Big banks vulnerable to takeover

Back to basics

Now enter the new sheriff in town. Board members calling the shots from Singapore and Abu Dhabi are not going to waste their countries' hard-won patrimony on speculators.

I spoke this week with an American investor who has partnered with sovereign wealth funds -- essentially government-controlled hoards of stocks, bonds and cash purchased with money generated by oil and other exports -- from both countries. He asked not to be identified but told me both groups are traditionalists much more keen on plain old retail banking than on investment banking. They want safe, stable businesses on which they can earn steady if boring returns. Their cultures do not celebrate the individual or worship the masters of the universe who've ruled our banks.

Singapore, in particular, arose from post-World War II poverty to earn its trillions via shrewd trading out of its tiny island base on the Malay Peninsula. It now hosts the largest port in the world and is the model for Chinese investors scouring the globe for long-term investments in retail financial institutions, civil infrastructure and resource development. My source said Singaporean investors are most unlikely to sign off on the sort of financial-engineering tricks and rolls of the dice that got Citigroup, Bear Stearns (BSC, news, msgs) and Washington Mutual into so much trouble.

"They worked hard to be rich, and they aren't going to let people steal it from them," he said. "When you were once poor, you don't regard wealth as an entitlement. You appreciate it more and are loath to risk it. Banking will be a lot duller over the next few years if Singapore and the Arabs dominate."

Looking further out, of course, we know from 19th-century British historian Lord Acton that if power corrupts, absolute power corrupts absolutely. In time, we can be sure that our new financial masters will screw things up, only to be bailed out themselves by new kids on the block.

For now, as a practical matter, you can bet that with share prices scraping multiyear lows, prospects dimmed and sentiment in the tank, consolidation will be the next big thing in banking. Even if the foreign buyers proceed cautiously with their new empire building, expect stronger institutions such as JPMorgan Chase (JPM, news, msgs) to be on the prowl.

Fine print

For more background and analysis on the big banks' lies, mistakes and missteps, please go back and check out my columns "What the big banks aren't telling you -- yet" and "Are we headed for an epic bear market?" . . .

To learn more about Singapore, visit its Ministry of Information Web siteor its tourism Web site. Also check out my colleague Jim Jubak's Aug. 24 column or watch his video below. . . . To invest directly in Singapore, try the iShares Singapore (EWS, news, msgs) single-country fund. It's up 26.7% this year versus 4% for the S&P 500 Index ($INX). One of the largest Singapore investors is Temasek Holdings.

Meet Markman at The Money Show

MSN Money's Jon Markman will be among more than 120 investment and finance experts sharing buy-and-sell advice at The World Money Show in Orlando, Fla., Feb. 6-9. Invest four days dedicated to planning and refining your portfolio by attending the event's more than 320 workshops and panel presentations. Admission is free for MSN Money readers.

To sign up, call 1-800-970-4355 and mention priority code No. 009554, or register online.

At the time of publication, Jon Markman did not own or control shares of any companies mentioned in this column.

< previous |  1 | 2 |