NEW YORK (TheStreet) -- Citigroup (C) and Bank of America (BAC) shares were higher in early trading Wednesday, despite a front-page report in The Wall Street Journal that said those banks, along with Deutsche Bank (DB), "were among the most active" at temporarily reducing debt levels before the end of the quarter, obscuring some of the risks on their balance sheets.
Nearly all large U.S. banks opened higher Wednesday, but Citigroup and Bank of America were among the highest. Bank of America shares were up 2.45% 10 minutes before the open, and Citigroup was up 4.76%. An upgrade from Oppenheimer may also have contributed to the momentum in Citigroup shares. Goldman Sachs (GS), JPMorgan Chase (JPM) and Morgan Stanley (MS) were all up by a smaller margin even though the Journal's report stated that those banks have not regularly cut short-term borrowing ahead of the end of each quarter. Deutsche Bank shares, which like other European banks have been hit hard in recent weeks due to the debt crisis in that region of the world, were down slightly.
Citigroup may have gotten a lift from a report in the Financial Times that said that the Qatar Investment Authority is considering buying some of the U.S. Treasury Department's 27% stake in Citigroup. Also, because Citigroup and Bank of America saw their shares sell off more steeply than other large banks during the crisis, their shares generally jump highest when the market is in rally mode, as it was early Wednesday.
Citigroup, BofA to Sextuple by 2015?
Drawing on Federal Reserve data, the newspaper reported that the three banks reduced borrowing in the repurchase market by an average of 41% over 10 quarters. The repurchase or "repo" market, where banks put up securities as collateral to get quick access to funds, is one of the riskiest types of borrowing because it is so short term. If investors begin to panic and markets seize up, banks that rely too heavily on this market can suddenly find themselves in a funding crisis, as occurred with Bear Stearns and Lehman Brothers during the 2008 crisis.Reducing short-term borrowing ahead of the end of a quarter does not appear to be illegal, though the Securities and Exchange Commission is considering new rules that would require increased disclosure of such practices, according to the Journal report. -- Written by Dan Freed in New York.
Select the service that is right for you!COMPARE ALL SERVICES
Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.
- Real Money + Doug Kass + 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV