Loyalty Pays a Bitter Dividend

[question everything]

OCTOBER 1, 2008

Loyalty Pays a Bitter Dividend
By E.S. BROWNING

Grace Pace, a 72-year-old widow, says her husband invested years ago in a local bank in Biloxi, Miss. Over time, that tiny bank was acquired and re-acquired, until it became part of giant Wachovia Corp. Still, Mrs. Pace and her husband, a Biloxi physician, held on: It was a point of family pride to have a stake in the local bank. On Monday, the day Wachovia was broken up in a forced sale to Citigroup, Mrs. Pace was in tears. Wachovia's dividend once provided a third of her income. That money is now gone. "You just think, 'This can't be happening,'" she said. "What is secure any more?" Mrs. Pace said her son recently reassured her that if things get really bad, she can move out of her home and into his basement, which has a window. Then she began to cry again.

Variations of Mrs. Pace's story are playing out in households nationwide. The financial crisis is overwhelming some of America's most loyal investors: individuals who've held on to bank stocks for years or even generations. After World War II, as the American middle class embraced stock investing, hometown banks were often a first choice. The honor of bank ownership became a part of small-town mythology, expressed in movies like "It's a Wonderful Life," the holiday-season fixture about a beloved local banker and his guardian angel. In the decades after the Great Depression and the bank failures of the 1930s, financial stocks rebuilt their prestige and earned investor confidence as the industry became a major part of the nation's blossoming service economy. Banks now employ 2.2 million people -- more people, and at higher wages, than McDonald's Corp. (whose restaurants employ 1.6 million world-wide).

Families often hesitated to part with bank shares that spouses, parents or grandparents had accumulated, even as the nature of the original institutions changed almost beyond recognition. By June 2007, ordinary individuals and small institutional investors owned roughly $750 billion in the stock of financial institutions, according to Thomson Reuters. By the end of June 2008, however, individuals' holdings in financial stocks had fallen by $380 billion -- more than half their value. Values have fallen further since then, of course. In the first half of this year, bank-stock dividends fell by $35 billion, or 53%, according to the Federal Deposit Insurance Corp. Roughly a quarter of that stock was held by small investors, according to Thomson Reuters, meaning they lost $8.8 billion in dividends in six months. Retirees are often particularly reliant on dividends for income.

(snip)

Of course, one of capitalism's bedrock rules is that when a company struggles or fails, its owners -- the shareholders -- bear the heaviest losses. Still, from the perspective of some of these conservative, long-term investors, the burden has fallen unfairly on the little guy. Some question how trusted community bulwarks were allowed to become speculative enterprises that behaved more like Internet stocks, and wonder why no one is being held responsible. He points a finger at the often highly paid executives who ran the failed firms. "It seems like they soak the shareholders and take off with a lot of money," Dr. Berry said. "I don't know why boards let CEOs do that kind of thing."

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http://online.wsj.com/article/SB122281847955092407.html (subscription)

[Mind_your_head]

1. Her son is a repuke.

She can move out of her house into his BASEMENT with a window!

I call BS on this 'story' or if it's not bs the woman got back what she 'spawned'

[Mojorabbit]

2. This is so sad. nt