Short sellers keep betting against big banks

Posted Feb 24th 2008 1:10PM by Douglas McIntyre
Filed under: Forecasts, Industry, Citigroup Inc. (C), Bank of America (BAC), Wachovia Corp (WB), Economic Data, MBIA Inc (MBI)

A look at NYSE short interest as of February 15 shows that short sellers are still willing to make very large bets that bank stocks will go lower.

Shares sold short in Wachovia (NYSE: WB) rose 16.3 million between January 31 and February 15. For Citigroup (NYSE: C) shares short rose 10.9 million to 92.8 million. At Bank of America (NYSE: BAC) the number was up 6.3 million to 68.8 million.

Even with bank stocks trading near multi-year lows, a number of investors are anticipating more bad news as banks file their 10Ks for 2007 and announce their 2008 first quarter results. The short sellers have a fairly good chance of making a killing.

Big banks still have several things going against them. As the mortgage market gets worse, they may have more subprime write-downs. A drop in the credit rating at a bond insurer like MBIA (NYSE: MBI) could force the banks to write-down securities that rely on AAA ratings for some of their value. Perhaps the most important liability banks have not faced is the declining value of financial instruments based on auto loans and credit card balances.

The world is likely to get much worse for big banks and short-sellers are likely to make money on that.

Douglas A. McIntyre is an editor at 247wallst.com.

Tags: BAC, Bank of America, big banks, Citigroup, credit crunch, inthenews, MBIA, short selling, subprime, Wachovia, WB, write-downs

Print this

Reader Comments (Page 1 of 1)

2-24-2008 @ 2:47PM

Sheldon L said...

I agree with the short sellers to the degree that the banks either do not know the full depths of their exposure or are reluctant to come clean and fess-up hoping that something will improve -- or both.

I think we are in for one more round or write-downs this year which will drive down the stock prices of some 'big names' once more, although not as severely on a percentage basis as before.

At that point when the 'shorts' are well fed -- the rest of us can make a play for bank stocks and the shorts will be our allies when they decide to cover their positions.

2-24-2008 @ 3:30PM

Bill Olmsted said...

Warren Buffet just increased his stake in Wells Fargo. T Rowe Price just went long big time on BB & T. I don't know...Shorting the banks could be risky. But short term, there is a good chance the financials will tank even further.

2-24-2008 @ 5:45PM

james said...

Wachcvia is a dealy play for shorts. I just WB and I own BBT when it hit 27. The div. on WB is coming friday and it will soar this week. BAC has been indexed with the DOW so that should really limit up but not downside. C is a speculators bet. I will buy AFTER report. Mer is a monster that WILL shoot up extremely fast once the mess is over. I see the shorts working to pull the RKH down to 121 at most, which I will buy as well in that area. Dividends is key.......will they cut or not?......Wb........BAC.....NO.........C.already has....be sold off in parts is it's only hope for revitalization and trust from public. With the professor at the helm...not much confidence is there. Professors may know the subject but certainly not execution. No vote on C with Prof...ETFC will GET BOUGHT at 14.

2-25-2008 @ 3:08AM

PaulChristenson said...

The Banks are like the guy who jumps off of a building and halfway down he says "SO FAR SO GOOD"...They are lying to the public about how screwed up their bottom line really is, the real danger comes if they are also lying to themselves.

2-25-2008 @ 10:56AM

Americas Watchdog said...

We have the National Mortgage Complaint Center & we just saw a Wachovia TV commercial promoting the "Pay Option ARM" (pick a pay). This insane product is the reason WA MU is on the ropes, and the reason CFC has to be sold. How stupid are the people at Wachovia? Just when we think we have seen it all...................we see this commercial. Is corporate America really that stupid?