Interest Rate Roundup

Thursday, August 28, 2008

Banks that didn't screw up

I've spent quite a bit of time and digital ink talking about banks, brokers, and other financial firms that really got this credit market wrong. So it's refreshing to come across stories on companies that actually got things right. In other words, they avoided the high-risk crud and stuck to their knitting. That's how Bloomberg describes People's United Financial of Bridgeport, Conn. in a story today:

"People's United Financial Corp., the largest New England-based lender, is seeking acquisitions after steering clear of the subprime-mortgage market, and can "cherry-pick'' borrowers abandoned by cash-strapped banks.

"The bank, which raised $3.44 billion in April 2007 before credit markets tightened, has money to purchase companies, Chief Executive Officer Philip Sherringham said. If no acquisitions catch his eye, the bank may buy back stock with the capital, "returning it to shareholders one way or the other,'' he said.

"Our greatest challenge?'' Sherringham said in an interview on Aug. 25. "Capital deployment, absolutely.''

"As banks and securities firms reeled from more than $500 billion in writedowns and credit losses tied to subprime, People's United consistently reported quarterly profits. The Bridgeport, Connecticut-based company's stock declined less than 1 percent in the past 12 months, holding steady as nine U.S. banks failed this year and finance companies were forced to raise more than $352 billion in capital.

"People's United has "a very clean balance sheet right now,'' said KBW Inc. analyst Damon Del Monte in an interview yesterday. "The last thing they want to do is acquire a bank that has some unknown loan issues on their books.'' He has a "market perform'' rating on the shares."

This brings up another point. So much time, effort, and money is being spent trying to keep even crummy firms liquid, on life support, or whatever you want to call it. Everyone seems to want a bailout. But how about the thought that maybe -- just maybe -- letting the weak die off would make it easier for the strong to thrive? Isn't that what capitalism is all about?


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