Financial Funds Are Biggest Losers Again

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 (BAC) (Stock Quote: BAC) 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%.

(BAC) As expected, the 300% leverage of the Direxion Financial Bull 3X Shares (FAS) (Stock Quote: FAS) and the Direxion Financial Bear 3X Shares (FAZ) (Stock Quote: FAZ) 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 dim prospects for financial funds.

(BAC) (FAS) (FAZ) Including Bank of America, other members of the Russell 1000 Financial Services Index tracked by these funds hit the skids last week. Popular (BPOP) (Stock Quote: BPOP), 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.

(BAC) (FAS) (FAZ) (BPOP) Dropping 47%, Fifth Third ( FITB) (Stock Quote: FITB) reported a net loss of $2.14 billion for the fourth quarter. The shares reached their lowest level in 21 years.

(BAC) (FAS) (FAZ) (BPOP) ( FITB) A preliminary fourth-quarter net loss of $300 million at Webster Financial ( WBS) (Stock Quote: WBS) removed 45.6% of shareholder value last week.

(BAC) (FAS) (FAZ) (BPOP) ( FITB) ( WBS) With shares down 35.1% for the period, SunTrust Banks ( STI) (Stock Quote: STI) 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.

(BAC) (FAS) (FAZ) (BPOP) ( FITB) ( WBS) ( STI) The popular trading vehicle ProShares Ultra Financials ( UYG) (Stock Quote: UYG) lost 23.93% while its bearish brother, UltraShort Financials ProShares ( SKF) (Stock Quote: SKF), gained 11.72%.

(BAC) (FAS) (FAZ) (BPOP) ( FITB) ( WBS) ( STI) ( UYG) ( SKF) The most unique fund among the worst performers is the PowerShares Financial Preferred Portfolio (Stock Quote: PGF) ( PGF) , which slumped 23.08%. The largest holding in its portfolio are preferred shares of Royal Bank of Scotland Group ( RBS) (Stock Quote: RBS), 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.

(BAC) (FAS) (FAZ) (BPOP) ( FITB) ( WBS) ( STI) ( UYG) ( SKF) ( PGF) ( RBS) Other preferred holdings include those of ING Groep ( ING) (Stock Quote: ING) and HSBC Holdings ( HBC) (Stock Quote: HBC). Preferred shares have a higher claim on assets than common stock but can still be wiped away in corporate failures.

Worst-Performing Financial Funds for the Week Ending Thursday Jan. 22
Fund
Ticker
Rating
Fund Type
Total Return 1 Week
Direxionshares Financial Bull 3X Shares
FAS
U
ETF
-38.25%
ProFunds Banks UltraSector ProFund
BKPIX
E-
Open-End
-26.34%
Rydex 2X S&P Select Sector Financial ETF
RFL
U
ETF
-25.14%
ProShares Ultra Financials
UYG
D-
ETF
-23.93%
PowerShares Financial Preferred Portfolio
PGF
C
ETF
-23.08%
Regional Bank HOLDRs Trust
RKH
C
ETF
-19.02%
SPDR KBW Bank ETF
KBE
C
ETF
-17.12%
ProFunds Financials UltraSector ProFund
FNPIX
E-
Open-End
-16.56%
RevenueShares Financials Sector Fund
RWW
U
ETF
-15.67%
iShares Dow Jones US Regional Banks Index Fund
IAT
C
ETF
-15.51%
Source: Bloomberg & TheStreet.com Ratings

For more information, check out an explanation of our ratings.

 

 

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