Thursday, February 19, 2009

Bank Stocks Crater

Another terrible trading session for bank stocks today. The above table lists 55 bank holding companies that received TARP funds of at least $200 million. The total stock market capitalization of those companies is a little over $368 billion. The stock market capitalization of ExxonMobil is a hair over $359 billion. Would you want virtually the entire banking system or a whole bunch of oil?

Last Sunday, I indicated that equity prices had some considerable room to fall. Please be cautious. Some companies that may seem like good prospects could have hidden pitfalls. For example, H&R Block owns a bank that has a rising number of bad loans. You may remember that the company lends people money based on anticipated tax refunds. Not only have their defaults risen, but there is a danger that they might discover a considerable amount of fraudulent loans. Almost two years ago, Pacific Capital Bancorp was forced to take a significant amount of losses because customers had presented false income and tax documents to qualify for loans.

1 comment:

MK said...

The Dow Jones Industrial Average peaked at 14,164.53 (level at the market close) on 10/9/07. It closed at 7,465.95 on 2/19/09, a 47.3% drop.