Nationalization talk sinks bank stocks
Bank of America and Citigroup's shares continue to slide to record lows. Some analysts blame this on Treasury Secretary Timothy Geithner's reluctance to make a decision about bank nationalization. Bob Moon reports.
A Bank of America building in Washington, D.C. (Karen Bleier/AFP/Getty Images)
More on America's Financial Crisis
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Tess Vigeland: As we continue our coverage of fallout from the financial crisis, we turn yet again to the banks. Despite billions of dollars in government bailout money, some of the nation's biggest banking institutions find themselves on the verge of penny-stock status. Early today rumors ricocheted around Wall Street, again, that the likes of Citigroup and Bank of America might be nationalized -- taken over by the federal government. Bank stocks quickly took down the entire market before the White House spokesman Robert Gibbs moved to reassure investors.
Robert Gibbs: This administration continues to strongly believe that a privately-held banking system is the correct way to go, ensuring they are regulated sufficiently by this government.
But if the White House message was aimed at calming Wall Street's worries, Marketplace's Bob Moon tells us it was only marginally effective.
Bob Moon: Citigroup stock hemorrhaged for the sixth straight day, losing close to a quarter of its meager remaining value, and slipping below $2 a share. Josh Rosner is managing director at Graham-Fisher. He's not optimistic that the government can avoid nationalization and keep the banks private.
Josh Rosner: Government needs to do something, but we're not really seeing them do something, and we're not sure when they will actually get around to it.
Rosner says until investors are sure nationalization if off the table, they're likely to keep avoiding risky financial stocks. And that is only adding to the woes of Citigroup and Bank of America. But at Farr, Miller and Washington, chief investment officer Michael Farr explains why investors aren't tempted by these rock-bottom prices: Nationalization, if it happens, would leave nothing for shareholders.
Michael Farr: If markets return to normal, these levels will look remarkably cheap. If not, then you're going to say, 'Gee, that was a waste of money.' My advice is always, if you're going to speculate and gamble, go to Vegas, because even when you lose your money there, they give you a free drink.
Jeffery Harte is market research chief at Sandler O'Neill. He argues the stock price doesn't really matter. As he sees it, the government's already done enough to make a full takeover -- even of Citigroup -- less likely.
Jeffery Harte: Even if their stock price is down at two dollars, really all their liabilities at this point have been guaranteed by the federal government, and as long as people have confidence the U.S. government can make good on its debts, they should be confident in both B of A and Citigroup.
Harte even says those stocks could be a good buy for investors able to stomach the risk.
In Los Angeles, I'm Bob Moon for Marketplace.
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From St. Louis, MO, 02/20/2009
Has the staff at Marketplace—as alter-persons in the church of the market—been into the communion wine again? Even if you never took any history courses covering the economics of the depression, how can we be dealing with this economic crisis for two years and you haven’t seen any similarity to this crisis and the S&L crisis of the 1980’s? Do you suppose that a few people, perhaps the people most likely to move the market, are not waiting for Obama to declare that he will never nationalize the banks—thus saving the hides of the biggest investors in the banks?
Perhaps what the market is waiting for is for Obama to announce that he will handle this crisis just like the successful handling of the last banking bubble, the S&L crisis of the ‘80s. No big deal. The laws, the people, and the model for this type of recovery of the financial system have all been worked out long ago and used successfully since the 1930s to take over—not nationalize—bad banks, sell off the good assets to put them back into the marketplace, and work through the bad assets over time to cull the best possible outcomes.
Those of us who were alive in the ‘80s or who have read a little history or know a little about economics have to wonder if Marketplace’s slant on the financial system crisis is not driven by those same greedy idiots who created banks too big to fail in the first place. Tell me it ain’t so.
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