Sell, Sell short ..: Banking sector


The aftershocks of the Britain’s vote to leave the European Union reverberated across financial markets after a weekend of political turmoil, with the pound extending its record selloff and European equities dropping to levels last seen in February. Sterling fell below Friday’s lows with a 3.4%  slide to the weakest since 1985, as S&P cut its rating on the U.K.’s sovereign debt. Demand for haven assets boosted gold, and Treasury 10-year yields reached a four-year low. More than $4 trillion has been was wiped from global equity values as internecine squabbles flared in the U.K.’s main political parties, exacerbating the sense of instability. 

The next days and weeks will be key for central banks as they seek to limit volatility in financial markets. The European Central Bank is hosting a three-day meeting in Portugal that will include a speech from its president, Mario Draghi. Federal Reserve Chair Janet Yellen withdrew from a Wednesday panel discussion at the gathering.  


-Investor’s are participating in risky asset’s, and after the vote of Britain’s they’ve opened a several opportunities for them to go short on the banking sector.  



  1. J.P Morgan Chase & Co. (JPM)


The “Hero of the Great Recession” — depending upon whom you ask — is in desperate need of its own lifeline.

Ironically, it’s this very attitude that is needed to turn around JPM’s fortunes in the markets.Like the rest of the financials, JPM is having a rotten 2016, down nearly 9% for the year. In the opening week of January, JPM outpaced losses in the broader markets by dropping nearly 8%.  this is the  worst start for the banking firm since 2009, when it lost 15.5% in its opener. Still, investors will be nervous. EPS growth has been taking a hit over the past three years relative to other bank stocks. Additionally, JPM has missed Q4 earnings estimates over the past two years.



2. Citigroup Inc (C)


Citigroup has been particularly aggressive, reducing expenses by 17% since the end of 2010. Nevertheless, results for C stock have been noticeably mixed. On a year-to-date basis, C stock is down 8.3% — paring some of the losses of rival JPM, but not by much. However, the 9.1% under-performance by C stock in January’s opening week was the worst start in 18 years. Technically, C stock is hanging on a thread, with its present price approximately 11% below its 50-day moving average.



3. Wells Fargo & Co (WFC)


Moving from one of the worst names among banking stocks to one of the brighter options, next is Wells Fargo & Co (WFC). Under Forbes‘ most recent ranking system, WFC is at number 47 of the world’s most valuable brands, beating out prestigious offerings such as Cartier and Porsche. The markets have been rough on banking stocks, and WFC is no exception. Here too, though, WFC stands conspicuously above its competitors. While it carries a YTD loss of 3%, this is substantially less than the majors, which are down at or near double digits.



4. Bank of America Corp (BAC)


After being named one of the co-conspirators of the toxic-mortgage fiasco — ultimately leading to a historic $17 billion civil settlement involving a single entity — BAC has carried the stigma of a bad boy reputation. Before feeling sorry for BAC, recognize that their reputation was earned through a series of inept management decisions that once nearly put them off of the radar. It should come as no surprise that BAC happens to be the most aggressive overall when it comes to trimming unnecessary weight. Since 2010, BAC has reduced business expenses by a whopping 33%, doubling the rate of the second-highest competitor. A huge chunk of the self-imposed austerity is the 75,000 jobs terminated over the past four years. Regardless of their newfound direction, the company will be facing strong headwinds in 2016 and possibly beyond. As one of the weakest links among banking stocks, BAC should be reserved for only the most risk tolerant.


The  U.K. banks were the worst performers, with Royal Bank of Scotland Group Plc losing 15% and Barclays Plc sliding 17% . Losses in Italian lenders were limited after people with knowledge of the discussions said Italy is considering injecting capital into some banks.. 


In the moment of writing J.Mason did not hold any of the above securities. 




J.Mason ♦