The investment banking industry is waiting anxiously to see what happens with two banking giants. Citigroup, was reduced to next to nothing before the U.S. government saved the company from bankruptcy. Although not public knowledge, it is widely speculated that the government is forcing Citigroup to sell off many of their assets. It appears that over the weekend this story was leaked prematurely but Morgan Stanley, another investment bank saved by the government is in talks to acquire Smith Barney, Citigroup’s investment arm. It would give Morgan Stanley more than 11,000 new brokers and access to the diverse offerings of Smith Barney.
What can we learn from this? First, you will find that the market is emotional. The thousand dollar question being asked is why has the economy done what it has? There are numerous fundamental reasons (reasons related to measurable economic factors) but there are others based on emotion. Investors, some responsible for billions of dollars, got scared which made others get scared. The stock market was down today, in part, because investors don’t like when something is in flux. They like to hear of done deals, not deals being negotiated.
We must also take note that the M&A market (Mergers and Acquisitions) is starting to come back and that’s a signal of an economy that is improving. At least a little bit. Although this will make some waves, this merger will be a good thing for the banking world because investors will see Morgan Stanley as a little more stable and with a clear business model.
How can you make money on this? Invest in Morgan Stanley although I wouldn’t invest in any bank right now.
Talk Back: Why do you think banks are the black sheep of the market right now?