Banking Stocks: Rogue Trader is a Hero to British Regulators

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(Article by Becca Lipman. List compiled by Eben Esterhuizen, CFA. Pricing data sourced from Yahoo! Finance.)

Remember this name: Kweku Adoboli. He may go down in history as more than just the rogue trader who single-handedly lost the Swiss bank UBS $2.3 billion in bad (not to mention fraudulent) trades and essentially undid the company's efforts to cut3,500 jobs to save itself a whopping $2 billion Swiss Francs by 2013.

No, if the British Parliament has its way, Kweku Adoboli will be remembered for more crushing effects on the world of finance than that mishap.

The British Government feels it has been done a big favor by UBS' rogue trader, providing them with just the right timing and ammunition to pass controversial banking regulations.

The Daily Beast reports, "Adoboli’s activities came to light just as ministers were squaring up for a fight with the banks over plans outlined earlier this week to force a separation of their retail and investment arms, an attempt to avert a repeat of the 2008 banking crash and the costly bailout that followed."

Banks are naturally up in arms. The Wall Street Journal reports, "for the past two years, [European banks] have fought new regulations to overhaul bonus pools, discourage excessive risk-taking and impose higher capital requirements, among other things." Banks argue regulations would strain profits - British banks estimate $11 billion in costs per year - and aggravate an already fragile economic recovery.

But there's no denying that Adoboli's activities, exposed on the three year anniversary of the Lehman Brothers collapse, makes a compelling counter argument. And while Mr. Adoboli's actions represent an isolated, but certainlynot unique incident, it didn't help anti-regulation arguments when it was revealed the bank was unaware of their $2 billion gap in their budget sheet until Adoboli himself confessed his crimes to coworkers.

The Economist reports Martin Wolf published an opinion piece that included: "Thank you, UBS. As a member of the UK's Independent Commission on Banking, under Sir John Vickers, I could not have asked for a better illustration of the unregulatable risks to which investment banks are exposed than... a loss of $2 billion in unauthorised trading. No sane country can allow taxpayers to stand behind such risks"

This incident also sheds light on the importance of Basel 3, a set of rules that puts higher regulations on banks in international markets, a reform US banks have been fighting against for months.

The big question now is if Britain will succeed in passing stringent regulation on banks, and if America will decide to follow suit.

So, which banking stocks are being dumped during the current market turmoil?

For ideas, we collected price data for about 80 prominent international banks, and identified the names that have seen the longest losing streaks over the last month.

Investors have been dumping these names aggressively--how long will it be before these banking stocks recover? Or is this just the beginning of more losses?

Use this list as a starting point for your own analysis.

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1. CorpBanca S.A. (BCA): Provides various commercial and retail banking services in Chile. The stock's average daily alpha vs. the S&P500 index stands at -0.78% (measured close to close, over the last month). During this period, the longest losing streak lasted 6 days (i.e. the stock's daily returns underperformed the S&P 500 for 6 consecutive days). The longest winning streak lasted 3 days (i.e. a win streak / losing streak ratio of 0.5).

2. BBVA Banco Frances S.A. (BFR): Provides financial services to corporations, medium and small companies, and individuals in the Republic of Argentina. The stock's average daily alpha vs. the S&P500 index stands at -0.99% (measured close to close, over the last month). During this period, the longest losing streak lasted 4 days (i.e. the stock's daily returns underperformed the S&P 500 for 4 consecutive days). The longest winning streak lasted 1 day (i.e. a win streak / losing streak ratio of 0.25).

3. Banco Macro S.A. (BMA): Provides banking products and services to individuals, entrepreneurs, companies, and corporate customers in Argentina. The stock's average daily alpha vs. the S&P500 index stands at -0.9% (measured close to close, over the last month). During this period, the longest losing streak lasted 16 days (i.e. the stock's daily returns underperformed the S&P 500 for 16 consecutive days). The longest winning streak lasted 2 days (i.e. a win streak / losing streak ratio of 0.13).

4. Popular Inc. (BPOP): Provides a range of retail and commercial banking products and services primarily to corporate clients, small and middle size businesses, and retail clients in Puerto Rico and Mainland United States. The stock's average daily alpha vs. the S&P500 index stands at -1.2% (measured close to close, over the last month). During this period, the longest losing streak lasted 3 days (i.e. the stock's daily returns underperformed the S&P 500 for 3 consecutive days). The longest winning streak lasted 1 day (i.e. a win streak / losing streak ratio of 0.33).

5. Grupo Financiero Galicia S.A. (GGAL): Operates as the holding company for Banco de Galicia y Buenos Aires S. The stock's average daily alpha vs. the S&P500 index stands at -1.16% (measured close to close, over the last month). During this period, the longest losing streak lasted 6 days (i.e. the stock's daily returns underperformed the S&P 500 for 6 consecutive days). The longest winning streak lasted 1 day (i.e. a win streak / losing streak ratio of 0.17).

6. The Governor and Company of The Bank of Ireland (IRE): Provides banking and other financial services to small and medium-sized commercial and industrial companies in Ireland and internationally. The stock's average daily alpha vs. the S&P500 index stands at -1.11% (measured close to close, over the last month). During this period, the longest losing streak lasted 3 days (i.e. the stock's daily returns underperformed the S&P 500 for 3 consecutive days). The longest winning streak lasted 1 day (i.e. a win streak / losing streak ratio of 0.33).

7. Shinhan Financial Group Co. Ltd. (SHG): Provides financial products and services to corporations, governments, institutions, and individuals in Korea and internationally. The stock's average daily alpha vs. the S&P500 index stands at -1.% (measured close to close, over the last month). During this period, the longest losing streak lasted 5 days (i.e. the stock's daily returns underperformed the S&P 500 for 5 consecutive days). The longest winning streak lasted 2 days (i.e. a win streak / losing streak ratio of 0.4).

8. Banco Santander, S.A. (STD): Provides a range of banking and financial products. The stock's average daily alpha vs. the S&P500 index stands at -0.76% (measured close to close, over the last month). During this period, the longest losing streak lasted 7 days (i.e. the stock's daily returns underperformed the S&P 500 for 7 consecutive days). The longest winning streak lasted 3 days (i.e. a win streak / losing streak ratio of 0.43).

9. Woori Finance Holdings Co. Ltd. (WF): Provides various banking and financial products and services in Korea. The stock's average daily alpha vs. the S&P500 index stands at -1.15% (measured close to close, over the last month). During this period, the longest losing streak lasted 10 days (i.e. the stock's daily returns underperformed the S&P 500 for 10 consecutive days). The longest winning streak lasted 4 days (i.e. a win streak / losing streak ratio of 0.4).



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Investing Ideas , Stocks


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