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Kaminsky's Call: 'Take-Unders' Always Reveal a Sad Story

Tuesday, 2 Nov 2010 | 8:36 AM ET

It seemed appropriate on The Strategy Session yesterday that on a program where we focused on the disappearance of "Merger Monday," that the first real "take-under" since JP Morgan's acquisition of Bear Stearns transpired.

M&T Bank announced its acquisition of embattled Wilmington Trust, a smaller U.S. regional bank and wealth manager, at a severely discounted price.

I remember during my days at Neuberger Berman when Wilmington Trust was one of the preeminent custodian and trust institutions in the country; we held many accounts with the bank.

So what caused such a demise and what lesson can we learn here?

It is a story that we've seen many times. When old wealth attempts to profit from speculative ventures with which it is unfamiliar, the fate can be drastic. The lure of construction speculation and lending was too much of a temptation, specifically when it came to beachfront property in its own home state of Delaware.

Echoes of the credit crisis? You bet.

But this was a company-specific breakdown. When the bank was unable to raise capital to cover their losses, their woes were sealed.

The lesson?

This is a clear buyer beware. When interested in buying a stock, one must detect the warning signal of a directive centered around alternative strategic exploration. Speculation is just that, and should serve as an alert.

Of course, some of the best investments are based on speculation, whether it be for oil, land, or yes, real estate. But the players involved should be examined to determine whether they are equipped to handle such ventures. Six straight quarter-losses by Wilmington Trustexhibited an ugly aftermath, but the writing was on the wall.

"Take-unders" always reveal a sad story, and I'm sure it shook many who regarded the bank as a reliable staple for years. But for those seemingly unaffected by the losses, this serves as a wake-up call for other positions that may be relying on speculation without expertise. Be cautious of those with such strategies.

Programming note: "The Strategy Session," hosted by David Faber and Gary Kaminsky, airs weekdays at Noon ET on CNBC.

DISCLOSURE:
Gary Kaminsky does not hold any equity positions.

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