Taking Stock: Buy into the big banks?

Dear Mr. Berko: With the economy in recovery, what do you think of buying the big banks, especially JPMorgan, which expects to increase its earning by 15 percent this year and only sells for 10 times earnings? It looks to me as if banking profits, especially from credit and debit cards, will now begin to take off again.

F.S., Kankakee, Ill.

Dear F.S.: Banks made galactic fortunes in the housing, mortgage and consumer spending booms during the last dozen years sucking the marrow from the bones of the American middle class (AMC). There was glitter in the air; revenues and earning seemed limitless as bankers danced like gypsies in a celebratory carnival of riches. The Dow Jones boomed, billions in bonuses were paid, 401(k) plans became flush, shareholders were electrified, dividends exploded and balance sheets became fat.

''Those were the days, my friend,'' as the famous song goes. ''We thought they would never end.'' But they did, and the Ponzi scheme collapsed.

The big banks, including Wall Street's investment banks, created a financial earthquake of nearly 10 on the Richter Scale. Bank revenues and earnings collapsed; share prices, dividends and balance sheets imploded; the economy cracked while trillions of dollars of value, personal dignity and hope plunged into the widening fissures.

And while the government lavished TARP funds to keep the big banks solvent, the AMC was sliced at the jugular and bled buckets. Millions of AMC homes entered foreclosure; 8.7 million AMC workers lost their jobs, their credit, their honor, plus the silly notion that they were part of the American Dream. And thanks to the open, excessive greed of Citigroup, JPMorgan, Bank of America, etc., the AMC is drowning in despair. This huge, wonderful middle class, the DNA of our labor force, the spine of our economy, whose spending represents 71 percent of GDP, has been reduced to urinal poverty. The American Dream has become an American nightmare because the management of banks like JPM have no more conscience than a fox in a poultry farm.

JPM's ($46.59) earnings will be record setting in 2011 at $4.56, up l4.9 percent from last year's $3.95. And one of the reasons for this sparkling growth is the onerously higher fees skimmed from the credit and debit cards of the AMC. JPM is now considering an increase of its debit card fee to $5 per month from $3 per month.

Then JPM wants to limit your debit card purchases to $50 per swipe. Today, JPM charges you or the merchant 44 cents for each debit card swipe. For example, if you purchased a $250 TV yesterday, the merchant makes one swipe for $250, charging you or the merchant 44 cents. But because the swipe limit is lowered to $50, the merchant must swipe the debit card five times when you buy that $250 TV, increasing JPM's income on that transaction fivefold to $2.20. So the AMC gets kicked in the butt once again by JPM.

And the AMC will get kicked in the butt again when JPM begins to charge all its customers $3 each time they make a withdrawal from a JPM ATM.

I cannot in good conscience recommend a company with this plantation mentality that puts the AMC in chains. JPM's inexorable, consequences-be-damned drive to increase its income is offensive to me and should be to every American.

And while I believe the dividend will increase, I would not buy the stock. And while I believe the book value will increase, banks like JPM are too big to fail and too big to control. They're a giant squid that wraps itself around the body of the AMC sucking blood from the corpse. And while I believe JPM has an above-average potential return for the next three to five years, I would not own the shares.

Please address your financial questions to Malcolm Berko, P.O. Box 8303, Largo, FL 33775 or e-mail him at mjberko@yahoo.com. To find out more about Malcolm Berko and read features by other Creators Syndicate writers and cartoonists, visit the Creators Syndicate website at www.creators.com. COPYRIGHT 2011 CREATORS.COM

Published: Thu, May 19, 2011


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