In the aftermath of the foreclosure debacle that's been dominating financial headlines, banks and mortgage companies have only just begun to deal with the fallout. Federal banking regulators are currently investigating if, and to what extent, mortgage lenders cut corners when filing foreclosures. While preliminary findings aren't set to be released until next month, at this point, things are not looking so good.

To catch you up to speed, here's the short version of the mortgage mess: As a result of lenders' rush job on their paperwork, there's a whole lot of confusion on who legally owns the titles to these foreclosed homes. Because of this, investors in mortgage-backed securities are now entitled to return these home loans to the companies who issued them. And the issuer has no choice but to pay them out.

So what's the damage on the whole debacle? An estimated $97 billion, a price tag even big banks can't afford to sneeze at.

As an investor, you may want to ask yourself which bank stocks you should be avoiding. To find out, we suggest having a look at what options traders and institutional investors are up to.

We've compiled a list of banks that have been seeing institutional outflows over the last three months. Additionally, all of these stocks have a large number of open put option contracts relative to call option contracts -- meaning that there's a good deal of bearish sentiment surrounding them.

Institutional traders and options traders agree that these stocks should be avoided. But could this be a case of excessive pessimism, where most of the bad news has already been priced in? Decide for yourself. (Click here to access free interactive tools to analyze these ideas.)

Institutional data sourced from Reuters, options data sourced from Schaeffer's. The list has been sorted by the Put/Call ratio.



Institutional Trends Over Last 3 Months


Options Market Sentiment

TFS Financial (Nasdaq: TFSL)   Institutional investors currently own 45,552,702 shares vs. 48,196,898 shares held three months ago (-5.49% change)   Call open interest at 777 contracts vs. put open interest at 7,107 contracts (Put/Call ratio at 9.15)
Wilmington Trust Corporation (NYSE: WL)   Institutional investors currently own 70,607,072 shares vs. 71,148,794 shares held three months ago (-0.76% change)   Call open interest at 5,449 contracts vs. put open interest at 15,908 contracts (Put/Call ratio at 2.92)
Zions Bancorp. (Nasdaq: ZION)   Institutional investors currently own 146,481,040 shares vs. 147,920,657 shares held three months ago (-0.97% change)   Call open interest at 66,248 contracts vs. put open interest at 70,011 contracts (Put/Call ratio at 1.06)

Interactive Chart: Use the time line on top of the chart to evaluate performance across different time intervals.

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