Financial stocks, many of them falling by double digit percentages, led a huge drop on Wall Street Tuesday that left the major indexes down more than 4 percent and the Dow Jones industrials down 332 points.
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The collapse in bank stocks was swift: State Street Corp. plunged 59 percent, Citigroup fell 20 percent and Bank of America lost 29 percent. Royal Bank of Scotland fell 69 percent in New York trading.
The financial sector (with XLF as the proxy I track) is still getting hammered, with nationalization only a matter of months away:
Many experts believe Obama's administration will have little choice but to pump more money into the banking sector or create an entity to buy banks' soured assets such as subprime mortgages so they'll start lending again.
Both moves would signal a dramatic increase in the government's involvement in the banking sector, possibly threatening shareholders whose holdings could be wiped out in the event of a government takeover.
Even financial firms that previously claimed they could remain healthy are now reporting significant losses:
State Street Corp and Bank of New York Mellon Corp reported substantial losses on investments and sharply lower profits on Tuesday, and investors pummeled shares of the giant institutional money managers.
My estimates of further pain for the banking industry are proving correct. I'm glad I went bearish on XLF again. It didn't net me as much cash as I'd hoped, but it's the thought that counts.
Nota bene: Anthony J. Alfidi holds uncovered short call options on SPY, IWM, EFA, VWO, and XLF.
