Good Financial/Bad Financial Divergence

The average stock currently in the S&P 500 was down 7.59% in the third quarter.  But even though the Financial sector is right at the center of the storm, it's interesting to note that the majority of the best performing stocks last quarter were indeed Financials.  Even though FNM, FRE, AIG, LEH, WM and WB pretty much went under, other banks like Wells Fargo (WFC), Bank of America (BAC), and JP Morgan (JPM) were all up more than 30% in Q3.  As the credit crisis plays out, it's becoming apparent who the winners and who the losers will be.

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Comments

[huangjin:]

Buffett expects Goldman will be able to grab a healthy slice of the $700 billion bailout which will be run by a former Goldman employee.

2008 Oct 01 03:23 PM

[Ishortyou:]

Wachovia got rid off the prior toxic risky wasted bank subsidiaries and kept the good ones. Now it can start from scratch to build a new banking subsidiary with safe practice together with its remaining good outstanding subsidiaries. The current subsidiaries of Wachovia make it look like “Merrill Lynch without the toxic risky waste”, good job from management it separated the good bank from the bad bank overnight, plus its CEO Bob Steel is one of the top rated mutual fund managers. Wachovia will keep the valuable human resources and the talent that have expirience in the banking business saving them for the new banking subsidiary. Buying the municipal bonds or the auction rate securities will give the inflow of cash as long as its hold even to maturity. Some investors are taking money away from Hedge Funds going wild and putting that money into accounts manage by people that know what they are doing, Bob Steel is one of those people that know what they are doing, dont be surprise some of this money will go to Wachovia subsidiaries. Earnings will be adjusted accordingly, like simple arithmetics they will manage its expenses vs its earnings to come ahead in capital and start piling up cash (saving cash a hard job for most of us that live on debt), this new cash will give them the jump start of a new banking subsidiary without even thinking about to sell its remaining subsidiaries.Forgot to mention that Wachovia owns a hudge Insurance subsidiary which is making money and has sound book of business. Lehman debt is bonds most of them senior, as bankrupt as Lehman is those bonds get paid. ARS are Municipal Bonds as bonds they get paid, hold into maturity they get paid in principal, those ARS are cash flow. Preferred dividends will get paid accordingly because the holding company does not own the banking subsidiaries anymore so modification are going to be made. Getting rid off the toxic waste risky bank related subsidiaries is a good strategy and converting the remaining broker one to a new bank subsidiary with clean sheets is a good one too.

2008 Oct 01 04:14 PM