If the big investment banks were the ones betting wildly on mortgage backed securities and the insurance on them, how did some investment banks come out largely unscathed while Bank of America stock STILL is lower today than it was in 2007?
In: 8
There’s rarely much logic that goes into stock valuations… It’s just as much about public image/perception as it is about stability of the underlying business.
I will throw 2 things that contribute:
1. Big banks like BofA were more heavily regulated after the crisis. Which prevented them from taking on big risk/big return investments. They were required to hold much more of their deposits in safe low-return investments. Interest rates for savings accounts at these banks are low for a reason. Basically, after 2008 they were flooded with depositors despite their low interest rates and they didn’t have anywhere they could really put it because of the increased regulatory requirements. During this time smaller online banks, like Ally for example, had comparatively high interest rates (1% vs 0.1%).
2. Investors were very aware of this dynamic. As a result investors went to invest into smaller banks who could still take higher risks. They were viewed as better investments because they could expand into new investments that the big banks couldn’t. Banks like SVB. This raises the stock prices of smaller banks while keeping larger banks lower.
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