Financial funds ranked as the worst-performing group for the second week in a row.
Ten of the 19 largest declines among all U.S. funds exclusively focused on the financial industry during the week ending Thursday, Jan. 22. Investors fled financial stocks as fourth-quarter earnings reports revealed the magnitude of the damage to the major banking industry players.
The fallout from
Bank of America's
fourth-quarter loss continued as details of billions in losses from its Merrill Lynch brokerage unit required another $20 billion infusion of U.S. Treasury capital and asset guarantees totaling $118 billion. Merrill's brokerage clients withdrew $10 billion from accounts in the fourth quarter, on top of $3 billion in the third quarter.
Merrill CEO John Thain departed last week after the firm paid billions in bonuses to employees on Dec. 29, just before the sale to Bank of America was completed, and he spent $1.2 million to redecorate his office. In the four trading days under review, fear that Bank of America may need even more capital drove the stock down another 31.4%. Additional government capital infusions risk "nationalization" as the government's share of ownership may exceed 50%.
As expected, the 300% leverage of the
Direxion Financial Bull 3X Shares
Direxion Financial Bear 3X Shares
generated the largest loss, totaling 38.25%, and the largest gain, 12.20%, respectively. These are continuations of the 40.6% loss and 53.5% advance in these funds reported in last week's article on the
Including Bank of America, other members of the Russell 1000 Financial Services Index tracked by these funds hit the skids last week.
, based in Puerto Rico, doubled its year-earlier loss to $702.9 million in the fourth quarter and chopped its stock price in half, down 49.7% in four trading days.
reported a net loss of $2.14 billion for the fourth quarter. The shares reached their lowest level in 21 years.
A preliminary fourth-quarter net loss of $300 million at
removed 45.6% of shareholder value last week.
With shares down 35.1% for the period,
issued fourth-quarter losses of $347.6 million and cut its dividend by 81% to 10 cents a share. The bank, in hock to the U.S. government for $4.9 billion in preferred shares, is pulling shut the purse strings by canceling travel to conferences and reducing managerial compensation to weather the economic storm.
The popular trading vehicle
ProShares Ultra Financials
lost 23.93% while its bearish brother,
UltraShort Financials ProShares
, gained 11.72%.
The most unique fund among the worst performers is the
PowerShares Financial Preferred Portfolio
, which slumped 23.08%. The largest holding in its portfolio are preferred shares of
Royal Bank of Scotland Group
, recently nationalized by the British government. The U.K. raised its ownership to 70% last week, with bailout payments totaling $28 billion after RBS announced a record loss for a British company on Jan. 19.
Other preferred holdings include those of
. Preferred shares have a higher claim on assets than common stock but can still be wiped away in corporate failures.
For more information, check out an
Kevin Baker became the senior financial analyst for TSC Ratings upon the August 2006 acquisition of Weiss Ratings by TheStreet.com, covering mutual funds. He joined the Weiss Group in 1997 as a banking and brokerage analyst. In 1999, he created the Weiss Group's first ratings to gauge the level of risk in U.S. equities. Baker received a B.S. degree in management from Rensselaer Polytechnic Institute and an M.B.A. with a finance specialization from Nova Southeastern University.