Deposit Bank Options in Your Portfolio

The accelerated expectations for the Federal Reserve to raise its overnight lending rate have installed a cloud over companies that are interest-rate sensitive, like financial services firms. Large banks have been hit particularly hard, with the Philadelphia Bank Index(BKX Quote) down 23% and the S&P Financial Trust (XLF Quote) falling 12%, over the last four weeks.

Darkening the picture was Citigroup's(C Quote) recent decision to fork over about $2.65 billion to settle class-action suits related to the involvement of its investment banking and research departments (and never shall the twain meet again) in the Enron and Worldcom fiasco. This move had investors thinking that other banks, namely J.P. Morgan(JPM Quote), will need to boost its set-aside money to pay for the roguish roles they played in that web of investor deceit.

Certainly rising rates and litigation are potential negatives for these companies, but I think the near-term reaction is overdone and that fears about the ultimate impact are overblown. I view this as an opportunity to start building a bullish position in these franchise names that dominate the industry.

Not So Certain? Use Dispersion

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