Rule n.1 for small investor: I don’t trust anybody. Not even the institution which is holding my stocks. May 12, 2010Posted by deminvest in investment.
I always had a little doubt. Little but scary:
What happens to my stocks if the financial institution which holds them goes belly up?????
This doubt was stronger last year, when banks WERE going belly up.
I read everywhere that stocks and securities held by banks do belong to the customers and are not involved in bank bankruptcies.
I did believe it.
Still last year I decided to switch off a program by which my bank was giving me small “risk free” returns lending my stocks to customers who would use them to sell short. My thought was that a bank in big trouble may want to gamble to save its life. What better gamble in times of trouble than shorting a stock market in free fall? If I lend my stocks to them and they go broke, I simply become one of their (unhappy) creditors.
Well today I read an article reminding me I shall not trust anybody. The unthinkable has happened last year:
the day before filling for bankruptcy, Lehman Brothers branch in London transfered 11 Billion of securities owned by their customers to its NY branch.
How long will it take them to get those securities back to England?
I will try to:
1) divide my securities into 3 trading accounts on 3 different financial institutions
2) avoid banks accounts by branches of foreign banks. If I want to use a foreign bank I’ll open my bank account in the country where it is headquartered. Also Icesave gave a bad time to its foreign customer when it went broken.