Tweet
i received a promotion to move ira assets to capital one sharebuilder that looked attractive enough to follow up. so the first thing i did was check their financial condition.
they are the brokerage subsidiary of capital one bank, and they were purchased in the merger with ingdirect. i looked at their balance sheet (12/31/2012), which appeared relatively low risk at first. they had something like 100mil in margin account loans on their assets and 100mil in equity. the total balance sheet was 270mil and they had 33mil in cash. but they did not have an income statement.
their merger was complete in feb 2012, so their may have been some monkey business going on in their financials during that period. so i looked at their 6/30/2012 balance sheet and compared their equity. looks like they may have booked a 20mil loss during the period, and received a 20mil loan from the parent to cover it. that is a large loss on say 120mil capital. then i looked at their 12/31/2011 balance sheet, which was before the merger. it turns out their capital was about 200mil then.
so it looks like in 1 year their capital based dropped by 50%, huge by any standards, and it is possible not all of it was due to the merger.
if the subsidiary goes bankrupt, the parent has an OPTION to decide whether they want to bail them out or not. if they don't, you are looking at the sipc. the sipc is not owned by the government and does not have a direct government guaranty. in the event larger brokerage firms fail at the same time, the sipc may need to go to the government to look for a bail out, and the government has the OPTION to decide in their favor. if your assets are removed from your account, as in the mf global failure, you need to have some concern whether you will get them back.
so it looks like there is a reason they are running such an aggressive promotion. i called and asked for an income statement, and they blew me off. an income statement would tell me if there was some obscure merger related transaction that caused a reduction in equity, or if they were losing their shirts in the business. they know no one else looks at their financials, and they can get in loads of new assets without having to come clean. if everyone knew enough to look at the credit risk in their brokerage firms, people like this would not be able to get away with this sort of thing...
they are the brokerage subsidiary of capital one bank, and they were purchased in the merger with ingdirect. i looked at their balance sheet (12/31/2012), which appeared relatively low risk at first. they had something like 100mil in margin account loans on their assets and 100mil in equity. the total balance sheet was 270mil and they had 33mil in cash. but they did not have an income statement.
their merger was complete in feb 2012, so their may have been some monkey business going on in their financials during that period. so i looked at their 6/30/2012 balance sheet and compared their equity. looks like they may have booked a 20mil loss during the period, and received a 20mil loan from the parent to cover it. that is a large loss on say 120mil capital. then i looked at their 12/31/2011 balance sheet, which was before the merger. it turns out their capital was about 200mil then.
so it looks like in 1 year their capital based dropped by 50%, huge by any standards, and it is possible not all of it was due to the merger.
if the subsidiary goes bankrupt, the parent has an OPTION to decide whether they want to bail them out or not. if they don't, you are looking at the sipc. the sipc is not owned by the government and does not have a direct government guaranty. in the event larger brokerage firms fail at the same time, the sipc may need to go to the government to look for a bail out, and the government has the OPTION to decide in their favor. if your assets are removed from your account, as in the mf global failure, you need to have some concern whether you will get them back.
so it looks like there is a reason they are running such an aggressive promotion. i called and asked for an income statement, and they blew me off. an income statement would tell me if there was some obscure merger related transaction that caused a reduction in equity, or if they were losing their shirts in the business. they know no one else looks at their financials, and they can get in loads of new assets without having to come clean. if everyone knew enough to look at the credit risk in their brokerage firms, people like this would not be able to get away with this sort of thing...