Financial Sector Could Be Entering A Period Of Consolidation
The recent news that Bank of America has offered to buyout struggling mortgage giant Countrywide Financial could be signaling a period of consolidation in the banking sector. As I wrote in a previous article, financial stocks are going through a rough period right now but could be potential bargains when the sector does recover.
Many of the larger financial institutions after suffering large losses last quarter have been re-capitalized with new investment. This doesn’t mean the credit crunch will end anytime soon though. Still stung by the mortgage meltdown, companies are still reluctant to lend out funds.
Awash with new money and unwilling to lend it out, larger companies could be seeking to gobble up their smaller brethren while stock prices are still down. Financial stocks are trading at way below their historical PE ratios currently. What would be a smart buy for a single investor is even more so for these companies but on a much larger scale in this case.
It may take a few years but the mortgage industry will eventually recover. People will always need a place to live. The industry was a solid profit maker before this mortgage mess started and will be again in the future.
Smart investing has always been about taking the long run approach. If you start seeing more news about mergers and acquisitions, it means it’s time to jump back on the bandwagon.
