Financial Institutions

I forgot how this thing works. Since I’ve last written, I took the CFA exam again, we’ve had fiscal cliffs, an election, and all sorts of other stuff. I meant to write a post called “All I want for Christmas is not to go over the fiscal cliff…” but alas, holiday season intervened.

Regardless, there’s some news that came out earlier this week that the former CEO of AIG, Maurice Greenberg, was going to sue the Federal Government for parts of the bailout. Among them were the was a high 14% interest rate that they had to pay on funds and the fact that the previous shares were diluted when the government provided the funds.

Thankfully, AIG has decided not to partake in the lawsuit.

The complexities in this case can not all be explained in the space I have here. One thing I do want to say is that I’ve been against bailouts in general. I don’t see why taxpayers should have to front the bill for bad business practices, no matter how bad the economy will go down if a corporation goes bankrupt.

That being said, AIG’s bailout was good for both the firm itself, government, and to an extent, taxpayers! How is it good for government and taxpayers? Very simple. They made a profit. Our government is still heavily in debt and I see us approaching another debt ceiling before we actually get our ducks in a row, but this at least helps. Additionally, the country (and the world) does not have to endure the economic pains of a major financial institution going under.

For AIG, they still exist. They did not file bankruptcy. Share prices are not only higher than they were back in 2008, but the company itself is in another position. I’d considering actually owning this stock now. I mean, PE at under 3 for that big of a firm?

And now the former CEO is complaining that he didn’t get enough. Yay America.


I promised last week that I would actually write a bull opinion on a stock rather than going around and ripping the social media space. So I’m gonna force my attention over to financial institutions and recommend a buy. Beware: most of my posts are written as a result of something I see in the market. This time, however, I’m writing because I want to be bullish on something.

I was tempted to do something in Europe but given the turmoil and uncertainty, I could not think of anything I’d actually recommend.

So how about Bank of New York Mellon? It’s great asset manager that has gone through a lot of M&A, acquiring asset managers around the world. This does two things: it diversifies their holdings and gives them increased economies of scale. Given that it is in an industry that is going through much consolidation, worldwide research and economies of scale is a good thing. Add to that a wide economic moat and its an attractive company.

So how are the stats? At 21.44 it’s trading at 3/4 book value of 28.51 (ttm). Compared to the S&P 500 it’s trading below PE, Price/Sales, and Price/CF ratio averages also. Therefore, it’s a pretty cheap stock with regard to those metrics.

As I mentioned before, the company has done a large number of acquisitions lately but is not planning any future acquisitions. I believe this will give the company some opportunities to grow organically as these acquisitions settle into place.

Overall, it looks to be a great stock. While it is an “asset manager”, it also is a custodian for a number of funds, giving it the ability to collect fees at low risk, unless something like financial crisis of 2008 happens again and banks start refusing trades from people. But I don’t see that happening any time soon.