Pensacola Banking Losses

It was only two months ago we found ourselves in casual conversation with a mid-level bank employee who assured us, "You can have confidence in Bank of America. We are the strongest bank in the country."

One month ago, that same employee lost her job. We called the other day to offer our commiserations. She said all she had left were her paltry shares in BAC.

Carleton Proctor of the Pensacola News Journal yesterday resurrected the local history of bank stock ownership and the picture isn't pretty:

Declining bank stock values erode the foundations of a community's wealth, and that is being felt acutely here in Pensacola. The stocks of Bank of America and Regions Bank are both widely held among Pensacolians due to acquisitions of large local financial institutions by those companies many years ago.

First Mutual was the largest financial institution in Pensacola for years before it was acquired by AmSouth back in the mid 1980s. AmSouth later merged with Regions. The "old" C&P Bank was acquired by Barnett Bank in 1993 and Barnett later was acquired by NationsBank which was then acquired by Bank of America.

One local banker told me many people who originally held C&P stock rode the wave through the series of mergers and never sold. Many regret that decision now that the values of those stocks has declined precipitously, and their dividends are reduced to almost nothing.

It can only get worse for local shareholders who, like the ex-employee we spoke with, "never sold."

Nouriel Roubini has been hinting for some time that once we summon the political will we will have to nationalize the "behemoth banks" if we're ever going to clean up the finance mess Wall Street created. Yesterday in the Washington Post he made it explicit:

Nationalization is the only option that would permit us to solve the problem of toxic assets in an orderly fashion and finally allow lending to resume. Of course, the economy would still stink, but the death spiral we are in would end

Nobel Prize winning economist Paul Krugman is of much the same opinion. As is his fellow Nobel Prize winner, economist Joseph Stiglitz.

Joe Nocera identifies several other banking analysts who agree. You know that nationalization of banks is inevitable when even ubber-conservative U.S. Senator Lindsey Graham says its time has come.

So, when a mega-bank like Bank of America is nationalized, what happens to local stockholders? Their holdings will get further diluted, if not wiped out altogether.

Already, B of A stock has fallen nearly 85% from its high of the last six months. Unless they dump what's left, it seems most likely that local investors who have ridden this falling meteor all the way down from the Barnett Bank days are about to smash into the ground.