Bank and savings and loan insiders spent more money buying shares of their companies in May, June and July this year than in any previous three months in at least two decades, betting that financial institutions are bouncing back from the credit-market crunch. Insiders including bank directors and executives bought $296.2 million of their own stock in the period, according to data compiled by the Washington Service. That's the most since the research firm began tracking the data in November 1986. “It does clearly indicate that management, directors, insiders are confident in their ability to see their way through these tough times,'' said Standard & Poor's analyst Jack Bartko in an interview Sept. 3. Financial companies around the world recorded more than $500 billion in writedowns and credit losses this year amid the collapse of U.S. mortgage markets, and were forced to raise more than $360 billion in capital. On July 15, the Standard & Poor's 500 Index reached the lowest since 2005 after investors lost confidence in a government plan to rescue mortgage companies Fannie Mae and Freddie Mac. The government seized the two companies yesterday. Some insiders have been “pretty vocal'' that July 15 was the bottom for financial stocks, said Anton Schutz, president of Mendon Capital Advisors Corp. in Rochester, New York, which manages about $150 million in assets. Previously, concerns over Fannie and Freddie and IndyMac Bancorp Inc.'s seizure by regulators led to “blood in the streets,'' he said. – Bloomberg
Dominant Social Theme: Bankers are smart insiders. They understand when to sell and when to buy. That's why they're bankers.
Free-Market Analysis: And so the myth of the savvy banker rolls on. You would think after decades of implosions, bankruptcies and general mayhem around the world that bankers might offer up a little humility alongside the inevitable gravitas. But such is not the case. These bankers are tough hombres, and never-more so than when they are burnishing their own image. According to the Bloomberg article above, please note that the purchases clearly indicate that management, directors, insiders are confident in their ability to see their way through these tough times.
Wow! Visualize the banker at sea, hair tousled in the wind, eyes crusty with salt ; face reddened by wind, skin wetted by ocean spray. This indeed a visionary captain, steering his boat – bank – through the treacherous shoals of troubled times. Only look down and you will see that the boat is actually on dry land, perched, say, on top of a trailer at the edge of a dock. The waves and wind and salt water are being sprayed from a distance. The banker is an actor.
Yes, today's bankers, at least the commercial center ones are banking the same way a boat is sailing when perched on dry land. Such bankers do not "see their way" through anything, let alone tough times. What they do, apparently, is tap the nearest central bank for the most money possible to bail themselves out. And Wall Street's investment bankers are no different. These tough business people are exposed for the most part as softies during a hard downturn like the one going on today.
We are gratified that big banks are buying their shares in large quantities. Were we in a similar business, we would do the same thing. But what we certainly don't look forward to down the road is the inevitable spate of articles lauding bankers' far-sightedness in buying when everyone else – the "little people" were panicking and selling.
It's no miracle when there's a central bank behind you, backing your every miserable move with the full faith and credit of a millions of citizens of a powerful, Western nation state. No, you would buy too, if you could see to the center of your industry and knew what others can only guess, that those who print the money will print enough to keep you afloat no matter what.
As we consider this phenomenon, it occurs to us that for once we can act like bankers as well. Assuming that the entire central banking mechanism isn't overturned at the end of all this, those bankers buying back stock do indeed stand to make a killing. If we can bring ourselves to act that way, we could surely buy bank stock, too. We haven't, though – we're too busy buying gold and silver.