XLF, Banking and Financial Sector Stocks
- Thruhiker
- Thruhiker
- matttheduck
- MichaelC_AU
- JenL_3
- matttheduck
- Thruhiker
- JenL_3
- Rande
- JS_Mill
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» Thruhiker - BTO
Check out BTO, the John Hancock closed end bank and thrift fund. Fund sells at about at 15% discount to NAV. With the elimination of pooling in 2001, we should see increased merger activity in the banking industry next year. Bank stocks should increase, and the discount on this fund (which has actually been a premium at times in the past)should give you a double kick of a return next year. At least thats what I'm doing.If you don't want to put all your eggs in one closed end basket, then also invest in Southeast Thrift (STBF). Same story as above.
-- posted by Thruhiker
» matttheduck - C
steve, i'm holding c as well. it's been a decent, if uneven performer. if rande & kirk's prediction on interest rates pans out, c should gain some upward momentum.-- posted by matttheduck
» MichaelC_AU - Tell us more!
Matt & Thru,What is C?
Explain the change in pooling of interest mergers, too, please.
-- posted by MichaelC_AU
» JenL_3 - C : Citigroup
Michael - See Steve T's post above, and Kirk's post in the "Special to Savvy Subscribers" thread:Thruhiker - You mentioned something about money pooling. I heard today about a new ruling that will allow more bank mergers to go forward next year - was the ruling about money pooling?
.....Jen
-- posted by JenL_3
» matttheduck - c
michael - c is "citigroup" the mergered citicorp and travelers group. picked up chrysler's symbol when it merged with daimler benz. (funny - the women who does the nyse most active updates on biz radio keeps calling it "chrysler." old habits....)-- posted by matttheduck
» JenL_3 - Thanks Mark....
....for the Morning Star article link.Some excerpts:
But now, there's a big, bright ray of hope. President Clinton appears set to sign a bill, shepherded through Congress by Senator Phil Gramm, that would knock down Depression-era barriers between insurers, brokerages, investment banks, and commercial banks. It should spark a wave of cross-industry mergers that will push share prices in the sector higher.
That consolidation will likely happen sooner rather than later........Institutions that do not move quickly may get left with far less desirable takeover options.
Moreover, from an accounting perspective, deals may never again be as easy on the income statement as they are right now. The Financial Accounting Standards Board appears ready to disallow pooling-of-interests accounting at the end of 2000. This technique allows one firm to take over another without booking goodwill, whose amortization frequently depresses earnings for decades. Companies that want to avoid that hit to profits will do deals right away.
Would please someone explain the terms:
pooling-of-interests accounting
booking goodwill
So it sounds like the way has been cleared for mass mergers of every institution dealing with money, and it's all going to happen in Year 2000.
This sounds exciting for investors in the financial sector, but a big headache initially for consumers. My local bank has already undergone a merger, and the service has gone downhill. But I guess the bank mergers were just the beginning....Jen
-- posted by JenL_3
» Rande - Jen,
Jen,Pooling of interests is an accounting method used in corporate mergers where the balance sheets of the two companies are added together, line by line. This is a tax-free transaction, as opposed to the purchase acquisition method where the acquiring company treats the purchase as an investment and any premium paid over fair value is shown on the buyer's balance sheet as goodwill (which is typically amortized over a long period of time as a charge against earnings). Reported earnings are higher under the pooling method, especially when there's lots of goodwill, so, naturally, it's preferred by most. A problem analysts have with pooling is the fact that the pre-acquisition history of the acquiring company will be reported as the history of the two combined firms. This makes it difficult for investors to determine the pre-merger and post-merger performance of the acquiring company. There are restrictions on when the pooling method can be used under GAAP and, as the piece points out, pooling may be an endangered species under current FASB proposals which would take affect in 2001.
-- posted by Rande
» JS_Mill - I'll add to Rande's summary the point that
the point that pooling-of-interests is particularly crucial in the banking sector, because goodwill is deducted from regulatory capital. A big goodwill hit can lead to a perfectly healthy bank having to have a rights issue ("secondary offering" to Yank investors who gave up their rights long ago) to maintain regulatory prudential requirements.jsm
-- posted by JS_Mill
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