Big lenders begin to find stable ground
Stronger financial institutions are purchasing weaker ones. Case in point: Bank of America has announced it will purchase Countrywide Financial.
America's banks and other financial institutions, frayed by the housing crisis, appear to be on the mend.Skip to next paragraph
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Stronger financial institutions are purchasing weaker banks and lenders. Some of the largest banks and brokers are getting injections of billions of dollars of new capital – much of it crucial as they report massive losses this week. There are indications, too, that trust is returning to the capital markets.
But few expect the improvement to be instant – and the US economy may still undergo a downturn.
It could take months, or perhaps a year, before the elements of the financial markets return to normal, many analysts say. In fact, the stock market, down about 11 percent from highs last October, is still taking losses. The Dow Jones Industrial Average fell 246.79 points on Friday as investors worried about lower earnings.
The latest signs of change came Friday when Bank of America announced it would purchase Countrywide Financial, the largest US mortgage lender, for about $4 billion. "It shores up what had been the poster child for the subprime mess," says Bill Knapp, investment strategist at New York Life Investment Management in New York.
At the same time, reports have emerged that JPMorgan Chase is in discussions to purchase Washington Mutual, another financial institution damaged by losses in the housing market. "It's a case of the stronger players coming in to pick up the spoils," says Mr. Knapp.
Financial experts anticipate yet more consolidation, especially among the companies that analyze and insure loans. "Some of those bond insurers are very attractive to major investors," says Fred Dickson, chief market strategist at D.A. Davidson & Co. in Lake Oswego, Ore. "There is some speculation that Warren Buffett might want to pick one up."