Regional Banks in Trouble? These Options Traders Think So

Two years and counting after the mortgage-backed securities crisis first hit the fan, a number of obstacles remain for the troubled banking sector. The "too-big-to-fail" behemoths may have been rescued from the brink of disaster, but they've still got a heap of problems to contend with: the sluggish housing market, credit issues, not to mention the fallout from the recent foreclosure mess curveball.

Then you have the smaller institutions, struggling to keep their proverbial heads above water -- and as FDIC's ever-increasing "problem list" shows, many are failing to stay afloat.

The new financial reform law has created a whole new set of challenges for small banks. Now that they're unable to raise capital with trust-preferred securities, preferred for their favorable tax, accounting and credit treatment, smaller institutions may have difficulty meeting capital requirements. According to Rockdale Securities analyst Richard Bove, this could force them to sell at a discount to their book value.

Wondering which regional banks are expected to falter? That's a tough question, but for clues you can have a look at what the options traders are thinking about the sector.

We've compiled a list of six regional banks with bearish options market sentiment. All of these stocks have a large number of open put option contracts relative to call option contracts, suggesting that options traders expect these stocks to decline over the coming weeks.

Do you agree with these options traders, or do you see their pessimism as a contrarian indicator? (Click here to access free, interactive tools to analyze these ideas.)

Options data sourced from Schaeffer's. The list has been sorted by the put/call ratio.

Company Name

Region

Call Option Open Interest (No. Contracts)

Put Option Open Interest (No. Contracts)

Put/Call

CVB Financial (Nasdaq: CVBF  )

Pacific Bank

3,341

46,888

14.03

First Midwest Bancorp (Nasdaq: FMBI  )

Midwest Bank

77

880

11.43

FirstMerit (Nasdaq: FMER  )

Midwest Bank

360

3,180

8.83

TFS Financial (Nasdaq: TFSL  )

Midwest Bank

896

7,167

8.00

Pacific Capital Bancorp (Nasdaq: PCBC  )

Pacific Bank

16,291

31,478

1.93

Umpqua Holdings (Nasdaq: UMPQ  )

Pacific Bank

482

896

1.86

Interactive Chart: Press Play to see how analyst ratings have changed for all the stocks mentioned above.


Kapitall's Eben Esterhuizen and Alicia Sellitti do not own shares of any companies mentioned.

Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


Read/Post Comments (1) | Recommend This Article (9)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Add your comment.

DocumentId: 1398320, ~/Articles/ArticleHandler.aspx, 7/23/2014 10:40:27 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement