SOURCE: Rothman Research

Rothman Research

April 30, 2010 09:06 ET

A Quick Overview of the Financial Sector

JOHANNESBURG, SOUTH AFRICA--(Marketwire - April 30, 2010) - -- Following the economic meltdown, two sectors that have constantly been under minute scrutiny from every angle are banking and housing. The financial sector is most probably the nervous system of any economy, and as the 2008-2009 financial mayhem has demonstrated issues in this sector could definitely impair our way of life and the way the our economy performs. Whilst the economic recovery is still a work in progress, the recent earnings results from the financial players have been quite bullish. However, it will be an outright fantasy to think that the financial sector is totally out of the woods. In recent days and weeks, two key factors that have been weighing on this industry have been the financial reforms proposed by the Obama administration which is mainly aimed at large financial institutions and the growing concern that a banking crisis is brewing on European soil following debt issues from Greece and other European countries.

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When the United States government decided that the time for reforms in the financial system had come, many countries worldwide shared the same opinions. One of those countries is Japan and like with the U.S. tougher regulations on banks are being met with fierce opposition. However, that's where the similitude stops between those two countries regarding the financial crisis. Japan, which had already experienced its own financial meltdown in the late 1990s, had been playing it safe by investing in low risks low return ventures whilst U.S. and European banks were making riskier gambles. Hence, when the financial turmoil spread to a global scale and most governments opted to disburse humongous monetary assistance to save their biggest banks and financial institutions from bankruptcy, Japanese banks, in contrast, did not require government bailouts and made the most of the crisis as some of its major financial arms like Nomura Holdings Inc. (NYSE: NMR) and Mizuho Financial Corp. either took over portion of operations from Lehman Brothers or invested in Merrill Lynch respectively. 

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In recent months, the European Union has had to deal with Greece debt issues and is still in a deadlock on whether or not to issue bailout assistance to the country. Even as Europe debates the Greek problem, the debt crisis has started to broaden to other countries like Spain and Portugal. Fears that severe economic upshots could arise and spread globally grasped the U.S. stock markets from time to time. However, for the last two trading sessions, investors seemed to have offset those key negatives as they leeched on prospects that the Feds might extend an essential short-term rate near zero. Financial stocks have rallied to the prospect and were up on Wednesday and Thursday of this week with a few exceptions like E*TRADE Financial Corporation (NASDAQ: ETFC) which is expecting Citadel Investments, its largest investor, to sell about one-fifth of its stake in E*Trade. Experts fear that this could trigger a selling-spree from investors in the short-term. 

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