There’s a vacant lot, empty, bare, desolate, on Biscayne Boulevard in North Miami where the Second National Bank used to proudly stand. The bank was sold to one of the young officers who had been a director and he literally ran it into the ground with bad loans and poor management. After that the bank was sold to another bank which in turn was sold and finally the Second National Bank was distilled into a branch bank that was closed. The wrecking crews are gone, and the land sits vacant.
Investing in a new bank is not without risk. Just locally in Miami many of them are gone forever. What ever happened to Florida National, Southeast Bank, Metro Bank of Dade County, Bank of Miami, and Dade Federal? I can name many more: Peoples, Citizens, Lincoln National and Five Points.
The largest disaster was Washington Mutual Savings and Loan which went down in September 2008, leaving 43,000 employees out of work. Why? The bank had $188 billion in assets, was located in 15 states with 2,200 branches. Remember the Great Recession of 2008? Washington Mutual was heavily invested in mortgages, mainly in California. The real estate market dropped, and the unsold home inventory went from six months to fifteen. The principal balance of the loans was greater than the value of the house securing it. They often were subprime mortgages made to unqualified borrowers. When a loan exceeds the value of the property people stop making payments. The loans have no resale value.
Washington’s major client, Lehman Brothers, went under. Neither Lehman Brothers nor Washington Mutual were considered “too big to fail”, and they weren’t rescued. Washington’s assets were bought by JPMorgan Chase. Washington’s directors didn’t follow the lender’s rule which is, before the loan, ask yourself: Would I be happy if the borrower defaults and I foreclose?
Wealthy people don’t keep their savings in a bank anymore. The days of the six percent annual return on Certificates of Deposit are long gone. Nowadays the banks pay less than one percent on cash deposits and CD’s yield about two and a quarter percent annually for a two-year investment. So, what do the rich do with their cash? If they’re rich enough they get a financial advisor. There are loads of them. Individuals hold themselves out as Estate Planners and Financial Advisors. Banks are right in there. JPMorgan Wealth Management, Wells Fargo Advisors, Charles Schwab, State Street Global Advisors are in the hunt. Then there are the exclusive private investment companies for the ultra rich like Bessemer Trust who requires a minimum of ten million dollars investment before they’ll handle your account. You have to agree to pay no less than one percent of the principal per year in fees.
Assuming you’re going to handle your own funds, how do you invest? There are Index Funds which follow certain stocks or banks, and you can buy stock in those funds. They’ve selected the stocks for you. Some specialize in certain industries. Vanguard, Black Rock and Fidelity qualify.
Millionaires often buy real estate, usually through a real estate broker. There are groups which sell ownership shares in office buildings, commercial property, apartment houses, hotels, stores and parking garages.
There’s the commodity exchange with investment in the future prices of soybeans, corn, sugar, pork bellies and all other produce.
What about arbitrage? Trading on the anticipated value of other currencies?
Then there are those who invest in collectors items including fine art, rare books, precious stones, jewelry, stamps, cars, musical instruments or possibly intellectual property including movies, book rights and music.
Cryptocurrency is too much of a gamble for me.
So, Good luck. It’s a challenge to be able to live on the income your investments earn. If you invest in a bank, hopefully it won’t turn into a vacant lot. Then it’s back to work. ~Lewis