So, if Bear Sterns (BSC) is gone and Lehman (LEH) appears to be next, doesn’t that make Goldman Sachs (GS), Merrill Lynch (MER) and Morgan Stanley (MS) stronger in the end?
As regional banks fail and it looks like either Wachovia (WB) or Washington Mutual (WM) or both may also, doesn’t that make JP Morgan (JPM), Wells Fargo (WFC) and Citigroup (C) that much stronger after the carnage ends (it will)?
In my recent interview with AutoNation (AN) CEO Mike Jackson, we spoke of this very scenario. He said scores of auto dealerships in the US will disappear this year. I asked him if he would try to acquire these then very cheap properties or just let his market share grow through attrition. He simply stated “we will let it grow through attrition”.
In any business as competitors fall by the wayside, those left standing are left in a superior position than they were before the events that lead to the fallout began. Jackson said that there is “significant postponed purchases” of autos out there and once the credit environment resolves itself, those people will return. Because his company will be one of the ones left standing, more of that hoard will be buying from him.
The same holds true with investment banks and depository banks. The number of deals that will get done over time will grow and the numbers of services people will want from banks will also. The main beneficiary of the current malaise is those who are left standing as the increasing demand for those services is met with fewer options.
Now, the “when” is debatable, but not the “if”. This is the natural “cleansing of capitalism”. Those who took disproportionate risk and had seriously flawed business models face a day of reckoning as their flaws are exposed by the system. As those businesses are weeded out, those left with durable models survive and prosper.
Financials may very well get crushed again today, if Goldman goes below the $150’s or Wells Fargo dips below $30, it will be hard not to nibble at them again….
Disclosure (“none” means no position):Long GS, WB, C, none
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