Shorting Citi, BofA Into The Ground

Forbes Article by BetterTrades

01-23-09 12:20 PM EST

Bearish bets on battered banks paid off handsomely in the past year. There's still time to join the trade.

It's been almost too easy making money betting against the financial sector. Sellers have decimated the stock prices of some of the most fabled U.S. institutions with the shorts in control of market momentum. Most analysts believe the assets held by banks are underwater, that is, the equity held by some banks does not cover claims on those assets.

Bank prices are unwinding at a furious pace, making short positions on the banking sector one of the most profitable trades on Wall Street these days. Investor sentiment has been decidedly negative on financial stocks since the onset of the credit crisis and subprime meltdown back in late 2007. Loan loss provisions, write downs, and a deteriorating credit market are the primary drivers causing losses at the nation's largest banks.

Citigroup, JPMorgan Chase, Goldman Sachs, Morgan Stanley, Wells Fargo, U.S. Bancorp, and PNC Financial come into focus as we highlight glaring weakness in the banking segment.

At the heart of the financial crisis gripping the world lay falling home prices. Despite the White House and Federal Reserve's best efforts, rising foreclosures and declining home prices have crushed asset values, making underlying securities toxic in the process. The banks and financial institutions that hold these non-performing assets have become the source of Wall Street's malaise.