How 3 hard hit banks have evolved

0
16

It has been 10 years since the stock market hit its bottom after the financial crisis: in March 2009, many major players in the financial sector were on their knees. While some have responded well, others still have problems – or no longer exist in the same form.

Here are three major financial institutions that have been particularly affected by the financial crisis, their current situation and the situation of their shareholders during the decade that has passed since the low point of the markets.

Businessman holding hands backward, head incredulous

More

Source of the image: Getty Images.

1. Bank of America: a true story of reversal

<p class = "canvas-atom canvas-text Mb (1.0em) Mb (0) – sm Mt (0.8em) – sm" type = "text" content = "Bank of Americaof (NYSE: BAC) The problems of the crisis period can mainly be attributed to its acquisitions of the MBNA credit card giant in 2005 and its mortgage lender Countrywide Financial in 2008. The shortened version indicates that the loan portfolio of MBNA has massive losses when the economy turned sour and, to put it mildly, Countrywide's underwriting standards and general business practices were not as healthy as they seemed. "data-reactid =" 35 ">Bank of AmericaThe problems of the (NYSE: BAC) crisis period are mainly due to its acquisitions of the MBNA credit card giant in 2005 and the countrywide financial mortgage originator in 2008. The shortened version indicates that the loan portfolio from MBNA massive losses when the economy turned sour and, to put it mildly, Countrywide's underwriting standards and general business practices were not as healthy as they seemed.

In the end, Bank of America paid more than $ 91 billion in penalties and settlements in 2015, not counting the losses in its portfolio.

However, this story ends well: Bank of America has successfully transformed into one of the best managed and most profitable banks of the big American banks. The company's return on equity and return on assets far exceeds industry objectives, credit losses are low, the efficiency is comparable to that of other major banks, and Bank of America has become a leader. banking technology.

Prior to the financial crisis, Bank of America shares traded regularly for more than $ 50 per share. The bank was forced to dilute its shareholders by issuing 3.5 billion new shares to build up its capital. In March 2009, it had hit a low of $ 3 per share. Since then, however, Bank of America has generated a total return of 734%. shareholders, making it one of the most successful US bank securities of the post-crisis era.

BAC data by YCharts.

2. Wachovia: How Wells Fargo was catapulted into the "Big Four"

At the end of 2008, Wachovia was the fourth largest bank in the United States. Unfortunately, thanks to risky mortgages (many of which resulted from acquisitions, not from the bank's underwriting), the company began to suffer huge losses. In the second quarter of 2008 alone, Wachovia recorded a loss of $ 8.9 billion.

The story continues

<p class = "web-atom canvas-text Mb (1.0em) Mb (0) – sm Mt (0.8em) – sm" type = "text" content = "as a result of large-scale withdrawals by depositors and Washington's Mutual failure, regulators encouraged Wachovia to try to sell himself. Citigroup was the first buyer of Wachovia's retail banking business, for a record price of about $ 1 per share. "data-reactid =" 59 "> Following the massive withdrawals made by depositors and the failure of Washington Mutual, regulators have encouraged Wachovia to try to sell themselves.Many people do not realize or remember than Citigroup was the initial buyer of Wachovia's retail banking operations, for a record price of about $ 1 per share.

<p class = "canvas-atom-canvas-text Mb (1.0em) Mb (0) – sm Mt (0.8em) – sm" type = "text" content = "The shareholders were not satisfied with the low price , and Wells Fargo (NYSE: WFC) dipped and made a better offer without the participation of the government. Wells Fargo paid the equivalent of about $ 7 per share for the banking giant ($ 15.1 billion in total), an absolute boon for such a gigantic institution, trading around $ 50 per share a year ago. earlier. This acquisition is the main reason why Wells Fargo has become a national power today. "Data-reactid =" 60 "> The shareholders were not satisfied with the low price and Wells Fargo (NYSE: WFC) plunged and made a better offer without government involvement. Wells Fargo paid the equivalent of about $ 7 per share for the banking giant ($ 15.1 billion in total), an absolute boon for such a gigantic institution, trading around $ 50 per share a year ago. earlier. This acquisition is the main reason why Wells Fargo is a national power today.

In this transaction, investors received 0.1191 Wells Fargo shares for each of their Wachovia shares. Assuming that they retain these shares, they have achieved a total return of 531% since March 9, 2009. Although Wachovia was sold at a valuation at a fire, its shares did not sell at all. have not been as diluted as those of some other institutions; Shareholders who have maintained their position are surprisingly almost equal, given the peaks achieved before the Wachovia crisis.

WFC data by YCharts.

3. AIG: the classic case "too big to fail"

<p class = "canvas-atom canvas-text Mb (1.0em) Mb (0) – sm Mt (0.8em) – sm" type = "text" content = "At the time of the financial crisis, US International Group (NYSE: AIG) was the largest insurance company in the world. Unfortunately, losses on its mortgages and other assets led to major liquidity problems in the fall of 2018, and the company's survival was questionable. It was finally decided that AIG was "too big to go bankrupt" and the federal government therefore authorized a series of massive credit lines to keep the company afloat. "Data-reactid =" 77 "> At the time of the financial crisis, US International Group (NYSE: AIG) was the largest insurance company in the world. Unfortunately, losses on its mortgages and other assets led to major liquidity problems in the fall of 2018, and the company's survival was questionable. It was finally decided that AIG was "too big to fail." The federal government has therefore authorized a series of massive credit lines to keep the company afloat.

AIG sold a portion of its assets to reduce its leverage and raise capital. The company repaid all of its public aid in March 2013.

Regarding the price of its shares, AIG has recovered well, but is still trading at a fraction (adjusted according to the division) of its levels before the crisis. Since its trough in March 2009, AIG has generated a total return of nearly 700% for shareholders.

AIG data by YCharts.

<h2 class = "canvas-atom canvas-text Mb (1.0em) Mb (0) – sm Mt (0.8em) – sm" type = "text" content = "We could continue … for a long time "data-reactid =" 94 "> We could continue … for a long time

Between 2008 and 2012, 465 banks failed. To cite well-known examples, Lehman Brothers did not survive and Bear Stearns and Washington Mutual were acquired by stronger financial institutions. Countless others have survived only with the help of the government; Citigroup, whose situation was similar to that of Bank of America, was part of this group.

The fact is that this list is by no means exhaustive. The stories above are just three interesting examples of how some of the major US financial institutions (and their shareholders) have behaved from the bottom of the market ten years ago.

<p class = "canvas-atom canvas-text Mb (1.0em) Mb (0) – sm Mt (0.8em) – sm" type = "text" content = " More from The Motley Fool "data-reactid =" 97 "> More from The Motley Fool

<p class = "canvas-atom canvas-text Mb (1.0em) Mb (0) – sm Mt (0.8em) – sm" type = "text" content = "Matthew Frankel, CFP holds shares of Bank of America. The Motley Fool has no position in any of the actions mentioned. Motley Fool has a disclosure policy."data-reactid =" 105 ">Matthew Frankel, CFP holds shares of Bank of America. The Motley Fool has no position in any of the actions mentioned. Motley Fool has a disclosure policy.