Fitch Ratings downgraded seven of the largest U.S. and European banks on Thursday citing "increased challenges" in the financial markets.
Downgrades
Fitch cut long-term ratings on Barclays and Credit Suisse by two notches to A from AA-.
Bank of America, BNP Paribas, Citigroup, Deutsche Bank and Goldman Sachs were all cut by one notch, or one third of a letter rating.
Fitch affirmed its long-term A ratings on JPMorgan Chase & Co, Morgan Stanley and UBS AG, as well as its A+ rating on Societe Generale.
Fitch Ratings may only be the third-largest rating agency behind Standard & Poor and Moody's, but the addition of their downgrades emphasizes others made at the end of last month. Some of those names had been clinging to their last AAA from Fitch.
Bank of America has been downgraded by all three agencies.
Reasoning
Fitch said the U.S. and European banks "are particularly sensitive to the increased challenges the financial markets face."
The downgrades "reflected challenges faced by the sector as a whole, rather than negative developments in idiosyncratic fundamental creditworthiness," Fitch said (via BBC).
In a separate announcement about the downgrade of Citigroup, Fitch cited "policy momentum" against using taxpayer money to support banks during a crisis.
Investing ideas
So, we're wondering, are there any financial stocks being targeted by bearish investors?
For ideas, we collected data on short-seller trends, and identified a list of megacap financial stocks that have seen a sharp increase in shares shorted over the last month (i.e., an increase in bets that these stocks will decline).
This is significant, especially when you consider that short-sellers tend to be more sophisticated investors (because they require strict credit approval to perform these trades). So if these investors are turning bearish on a stock, it's worth paying attention to.
Short-sellers think these financial stocks are in trouble -- do you agree?
List sorted by market cap. (Click here to access free, interactive tools to analyze these ideas.)
1. Banco Santander-Chile (NYSE: SAN): Provides commercial and retail banking services to corporate and individual customers in Chile. Market cap at $12.87B. Shares shorted have increased from 895.19K to 2.07M over the last month, an increase which represents about 1.98% of the company's float of 59.19M shares.
2. Taubman Centers (NYSE: TCO): Operates as a real estate investment trust. Market cap at $3.55B. Shares shorted have increased from 3.00M to 3.65M over the last month, an increase which represents about 1.14% of the company's float of 56.80M shares.
3. Piedmont Office Realty Trust (NYSE: PDM): Engages in the acquisition and ownership of commercial real estate properties in the United States. Market cap at $2.86B. Shares shorted have increased from 9.82M to 12.01M over the last month, an increase which represents about 1.27% of the company's float of 172.17M shares.
4. Alleghany (NYSE: Y): Engages in the property and casualty, and surety insurance business. Market cap at $2.5B. Shares shorted have increased from 34.51K to 367.29K over the last month, an increase which represents about 5.96% of the company's float of 5.58M shares.
5. Old Republic International (NYSE: ORI): Engages in insurance underwriting business. Market cap at $2.44B. Shares shorted have increased from 15.44M to 18.48M over the last month, an increase which represents about 1.29% of the company's float of 236.17M shares.
6. MBIA (NYSE: MBI): Provides financial guarantee insurance and related reinsurance, advisory, and portfolio services, as well as investment management services to public finance and structured finance markets. Market cap at $2.35B. Shares shorted have increased from 28.49M to 29.89M over the last month, an increase which represents about 1.07% of the company's float of 131.27M shares.
Interactive Chart: Press Play to compare changes in analyst ratings over the last two years for the stocks mentioned above. Analyst ratings sourced from Zacks Investment Research.
List compiled by Eben Esterhuizen, CFA. Kapitall's Rebecca Lipman and Eben Esterhuizen do not own any of the shares mentioned above. Short data sourced from Yahoo! Finance.
