David Henry of Reuters, recently published an article on Business Insider digging into some potentially troubling activity from banks around the country. Banks like J.P. Morgan and Citigroup are on the verge of receiving backing from the Federal Reserve to buy back shares of its stock and increase dividends. Sounds like a good thing, right?
However, most of the money for these increased dividends and buy backs is coming from selling preferred shares. If you are unfamiliar with what, or how, preferred shares work, check out the link below for the full article.
Henry went on to say:
Critics of the strategy question how sustainable it is, as banks essentially take money from one set of investors and give it to another, and at an added cost.
The main takeaway from this article was that the industry of big banks is so fragile, and virtually a foreign language to normal investors, and investors should not be drawn in by any fancy lingo these bankers might throw around. What seems like a sound investment could really be a big ‘smoke-and-mirrors’ act from the banks. Know the difference.