Filed under: Deals, Citigroup Inc. (C), JPMorgan Chase (JPM), Bank of America (BAC), Countrywide Financial (CFC)
Jamie Dimon, the head of JPMorgan Chase (NYSE: JPM), sees massive bank mergers coming, especially in the US and Germany. Speaking about the fallout from the current debt crisis he said, “Companies recognize after such a collapse that they need more weight, more capital and access to good, long-term financing.”
Dimon is right, of course, but his comments neglect to address how huge financial institutions can evaluate risk at other companies that they might take over when those risks are not fully known to anyone. Citigroup (NYSE: C) is probably as good a target for a takeover by another huge bank as any. Some of its units could be sold off for cash. Others could be integrated into a firm like JPMorgan Chase with savings due to overlapping functions. But Citi does not yet have a handle on its own liabilities, so why would another bank take the danger of finding out that things were worse than the markets expected?
The same holds true of Countrywide Financial (NYSE: CFC). There has been speculation that Bank of America (NYSE: BAC) might take over the mortgage lender as BAC has already invested in the smaller company. But the massive fluctuations in CFC shares indicate that the market has no idea what the eventual fate of the firm’s prospects are.
Mergers are a good idea in theory, but the danger profile of many candidates probably takes them out of the picture.
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