Yours truly has been a substantial and loyal client of a large complex financial and banking institution that, of course, brands credit cards along with engaging in the usual practice of owning and distributing low-quality allegedly AAA-quality assets and then both accepting bailout money from the Fed and the Feds while claiming that it never needed it.
What impelled the above introduction was two envelopes received in the mail today, one addressed to me, the other to my wife. Each contained the identical pitch to get a new credit line for up to $20,000, with checks ready to use contained in the envelope, at an introductory rate of 5.99%. (How glad I was that they don't charge 6.00%! Customer-friendly in the extreme, don't you think?)
Now, this company has my wife as an individual depositor, me as an individual depositor, and the two of us jointly as individual depositors. It knows that we, therefore, are lending much more than $20,000 to the bank at the ridiculously low interest rates that the Fed has imposed so that the Bank can earn back all the money it has squandered on bad investments and bad loans, as well as on dividends and stock buybacks, not to mention overpaying its top management despite all their mismanagement. Why we would want to turn around and borrow up to $20,000 at 6% when we are lending much more than that to the bank is difficult to understand.
The fact that the bank has not bothered, a number of years after acquiring a leading credit card branding and issuing company, to tie that company's database in with the bank's database so that it could avoid embarrassing itself with these mailings means that the company has fallen yet another notch from my already low opinion of it.
The company has our phone number and has spoken with us many times in the recent past regarding the loans we have made to the company, called banking deposits, as well as the securities and large cash position with the securities firm the bank also owns with which we also have a significant account. Perhaps a phone call on whether we wish to take $20,000 out of savings, blow it on a vacation, and pay for that vacation by charging $20,000 on credit at 6% interest would be a nice courtesy, rather than an impersonal double mailer? Client relations, anyone?
This is a small example of the principle that these sorts of companies did not get big because of any synergies or other stuff mentioned in the press releases issued announcing the acquisition.
As with the two pharmaceutical company mergers discussed on this blog this year, Pfizer/Wyeth and Merck/Schering-Plough, the deal in and of itself rewards the company's buddies on Wall Street. Where the acquirer is itself "Wall Street", it has the extra critical benefit of helping make it "too big to fail" and therefore more immune from normal business forces.
Empirical research has apparently shown that when financial companies exceed a certain size, further bulking up actually harms profitability.
This is further grist for the mill of those who object to the propping up of these giant financial companies laughingly called "banks". They are hedge funds and gambling institutions that only exist because the Powers That Be have shown that they will commit virtually any funds they can beg, steal or borrow to their cause, all under the pretext that we the people need these entities to exist to so that they can lend us back our own money.
As I write, there is a concerted effort underway to convince the public that these companies are profitable this quarter, and a huge short-covering stock rally has already occurred. As the eye of the current economic banana/storm/recession/depression approaches, one doubts real economic profitability after write-offs and loan losses, but if so, it is only because the Government and the Fed have decided to starve the rest of the economy to create these profits.
Especially with regards to large financial companies, the stock market is now a rigged casino, no different than the one Rick ran in "Casablanca". Play if one wishes, but it should not be with any illusions that the playing has any resemblance to true investing.
Copyright (C) Long Lake LLC 2009
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