Allstate Bank another failed effort by this management group
With your way of thinking, a company would never try any new venture -- or have the sense to exit it if warranted. Allstate Bank was begun in a much different business and regulatory environment. It amassed a very large amount of deposits in only a short time. Ten years later, the market is very different and it makes sense to make adjustments in business operations. That's what successful companies do. What's the problem?
Gator hit the nail on the head. Allstate has ended up firing the majority of the bank's depositors over the last few years--its captive agents who had bought CDs in order to keep their jobs. No depositors -- voila, no bank!
Successful companies don't just take a "flyer" on this. They factor in their cost of capital, they come up with projections, they end up making money, instead of sinking money down a hole. That did not happen here. There was a mention of losses not being "material". There was no mention of Discover paying a premium, and having to capitalize goodwill (meaning the bank was worth more than their book value). No, this was no success. It was a complete and utter failure. Of course, now, a day later, earnings are out, and we see yet another barometer of TW's savy in running an American Icon.
Their losses are not related to a "hail storm cat" but rather a "financial cat", for example, investments in subprime mortgages, credit default swaps transactions, rewriting "reinsurance" into insurance linked securities that default, and derivatives.
Where is their "reinsurance" that every homeowner pays for in premiums? Where is their "reinsurance recoverables"? What NO reinsurance AGAIN? Oct. 18, 2007 Catastrophe claims cut Allstate's third-quarter profits- Medill Reports by Patrick Temple-West Oct. 22, 2008 Travelers soothes investors: Allstate post loss - Reuters by Lilla Zuill August 4, 2010 Allstate's net income drops 63 pct AP - behind the numbers, the drop was a result of steep investment losses related primarily to derivatives, which Allstate uses to hedge against risks such as interest-rate fluctuations.
Yet somehow Allstate seems to always have enough income to repurchase shares. 11-9-2010 Allstate announces plans to repurchase $1 Billion in shares by March 2012. Bloomberg by Hugh Son