The institute aims to strengthen ties between Arab and Western civilisations
Yet 2008 proved that Wall Street was not just splattered by blood but booby trapped with carcasses, gore and rotting entrails. After all, (presumably) smart money sovereign investors like Singapore’s Temasek, Abu Dhabi’s ADIA, China’s CIC, Norway’s Oil Fund and Kuwait’s KIA lost 60 to 80 per cent of their money betting on Citigroup, Morgan Stanley, Merrill Lynch and UBS when their CEO’s first began to roam the back allays of the Euromarkets last winter with their capital raising begging bowls.
There are many bloody fingers in town among those who tried to catch falling knives as diverse as property shares listed on the DFM, a certain container part and shipping company listed on NASDAQ Dubai (ex-DIFX) and Himalayan hoards of steel (the wannabe King Midas of the Textile Market tried to out-Mittal Lakshmi Mittal!). So it appears downright weird for me to muse about Bank of America (symbol on the Big Board BAC), an icon of a global business gutted by the credit crunch, consumer loan defaults and the nuclear winter in home prices.
It is surely premature to sniff for money making opportunities in
One, if ever there was a transformation deal on Wall Street, the $50 billion all stock Merrill-BAC is it. At one stroke, John Thain and Ken Lewis have created a wealth management colossus, with 20,000 brokers and eight million affluent potential accounts. Bank Am also bought US Trust from Charles Schwab. It is now the largest wealth manager in the world, since Merrill’s crown jewel Global Private Clients division boasted 16,000 brokers. Wealth management is also now one fifth of the bottom line in
Two, I am under no illusions that the credit cycle will turn in 2009. Au contraire, the property crashes I witnessed in Hong Kong (1997), California and New York (1991), New England (1992), Texas and the Gulf (mid 1980’s) in my own life convinces me that real estate prices keep falling for at least three years after their peak as inventory is bloated, foreclosures spike up, developers and go go financiers go to money heaven, speculators are wiped out. A financial neutron bomb hits banking balance sheets when exposure to real estate is even 5 per cent of GDP, as
Three, BAC has a stellar record in integrating its acquisitions under Ken Lewis and his predecessor High McColl, who built American’s largest bank from the obscure NCNB in the 1980’s. After all, Lewis managed to snare and digest Fleet Boston, MBNA, Chicago’s La Salle Bank, Countrywide Financial, US Trust and now Merrill Lynch. Brand, scale and cost cutting is the name of the toughest game in high finance. BAC has announced 35,000 job cuts. Lewis is thankfully not exposed to the weakest areas of consumer finance, such as auto leasing and subprime. He has also won huge political brownie points with the Fed and the US Treasury when he came out to white knight Countrywide and Merrill. The plebes of
Four, BAC is perfectly positioned in New Age finance, with its $875 billion in customer deposits, the lowest cost, stablest funding for a commercial bank. Since BAC cannot really do a big banking deal in the
Five, my biggest worry is investment banking. BAC never succeeded in its organic, build not buy strategy, other then in syndicated loans, where its market share is only exceeded by J.P. Morgan Chase. This is a culture clash minefield, as the Citi-Solomon, Amex-Lehman, Dresdner-Kleinwort and Credit Suisse – DLJ disasters prove. Lewis wants to be the Walmart of banking to his 60 million consumer clients. But Walmart does not coexist with Harrods even though investment banking is in
The financial markets are deeply sceptical about BAC’s proximate future. The credit defaults swaps and share prices have plunged by a third since the TARP capital injection and Merrill deals. Lovely. It is too late to jump on a stock when even Numero Uno Dumbos aka analysts of Wall Street salivate over its prospects. However, I can only see a trillion dollar deposit base at BAC, as flight to quality acts like a magnet for a banking colossus unlike any other. When will the shares really fly? When NPL growth decelerates and the correlation between house prices and mortgage loans falls. An imminent scenario? Pas de tout. So what does Matti’s crystal ball whisper on BAC? I’ll say it again, I’ve said it before, BAC will trade at twenty four (dollars, not cents. After the horrors of 2008, you never know). But BAC will probably not hit 24 before we retest 10. A bear market, Dr. Pangloss, is not the best of all possible worlds.
The institute aims to strengthen ties between Arab and Western civilisations
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