Christopher Whalen is setting out to prove that smaller banks are stronger than larger ones.
After years of observing Wall Street from the sidelines, Whalen is setting up an investment fund focused on small and mid-size banks. Specifically, he's focused on banks that "focus on old-fashioned lending and avoid risky businesses like derivatives trading," reports the New York Times.
"The big guys are going to break up," he says, referring to industry giants like Citigroup, Bank of America and JPMorgan Chase. He believes a bank becomes stronger with less exposure to Wall Street: The bigger the exposure, the bigger the risks of losses, especially as investors sue over bad mortgages.
In particular, "Mr. Whalen contends [Bank of America] has been permanently crippled by its exposure to troubled mortgage investments -- and would be worth more in pieces," reports the New York Times. "Investors, he has said, should agitate for a restructuring."
Naturally, Bank of America's spokesman, Jerome Dubrowski, disagrees.
Business section: Investing ideas
Whalen has long been vocal in his criticism of big banks and the troubling accounting decisions of some of them. He even voiced concerns about Bear Stearns' subprime loans in March of 2007, a year before it was dissolved, saying they posed an "almost unknowable" threat.
He's proven himself wise in the past, so does he have a point about small- and mid-size banks today? Do they really offer a better value to investors than the traditional big names?
With Walen's ideas in mind, we created a universe of financial companies with small market caps -- between $150M and $300M.
To improve the quality of our list, we took only the names experiencing net positive buying from company insiders and institutional investors, such as hedge funds. These are groups of investors that are believed to have more sophisticated market information than the average investor. If both are feeling bullish on a company, you may want to take note.
Do you think any of these names are poised for success? (Click here to access free, interactive tools to analyze these ideas.)
1. Guaranty Bancorp
3. Stag Industrial, Common St
4. Two Harbors Investment
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.
Kapitall's Rebecca Lipman does not own any of the shares mentioned above. Institutional data sourced from Fidelity, short data from Yahoo! Finance.
The Motley Fool owns shares of JPMorgan Chase, Citigroup, and Bank of America. 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.