Home > bank merger, economic crisis, financial crisis 2008 > Who holding my money again?

Who holding my money again?

The weekend had me having lunch with my friend from an earlier assignment and we discussed what’s happening with bank mergers. The client got taken over by another bank during the financial crisis of 2008. Turns out, the bank that’s taking over did not lose money during the crisis and hence, they bought out the larger bank that was in trouble. Now, that would be a good thing, but the conversation over dinner revealed something that was very shocking to me.

The bank taking over did not lose money in the real-estate business, not because it made smart investments when other banks were handing out home-loans left, right and center. It did not lose money because it was banned from doing business in real-estate by the Feds for a few years. The bank was caught with accounting irregularities by the Feds who slapped a penalty on the bank barring it from dealing in Real Estate business – which was a very lucrative business at that time. In hind sight, the Feds ban turned into a boon for the bank as it did not lose money when Real estate went bust ; as a result of which this bank was sitting rich in cash while other banks were tethering at the brink of failure. By any standards, this cash rich bank is not a Smart bank as it did not incur losses because of smart investment choices. The only reason it did not lose money is because it was not allowed to do business in that sector because of accounting errors made by the bank. Had it been allowed to do business in real-estate, it would probably have lost more money than the bank it is now taking over – my reason for such a conclusion? If a bank cannot keep proper accounts of its transactions, how good a bank it is?

Here are a few more golden nuggets that were unearthed from the conversation –

The bank also does not want to do any work offshore because of its conservative mindset. This will translate into higher running cost for this combined entity because they are not willing to adapt to what is the current industry-wide practice.

The richer bank also has older technology and they are now forcing the other bank to go backwards to technology that’s obsolete. Why? – Just so the richer bank’s management does not have to go thru a learning curve and their managers the balance of power. If business decisions are made for such self-serving purposes, I shudder to think about the chances of the bank surviving for a long time in future… Money in the hands of such banks will only mean they will be reluctant to hand out re-financing loans to people because the bank has a conservative mindset and they do not even have the expertise to make the decisions to separate out the good loans from bad.

What’s worse? The richer bank not only has its own clients, it also acquired more clients from the larger bank that went bankrupt as the latter had a larger customer base than the former…

Reminds me of a quote… “Business models should be so simple, that fools should be able to run it… because someday, a fool will eventually end up running the business”. Only difference being… banking is not a simple business…

I’m now checking my bank balance and transactions almost everyday… oh what Joy to know my money is in safe hands!!

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  1. May 18, 2010 at 13:58

    So you blog yaha bhi and waha (Blogger) bhi? All that time? And how have you been Spikey?

    • Spike
      May 18, 2010 at 17:26

      I have been awesome, thank you for asking. When one posts as (in) frequently as I do, number of blogs becomes irrelevant 🙂 how have you been…

  2. April 4, 2010 at 12:22

    teffific – in today’s time a few can bank on their bank!

    • April 4, 2010 at 12:47

      yep… sadly that is the truth. Just as HR is there to help the company while giving the illusion that they are to serve the employees, bankers are there to ensure their own salaries while giving he illusion they are there to make the customers richer!

      As Warren Buffet once said… Wall street is the only place where someone driving a Rolls Royce / Bentley comes to take advise from someone who takes the subway/public transport!

      Good to see u here AD

  1. March 23, 2010 at 10:41

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