In 1997, BankAmerica lent hedge fundD. E. Shaw & Co. $1.4 billion in order to run various businesses for the bank.[33] However, D.E. Shaw suffered significant loss after the 1998 Russia bond default.[34][35]NationsBank of Charlotte acquired BankAmerica in October 1998 in what was the largest bank acquisition in history at that time.[36]
While NationsBank was the nominal survivor, the merged bank took the better-known name of Bank of America. Hence, the holding company was renamed Bank of America Corporation, while NationsBank, N.A. merged with Bank of America NT&SA to form Bank of America, N.A. as the remaining legal bank entity.[37] The combined bank operates under Federal Charter 13044, which was granted to Giannini’s Bank of Italy on March 1, 1927. However, the merged company was and still is headquartered in Charlotte, and retains NationsBank’s pre-1998 stock price history. All U.S. Securities and Exchange Commission (SEC) filings before 1998 are listed under NationsBank, not Bank of America. NationsBank president, chairman, and CEO Hugh McColl, took on the same roles with the merged company.
It was a merger of equals, but one was more equal than the other I think what it came down to was that Hugh McColl (Nationsbank CEO) outsmarted Dave Coulter (BofA CEO), who was manipulated into mistakenly thinking that it was a merger of equals. Don’t think BofA was in any kind of trouble either, Coulter just got duped.
According to its 1998 Summary Annual Report, B of A had almost $620 billion in assets. I don’t think a troubled loan of $1.4 billion is enough to cause it to run to a white knight bank to save it.
Banks tend to have very high leverage ratios, so the amount of bad loans and other assets they have on their books can be dramatically amplified by their leverage ratios.
I agree with you that shareholders would also take losses when banks blow up. There’s, however, an asymmetry between profiting from gains and suffering from losses due to the leverage ratios (which are particularly high for banks). Shareholders’ losses are limited to the amount of their equity and they wouldn’t bear the full amount of losses if the losses exceed that equity. Shareholders are always incentivized to take on more risk than other stakeholders (such as debt holders).
SVB reminds me a lot of Washington Mutual. If you don’t diversify, sooner or later your investment is going to crater. Most the Silicon Valley tech investment was artificial demand from the pandemic. Once things returned to normal, all that e-commerce technology isn’t useful anymore.
SVB’s risk was known. Someone at SF FED was asleep on the job. If the enforcer doesn’t do their job and the CEO is irresponsible, no amount of rules or regulations will help. I think FED is trying to cover up their contribution to the collapse by blaming rules. Smoke screen.
Bank stocks are plummeting this morning. Hard to tell if this is a temporary reaction to the FRC failure, or if another big small bank is in imminent danger of being the next to fail and cause a landslide in the financial industry.
I think it’s scary. These are 3 big bank failures in the past 6 weeks or so (shown on that graph a few posts above)…contagion seems like a real global risk right now. Compounded by debt ceiling issue here in the US. Seems like more uncertainty/risk than normal.
I don’t know why bank stocks didn’t tank yesterday though.
My guess on the stock market now is the debt ceiling coming into play. It’s pretty well known that the two sides don’t play nicely together anymore and aren’t afraid to let it affect everyone else. That’s never good for the stock market and banks will be affected too.
Plus, tomorrow’s likely interest rate hike is a huge stock market (negative) effect.
I think what it came down to was that Hugh McColl (Nationsbank CEO) outsmarted Dave Coulter (BofA CEO), who was manipulated into mistakenly thinking that it was a merger of equals. Don’t think BofA was in any kind of trouble either, Coulter just got duped.