We all hear that we live in a global environment and diversification is not the next state or the other side of the country, but globally because customers can and do buy. Companies such as Amazon make it possible to buy from around the globe and when it works everyone says that is great. When it does not, it the case of a war, then the issue is how much exposure or risk does the business have in the countries at war? The day before the war, people thought the company was doing good at diversification, the day of the war and the days afterwards how could you do business in the countries at war? The reality is all countries produce income and people can buy stuff, why would you not be in the countries?
The biggest banks of the world are in New York and given credit is the lifeblood of every economy, the question analysts’ have is what is the exposure to the Ukraine and Russia? In an article by Elizabeth Dilts Marshall of Reuters, the answer is it is an unknown? The exposure by the US banks is $14.7 billion which is low compared to the banks in Italy, France and Austria which has more than $42.5 billion in exposure.
Citibank says its total exposure is $10 billion, which was higher than expected. The new number took into cash held at the Bank of Russia and other financial institutions, revers repos and additional exposures to Russia counterparties.
JPMorgan analyst Kian Abouhosssein said transparency on exposure by banks to Russia is low. Most banks do not give net exposures. He wrote in a research report, the US banks’ derivatives exposure risk and the impact that sanctions could have on their wholesale payments business is unknown.
Citi, JPMorgan and State Street likely have higher risks owning to their large global revenue exposure.
Linking to dividend paying stocks, diversification is a wonderful thing, the theory being when one industry group is up, another one may be down and vice versa, you need to stabilize your returns. On Wall Street, the street often decides that one sector is not going to be growing as much as return to safety of profitable companies paying a dividend are good. It is the reason why you own them, every once in a while, Wall Street says you can make more money buying a profitable company than buying one only on possible growth. Try to have the best of both world with the best profitable companies who increase their dividends.
There are more questions than answers, till the next time – to raising questions.