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The Fed is reportedly discouraging the top U.S. banks from making large acquisitions as it...

The Fed is reportedly discouraging the top U.S. banks from making large acquisitions as it informally uses powers it received under the Dodd-Frank Law and attempts to limit the ability of banks to threaten the stability of the financial system should they fail. Those told not to make major purchases include Capital One Financial (COF) after its $9B acquisition of ING's U.S. online business.
Comments (10)
  • MexCom
    , contributor
    Comments (3051) | Send Message
     
    The only big bank I follow BAC should not be effected by this "discouragement." They have been shedding businesses selling off overseas subsidiaries, closing branches and firing people. Its amazing to me that after a good period of hardly any negative news against the banks with the positive up tic you see articles like this showing up as an effort to jaw bone down stock prices for the shorts to cover.
    12 Dec 2012, 05:24 AM Reply Like
  • kmi
    , contributor
    Comments (4031) | Send Message
     
    HSBC been doing the same but clearly (BAC) with 90% YTD is performing better than (HBC) with its 42%. I wonder why that is. Never see any opinions on HSBC.

     

    I have no position in either, but been keeping an eye on both.
    12 Dec 2012, 09:27 AM Reply Like
  • jpslayer
    , contributor
    Comments (2) | Send Message
     
    There's something I just cannot understand in it. By doing so, the financial services sectors will certainly decrease its growth or at least reduce it. But shouldn't the Government rather encourage its growth ? Someone can help me to clarify all these please ?
    12 Dec 2012, 05:36 AM Reply Like
  • gwynfryn
    , contributor
    Comments (4306) | Send Message
     
    jp, if you mean "growth" in the general sense (i.e., that unfortunate prerequisite of Capitalism) then growth by acquisition doesn't necessarily fit the bill; in fact, it often leads to heavy trimming, and an actual decline in overall growth.

     

    Besides, as the article makes clear, the onus here is to prevent individual companies from becoming "too big to fail"; there's no reason this should imply a recession in the industry as a whole.

     

    As a whole, I personally think it should be filled in...
    12 Dec 2012, 09:38 AM Reply Like
  • 174
    , contributor
    Comments (3) | Send Message
     
    I'm afraid there is more to it. The banks are still obligated to buy failed mortgage assets originally sold, and there are still lawsuits outstanding against them that could run into the billions. 2013 may be a tricky year as a result. It's not totally surprising that the FED wants them to husband their capital.
    12 Dec 2012, 06:39 AM Reply Like
  • Want2buygold
    , contributor
    Comments (64) | Send Message
     
    I smell a rat...
    12 Dec 2012, 07:01 AM Reply Like
  • Ted Bear
    , contributor
    Comments (598) | Send Message
     
    Mexcom...the only reason we have gone through a period which is absent of any negative news about the banks is because accounting and regulatory types have been encouraged to 'look the other way.'

     

    Don't forget, we are in an extraordinary period of 'free money'. The banks have used this windfall to generate operating earnings, while at the same time sticking their crap to the Fed through a window that is open as wide as possible. (You notice that we hear how well we did on AIG, but never that the GM position, let alone Maiden Lane, is massively underwater).

     

    The large banks are still laden with all of the off balance sheet 'assets' and HUGE derivative positions which are enormously under water. While we can look the other way for a short period of time, eventually something has to give. Encouraging the banks to keep their knitting close to home is a simple reminder that they are still massively encumbered and should not look to make acquisitions until their existing situation is (somehow) resolved.

     

    Kicking the can down the road not only applies to the Washington debacle. It is visible in the banking sector as well, and serves, in a macro sense, to encumber the entire economy. Simply stated, the foundations of these banks are poor, or non existent. Adding additional infrastructure on top of that shaky underpinning is not a wise idea.
    12 Dec 2012, 07:25 AM Reply Like
  • Tom Guttenberger
    , contributor
    Comments (717) | Send Message
     
    I thought it was already mandated that banks with a share greater than 10% of national deposits were prohibited from making acquisitions? I think COF was below that level at the time of the ING&HSBC deals, but apparently now has grown into its share of the banking decopoly.
    12 Dec 2012, 09:48 AM Reply Like
  • awallace
    , contributor
    Comments (25) | Send Message
     
    A question: Should government bureaucrats, un-elected individuals, be allowed to dictate the business practices of corporations? It is but a short step from telling a bank "Thou shalt not buy..." to telling it, "You must buy this...". There is nothing in government employment that confers superior business judgment on that individual. We have laws to prevent cartels and monopolies, as well as collusion (anti-trust), which work well. Just how far into the business decisions of companies should the government be allowed to go?
    Think far ahead as to what this means, before agreeing or disagreeing.
    12 Dec 2012, 12:41 PM Reply Like
  • gwynfryn
    , contributor
    Comments (4306) | Send Message
     
    That's a good question, and I suppose members of both parties have been selected according to their perceived competence? That said, surveys have shown that the perception of a particular executive correlates a lot more with their egos and self promotion, than it does with proven performance, so I don't see it as a given that a banker will necessarily know better than a bureaucrat.

     

    As for being "non-elected", we have similar complaints directed at EU commissioners, and it's an emotive subject, but if you lose that aspect, and just look at the decisions they make, then by and large they are better than what elected officials manage, probably because they are no longer under pressure to please their supporters (perhaps the weakest aspect of democracy).

     

    If you accept this, then it would appear to be a question of motivation, and while one would expect the bureaucrat to work in the public's interest, bankers have amply demonstrated that they don't give a fig about anything but their own profits/bonuses.

     

    That said, though I don't think it's any bureaucrats business to manage companies, I'm comfortable with them setting certain limits in the public interest, and limiting banks to no more than 10%, is sound public policy, as far as I can see.

     

    Another one I would have like to have seen, was Frances President De Gaul's proposal to limit a CEOs salary to a certain ration of his lowest paid employee. Imagine how much more equitable the world would be if that had been implemented; he suggested five times (which seems an ample differential to me) but now we have CEOs in the UK being paid twenty times as much (compared to just ten and twelve times in Japan and Germany) fifty times in Mexico, and, last I heard, two hundred times as much (and climbing) in the USA!

     

    As a direct result (for so I believe) we have the absurd situation wherein the global economy is reportedly richer than ever, most governments are cash strapped, and most of the population are under austerity measures!

     

    Off topic, perhaps, but it illustrates my response to your question; no, bureaucrats should not manage companies, but they could, and should, do more to limit the excesses of those at the top, who all too frequently demonstrate their determination to pay their own kind as much as possible (at what point does it stop being a genuine incentive? When you've got more than you can spend in one lifetime? Two? Twenty?) while paying everyone else as little as they can get away with. Capitalism could operate just as well without these ridiculous differentials in income, and did so for most of its history...
    13 Dec 2012, 09:05 AM Reply Like
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