US prime mortgages have created some merger opportunities in the banking industry. If mortgage problems persist, there will be more victims in the credit sector.
There was talk of mergers and consolidations between Bank of America, Countrywide Financial Corp, JP Morgan Chase & Co, Washington Mutual Corp, National City Corp, Sun Trust Corp, etc.
Some mergers have already happened like the first and others may follow suit.
Financial institutions that did not lend money to risky borrowers are in a strong position. They can benefit from troubled companies not only by acquiring them but also by reducing competition.
Failed banks and financial institutions can attract customers, infrastructure, capital, etc. to acquiring companies. This will benefit the purchasing companies in building a solid foundation, a broader market and trained staff. That, too, can increase your earnings over time, and therefore stock prices.
Therefore, it might be advisable to be careful with companies that are in the process of being acquired, as they will benefit directly from the acquisition in question.
Due to credit problems and huge losses, many US banks have turned to foreign governments and investors such as China and the Middle East to replenish their capital. There have already been compromises. This could also be positive for the financial sector.
Investors will be better off keeping an eye on struggling banks and financial institutions. Some of them by themselves, like the Citi group, can provide excellent returns to long-term investors if bought at these prices.
Investors can also look for banks that will benefit from buying weak companies in the short and long term. 2008 will be crucial for the banking sector as a whole. The massive losses suffered by many financial institutions have created a credit crisis in the market. This could extend to other sectors such as consumption. That could trigger further consolidation of the economy beyond the financial sector.
Mergers and acquisitions are generally good for companies and investors as they create synthesis and synergies between acquiring and acquired banks.
Before investing in these banks, you should always do a thorough research and make an informed decision both in terms of time and investment amount.
Mergers and acquisitions are not necessarily bad. They can be good. However, if they result in the creation of monopolies, then they may work against consumers. Monopolies are not conducive to competition and are likely to stifle growth.