Posted February 6, 2009
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Who'da Thunk It

A share of Bank of America won't buy you a Big Mac

Below $4 » Goldman market value now twice that of biggest U.S. bank
By Christine Harper

A share in Bank of America Corp., the biggest U.S. bank with more than $1.8 trillion in assets and 243,000 employees, can't buy a Big Mac meal.

Bank of America stock, which dropped as low as $3.77 on Thursday, closed at $4.84 in New York Stock Exchange composite trading. A share of Citigroup, the third-biggest bank by assets, costs just $3.53. A Big Mac meal at a McDonald's restaurant in midtown Manhattan will set you back $6.59.

The reversal -- a year ago, Bank of America fetched $43 per share -- shows how fragile the industry's gains were in the first place. Lenders flourished in part because of a flawed belief in a universal banking model that was supposed to allow banks to sell myriad products around the world, said Roy Smith, a finance professor at New York University's Stern School of Business.

"All along, there were skeptics about the strategy of these universal banks -- they were too big to manage, too big to fail, too big to regulate," said Smith, a former partner at Goldman Sachs Group Inc. "They had to grow faster and faster to make the stock market believe in them and to do that they had to take more risk."

Goldman, the biggest U.S. securities firm before converting to a bank last year, now has a market value almost twice as big as Bank of America, even though the Charlotte, N.C.- based lender has eight times as many employees. Morgan Stanley, Goldman's smaller rival, has jumped 45 percent this year on the New York Stock Exchange.

Bank of America plunged 66 percent.

Goldman and Morgan Stanley are likely to return the $10 billion they each received from the U.S. Treasury as soon as possible, enabling them to escape limitations imposed with the money and to reassure investors their finances are healthy, David Trone, an analyst at Fox-Pitt Kelton Cochrane Caronia Waller, wrote Thursday.

By contrast, Citigroup and Bank of America each received $45 billion, the most from the U.S. government, as well as guarantees against losses from pools of assets, and investors worry they may need more, Smith said.

"Each time a round occurs, it squashes the interests of the shareholders even more," Smith said. "Who wants to own stock when that will be the outcome?"

© Copyright 2009/Exchange Morning Post/Exchange Business Communications Inc.
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