Everybody’s Dumping the Big Banks

Remember last fall’s Bank Transfer Day?  According to Javelin Strategy and Research, the big-bank oriented protest had a statistically significant impact. For once, people were fed up enough to take action. Several months later, big banks are being shunned, again -- but by much bigger customers, and for some very different reasons.

Bank of America (NYSE: BAC  ) has been slapped several times lately, most recently by the Democratic National Committee. A spokesman announced that some of the committee’s money is being moved now to labor union-owned Amalgamated Bank, with the rest to follow later in the year. Other politically-tinged groups have been changing from B of A, the historical banking choice of political movers and shakers, to Amalgamated. Does this activity indicate support for the nation’s only union-oriented bank, or dismay with Bank of America? There’s not a lot of commenting going on, so the motivation is up for grabs. There certainly seems to be a desire for left-leaning politicos to distance themselves from B of A, though.

The town of Brockton, Massachusetts, has also switched from B of A, taking its payroll elsewhere, due to escalating fees. Even clerics are getting into the act, removing church funds from the bank, to protest foreclosure practices. Other banks are losing municipal customers, too. Hempstead, New York, moved $12 million out of JP Morgan Chase (NYSE: JPM  ) last year because of the way the bank treated local homeowners during foreclosure, and  Buffalo withdrew $45 million this past spring, subsequent to the bank’s much-ballyhooed trading fiasco.

Fund managers have been losing interest in big banks, as well, though probably due more to performance issues than bad behavior. Hedge fund heavyweight George Soros has exited nearly all his financial positions, selling off interests in JP Morgan, Goldman Sachs (NYSE: GS  ) , and Citigroup (NYSE: C  ) . Louis Moore Bacon’s Moore Capital Management also sold off positions in JP Morgan, in addition to Wells Fargo (NYSE: WFC  ) , and U.S. Bancorp. John Paulson has reduced his holdings of JP Morgan from almost 18.5 million shares earlier this year to just 4 million in Q2.

To be fair, some big investors have bought shares of banks in the banking sector, and Warren Buffett, once again added to his position in Wells Fargo. A London fund, Odey Asset Management, also increased its positions in Wells Fargo, as well as JP Morgan and Citi. BlueMountain Capital just recently began acquiring Citi, and added in some JP Morgan, just for good measure.

Fool’s Take
Still, the idea of some of the biggest and the best-known getting out of banking stocks is sobering. Many of the largest banks now trade at substantial discounts to their own book value, reflecting just how hesitant many investors are to owning shares.

Do investors need to worry about the exodus from everything big bank? It’s been almost a year since Bank Transfer Day, and a lot has happened -- including the London whale, the LIBOR scandal, and the filing of scores of lawsuits against big banks for underhanded deals they’ve made since 2006. 

At the very least, it seems to me to be cause for heightened attention.

The banking sector certainly has its ups and downs, but there are reasons why big players, like Warren Buffett, invest in some of the largest banks around, like Wells Fargo. Want to know what Buffett knows that you don’t? Take a look at our special report on Wells Fargo, on us -- to learn just what makes this bank so promising.  It’s free, so click here now to get started. 

Fool contributor Amanda Alix owns no shares in the companies mentioned above.

The Motley Fool owns shares of JPMorgan Chase, Wells Fargo, Citigroup, and Bank of America. Motley Fool newsletter services have recommended buying shares of Wells Fargo and Goldman Sachs Group. Motley Fool newsletter services formerly recommended JPMorgan Chase. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.


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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.

  • Report this Comment On August 16, 2012, at 8:44 PM, stockpro7 wrote:

    I think that the very very very smart money is buying the big banks in relatively small increments.

  • Report this Comment On August 16, 2012, at 9:37 PM, ronbeasley wrote:

    Buffett didn't just "add to" his Wells Fargo stake, he bought another 16.7 million shares last quarter alone, and now owns 7.8% of the company, worth over $13 billion. He also recently said he likes Wells "better than anything". A bit more meaningful than short-term driven hedge fund moves. Would be nice if these "fool" subscription salespeople would tell the full story.

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