andrewh10

I-Bank Execs: Read My Lips... No New Capital

Lies, lies, and more lies out of the mouths of most financial CEOs these days regarding further capital raising and increased dilution. Even the foreign sovereign wealth funds coming in to fleece America’s so-called finest assets are finding themselves buying flawed diamonds because the balance sheets are not really what they thought they were. The backdoor deals going on now to desperately raise cash at C, MER, LEH, BX, and many others are quite disturbing. Why should the equity be rewarded in this type of situation? Wall Street always tries to sell and disguise as for the many talking head analysts like Richard Bove at Punk Ziegel who have been ringing bells saying time to buy financials. I disagree and think we are in store for some more pain in the financial sector especially the banking industry. It seems they have entered a new ball game but they are still playing by the old rules. We need to see more of the flawed and mismanaged firms like BSC disappear (bankruptcies are a natural way of taking out the trash and refreshing it with new companies) and only after that period will there be some nice buying opportunities. Many folks are bidding up the banks because of the favorable FED actions but this very positive low interest rate environment is about to get more difficult going out a few years.

Citigroup's Flush

I meant Travelers Group in the above comment. For the record I am not a Whitney fan, I just think the articles reasoning for a long term position is rather dubious. Anyone looking at the fundamentals would likely agree. Heck even JPM said C was the short play of the year in 2008, a bold prediction several months ago which turned out to be very accurate. However, if you look at the data the short position in C has dramatically declined thus you have the recent short covering rally. The point being why buy an under performing injured bank with plenty of luggage in a relatively good environment for the industry considering Fed policy and the yield curve when you can own something better with proven management. My gut tells me rates will not stay this low for long and the banks will face some stronger headwinds in the near future.

Citigroup's Flush

Why would you want to tie up funds investing in a longer term loser of a bank when there are far superior choices out there (JPM, WFC, or GS). I can understand a short term trade in C if you picked up some shares under 20 and sell them in the 25-28 range. However you should understand that you are playing with fire taking that risk. C still has a ton of terrible assets and they should probably sell larger assets to raise some serious cash like Smith Barney. C has lost all of it’s glamour which it really never had to begin with and the employees performance are just not trustworthy. What other major company seems to physically “blow up” every three to five years? Perhaps Prince and former leaders are to blame for most of the problems but regardless the future does not look bright. The dividend is probably not sustainable and the equity should give lackluster returns going forward very much like a MER or LEH might I add. With the amount of leverage and "dumb money" deals these firms made they deserve to under perform for quite a while this show has not even reached intermission yet.