll notice the anti-American sentiment at the very beginning when they say that ‘nationalization has long been regarded in the U.S. as a folly of Europeans…’ Ok, I get it, Europe has been right all along. Whatever. Obama’s true feelings on nationalization came out in his ABC interview after Geither’s banking speech when he laughed out loud and said, “Sweden had like five banks. We’ve got thousands of banks…managing and overseeing anything of that scale…wouldn’t make sense. And we also have different traditions in this country.”
Source documents suggest that Schwartz might be as credible as our resident “tin foil hat” theorist:
Long regarded in the US as a folly of Europeans, nationalisation is gaining rapid acceptance among Washington opinion-formers – and not just with Alan Greenspan, former Federal Reserve chairman. Perhaps stranger still, many of those talking about nationalising banks are Republicans.
Lindsey Graham, the Republican senator for South Carolina, says that many of his colleagues, including John McCain, the defeated presidential candidate, agree with his view that nationalisation of some banks should be “on the table”.
“Nationalisation” sounds a whole lot more “civilized” than “receivorship”, doesn’t it? While I admit that Messrs Obama and Geithner are not necessarily my ideological clones, methinks the Europeans might have underestimated the propensity for them to revert to the American tradition of taking big bets. Should more US banks fail (and they will), I think the Obama Administration will buy the bad loans and auction off the good assets to the highest bidders…quickly.
President Obama has nothing to lose, politically, from acting like a cock-sure American when it comes to the banks; the crisis didn’t happen on his watch. He can “receive” broken down banks rather than “nationalise” them, throw on a ten-gallon hat, smoke a cigar with Lindsey Graham…AND NOT LOSE ONE PENNY OF POLITICAL CAPITAL.
I think he’ll do it and I think his bet will work. While the Citi boys are dressing up for the receiving line, the Charlotte-ons are making seven figure bets . The reports of Bank of America’s death may be grossly overexaggerated.
Maybe I’ll join Ken Lewis and Jason Schwartz, on the pass line. After all, how much can a four-dollar stock drop?
Robert Kerr says:
Told ya so. Again.
February 24, 2009 — 10:54 pm
Sean Purcell says:
Brian,
I’m beginning to see this, not so much as a battle of ideology, but rather a battle of terminology. President Obama and Congress are not going to “nationalize” banks, that is terminology we don’t like as a collective. They are simply going to own the lion’s share of the common stock. By doing that the government hasn’t taken over the banks… they just own them.
Every move I’ve seen this administration take since appointing the security aspect of the cabinet has been another step left along the “big government” scale. Do you have any doubts where any of this is going? Seriously?
February 25, 2009 — 7:13 am
Brian Brady says:
“Told ya so. Again.”
Didn’t we agree back then?
February 25, 2009 — 8:38 am
Dave Shafer says:
Brian, you got this one right!
February 25, 2009 — 1:07 pm
Kevin Sandridge says:
Brian – I think you’re right here. Let the financial pros do their job – with some added regulation – and take the ownership role.
February 25, 2009 — 1:32 pm
Michael Cook says:
“After all, how much can a four-dollar stock drop?”
$4. Extremely high risk bet. $0.50 drop = 25% Loss on the investment. Good luck with that though. I dont see a lot of upside in the near term.
February 25, 2009 — 1:43 pm
Brian Brady says:
“$4.”
The closing question was a bit tongue-in-cheek, written with you in mind,
“I dont see a lot of upside in the near term.”
Go 5 years on me. Can BofA become a $20 stock, by 2014?
February 25, 2009 — 3:33 pm
Bob says:
By 2014, BofA will either be worth $20, or it’ll be a historical footnote like TWA and PanAm – industry giants too big to fail.
February 25, 2009 — 8:28 pm
Robert Kerr says:
Didn’t we agree back then?
Yes! I’m not arguing with you, I’m reminiscing.
February 26, 2009 — 9:48 pm
Brian Brady says:
Ahhh, okay. Let me pause a sec…t’was sweet
February 26, 2009 — 9:56 pm