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 (Nasdaq: GBNK): Operates as the bank holding company for Guaranty Bank and Trust Company that provides various banking products and services to consumers, and small and medium-sized businesses. Market cap at $156.9. Net institutional purchases in the current quarter at 16.6M shares, which represents about 23.35% of the company's float of 71.10M shares. Over the last six months, insiders were net buyers of 746,787 shares, which represents about 1.05% of the company's 71.10M share float.
2. FXCM (Nasdaq: FXCM): Provides online foreign exchange (FX) trading and related services to retail and institutional customers Worldwide. Market cap at $161.69. Net institutional purchases in the current quarter at 914.6K shares, which represents about 8.77% of the company's float of 10.43M shares. Over the last six months, insiders were net buyers of 125,569 shares, which represents about 1.2% of the company's 10.43M share float.
3. Stag Industrial, Common St (Nasdaq: STAG): A a real estate investment trust. Market cap at $190.48. Net institutional purchases in the current quarter at 1.3M shares, which represents about 14.1% of the company's float of 9.22M shares. Over the last six months, insiders were net buyers of 46,114 shares, which represents about 0.5% of the company's 9.22M share float.
4. Two Harbors Investment (NYSE: TWO): Operates as a real estate investment trust (REIT) that focuses on investing in, financing, and managing residential mortgage-backed securities (RMBS) and related investments. Market cap at $258.88. Net institutional purchases in the current quarter at 26.5M shares, which represents about 18.95% of the company's float of 139.86M shares. Over the last six months, insiders were net buyers of 121,000 shares, which represents about 0.09% of the company's 139.86M share float.
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.
