Bank Breakups - Opportunity Knocks ?

DionysusToast

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Well - it looks like the banks may be breaking up. Love that or hate it, what does it mean in terms of opportunity ?

First, let's consider the players in this game (amongst others).

1 - Company insiders/directors - of the original company.
2 - Company insiders/directors - of the companies that will get created.
3 - Underwriters handling the new issue.
4 - Shareholders.

Now - you don't have to be a rocket scientist or a major cynic to see that groups 1-3 are going to use the break up as an opportunity to make out like bandits. If you don't believe that the 'C' level execs of these companies are going to line their pockets on this deal. Stop reading now.

There will be 2 types of breakups. The Citi type where the bank will spin off the proprietary trading groups and the Goldman type where the thieving *******s will spin off the banking unit.

Shareholders of either may do OK, it just depends on how the execs & underwriters conspire to eek the maximum benefit for themselves personally out of this deal. Whatever happens, the existing shareholders benefits will be paid lip service but not really be a major consideration (unless the US govt steps in).

So - what I guess will happen is that a bunch of new instruments will be created, some of which but not all will be stocks. These will go to existing shareholders.

If you have time, it would be wise to study the details of these instruments and see if you can figure out why the deals are being structured in this way. It is not very difficult to do. The Wall St Journal web site will give the most info.

One thing to look out for as these banks have a high level of institutional ownership. Are any of the instruments being created outside of what their institutional owners want to keep. Funds & ETFs have sets of rules about what they invest in in terms of style, company sizes, types of instrument. If they are handed an instrument outside of those rules, they will have to dump them, this could create a few bargains.

Anyway - if this goes through, I think it's well worth some attention.
 
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