(Written by Alexander Crawford. Data sourced from Finviz)
The “too big to fail” argument may be losing its muster.
Ratings agency Moody’s announced on Wednesday long-term credit downgrades for both Bank of America (BAC) and Wells Fargo (WFC), as well as a short-term credit downgrade for Citigroup (C), with the explanation that Uncle Sam is now less likely than before to continue supplying aid to the TBTF banks.
According to a statement from Moody’s, the government is “more likely now than during the financial crisis to allow a large bank to fail should it become financially troubled, as the risks of contagion become less acute.” (via Bloomberg)
Bank of America had its long-term senior debt cut two levels, from A2 to Baa1 and its short-term debt cut from Prime-1 to Prime-2. The outlook remained negative, which could mean another cut in the future.
Wells Fargo senior debt was cut one level, from A1 to A2, with the outlook remaining negative. Citigroup had its short-term rating cut from Prime-1 to Prime-2.
This news comes amid troubled times for U.S. banks, with widespread reports of layoffs and pressure on revenues. CLSA’s Mike Mayo recently told CNBC that “this decade for U.S. banks will be the worst revenue decade since the Great Depression.”
"Just as you saw in Japan, there's lack of loan growth, there's margin pressure, and there's revenue pressure...so it's a combination of factors that are leading to very weak revenue growth," Mayo explained.
According to CNBC, CLSA has an “underweight” rating on the U.S. banking sector.
Do you think the U.S. banking sector has more pain ahead, or is the pessimism becoming extreme? For a look at what institutional investors think, we ran a screen to find the top 10 financial stocks with the highest short floats.
Smart money investors think there’s more downside ahead for these names – do you agree?
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1. Noah Holdings Limited (NOAH): Engages in the distribution of wealth management products to the high net worth population in China. Market cap of $683.50M. Float short at 24.76%. The stock is currently stuck in a downtrend, trading 6.06% below its SMA20, 8.89% below its SMA50, and 21.58% below its SMA200.
2. The St. Joe Company (JOE): Operates as a real estate development company in Florida. Market cap of $1.53B. Float short at 22.90%. The stock is currently stuck in a downtrend, trading 10.34% below its SMA20, 10.62% below its SMA50, and 30.11% below its SMA200. The stock has lost 34.76% over the last year.
3. First Republic Bank (FRC): Provides private banking, private business banking, investment management, brokerage, trust services, and real estate lending services in California, Nevada, and New York. Market cap of $3.20B. Float short at 20.79%.
4. DuPont Fabros Technology, Inc. (DFT): Engages in the ownership, acquisition, development, operation, management, and lease of large-scale data center facilities in the United States. Market cap of $1.37B. Float short at 20.18%. The stock has lost 14.38% over the last year.
5. World Acceptance Corp. (WRLD): Engages in small-loan consumer finance business. Market cap of $919.24M. Float short at 19.58%. The stock has gained 33.68% over the last year.
6. Greenhill & Co., Inc. (GHL): Operates as an independent investment bank. Market cap of $872.15M. Float short at 18.41%. The stock is a short squeeze candidate, with a short float at 18.41% (equivalent to 7.97 days of average volume). The stock is currently stuck in a downtrend, trading 14.69% below its SMA20, 26.64% below its SMA50, and 51.09% below its SMA200. It's been a rough couple of days for the stock, losing 8.47% over the last week.
7. First Financial Bankshares Inc. (FFIN): Provides commercial banking products and services primarily in Texas. Market cap of $836.88M. Float short at 18.16%. The stock is currently stuck in a downtrend, trading 9.98% below its SMA20, 15.3% below its SMA50, and 22.72% below its SMA200. The stock has lost 11.27% over the last year.
8. Wintrust Financial Corporation (WTFC): Engages in community banking, specialty finance, and wealth management operations. Market cap of $1.02B. Float short at 17.61%. The stock is currently stuck in a downtrend, trading 10.94% below its SMA20, 14.55% below its SMA50, and 18.97% below its SMA200. The stock has lost 9.13% over the last year.
9. BancorpSouth, Inc. (BXS): Operates as the holding company for BancorpSouth Bank that provides commercial banking and financial services to individuals, and small-to-medium sized businesses in Mississippi, Tennessee, Alabama, Arkansas, Texas, Louisiana, Florida, Missouri, and Illinois. Market cap of $814.03M. Float short at 17.42%. The stock is currently stuck in a downtrend, trading 13.84% below its SMA20, 20.53% below its SMA50, and 33.94% below its SMA200. The stock has lost 27.88% over the last year.
10. CVB Financial Corp. (CVBF): Operates as a bank holding company for Citizens Business Bank that provides various retail banking and financial services to small to mid-sized businesses, high net-worth individuals, and professionals in the United States. Market cap of $853.94M. Float short at 16.60%. The stock is currently stuck in a downtrend, trading 6.97% below its SMA20, 11.4% below its SMA50, and 11.29% below its SMA200. The stock has gained 11.03% over the last year.