Banking on Banks

So was it a structural problem, or just a liquidity problem?

Around the world big banks are paying back the government aid that they received during the height of the financial crisis of 2008. The latest bank to formulate an exit plan is Dexia Bank, Belgium’s largest financial conglomerate. In 2008 the financial giant received billions in support from the European Central Bank.

Late last week the bank announced that it would be selling a number of business lines and investment assets in a strategy designed to raise capital and allow it to pay back the ECB ahead of schedule. They want to get off the government dole and begin to pay out dividends like the big regional banks over here. It’s hard to justify paying dividends to shareholders when you still haven’t paid taxpayers back—hence the accelerated plan.

Ironically, this arrangement will result in a short-term loss, but the shares traded up anyway, perhaps because of the prospect for increased payouts to shareholders in the not-so-distant future. Dexia is big in Europe; it’s every bit as significant as Wells Fargo or Bank of America.

I’ve argued before that most of the banks in the US were fine, and only a few major institutions like Fannie or AIG needed the government’s extraordinary help during the crisis. With Europe’s biggest recipient exiting the program early, that thesis just got stronger.

Douglas R. Tengdin, CFA
Chief Investment Officer
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By |2014-09-11T12:16:35+00:00May 31st, 2011|Global Market Update|0 Comments

About the Author:

Mr. Tengdin is the Chief Investment Officer at Charter Trust Company and author of “The Global Market Update”. The audio version of each post can be heard on radio stations throughout New England every weekday. Mr. Tengdin graduated from Dartmouth College, Magna Cum Laude. He received his Master of Arts from Trinity Divinity School, Magna Cum Laude and received his Chartered Financial Analyst (CFA) designation in 1992. Mr. Tengdin has been managing investment portfolios for over 30 years, working for Bank of Boston, State Street Global Advisors, Citibank – Tunisia, and Banknorth Group. Throughout his career, Mr. Tengdin has emphasized helping clients manage their financial risks in difficult environments where they can profit from investing in diverse assets in diverse settings. - Leave a comment if you have any questions—I read them all! - And Follow me on Twitter @GlobalMarketUpd

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