Afriend asked me for advice over the weekend. He used to work for this bank in the 80's and 90's when it was Magna Bank, investing in his 401k, which he owns 2500 shares of RF. He came to me about 6 months ago after seeing his quarterly report drop so drastically, and I suggested he transfer the shares to the cash fund. He called the bank rep who suggested he keep the money in those shares so he could recuperate the losses. He unfortunately agreed to this suggestion. He comes to me over the weekend to show me his latest quarterly report, which showed the stock at 8.96 in early January and his hard-earned savings nearly depleted. So, I looked up this stock, and was baffled seeing it at 3 and a half or whatever.
I have no idea what to suggest. It's not his only savings, thankfully. It's one part of his retirement, but should I tell him to transfer his shares to a cash fund asap or what. On sunday, I told him to keep an eye on the stock a couple times a day for a couple weeks to see if any spikes happened closing in on the new stimulus plan, and then transfer it to a cash fund. I had not heard of the bank going under or any problems until I started reading this message board. I live in an area with a lot of these banks, and I recently contacted a branch about refinancing my house because they have the best rates and lowest fees.
I feel bad telling him to transfer 6000 bucks to a cash fund when it used to be worth 80,000 and if it did spike following a stimulus, he could maybe get it back to 10-15 thousand before shifting it. What should I tell him?
If this is not desperately needed money, tell him to buy and sell the dips and pops in the stock. Within the 401k he only gets the closing price so no intra-day activity. Tell him not to worry about what his basis is, but where the stock is going. If he feels that it is undervalued or at the low end of the range, tell him to buy some little at a time. If it pops, like lately, tell him to sell a bit at a time.
Buy buying and selling like that he will recover much more quickly than holding and waiting to come back to 30/share. If he can get some nice 20-30 percent moves little by little he can get it to come back, much more quickly than holding.
This bank will be zeroed out via CH 11, 7 or buy-out. The market is telling us that. FDIC depositors are not @ risk - but you will be disappointed waiting for a positive result in the common equity ala WM, BSC, LEH, WB, AIG, IndyMac, NCC etc...
Regions strengthened its capital position in the quarter through its participation in the U.S. Treasury’s Capital Purchase Program. The Company issued $3.5 billion of senior perpetual preferred stock and warrants to the government, which raised its Tier 1 ratio to 10.4%, well above minimum “well-capitalized” guidelines. The Company’s tangible common equity ratio was 5.23% at year-end 2008, a 46 bps decline from Q3 2008, which was related to an increase in total assets due to an increase in invested funds from preferred share and debt issuances.