UNFOUNDED RUMOR OF THE DAY: “LARGE BANK FAILURE”
Deja vu all over again in September? There are rumors swirling from several sources (including Bloomberg) about a large bank failure. Put volume is soaring in Wells Fargo, but the rumor is that the bank is possibly in Europe….More to come….
WFC – Wells Fargo & Co. – A battering for banking stocks appears to be back on the agenda today. Put activity in Wells Fargo compounds a 3% price decline to $26.67. We noted heavy put volume two weeks ago just as the share price reached its best level since January. In mid-morning trade around 25,000 put options expiring in October traded with premiums rising from 75 cents to 95 cents. Within an hour those puts were changing hands at 1.20. The now at-the-money 26 strike has also shot up from 1.25 to 1.85 as pressure on the stock emerges. In a sign of deteriorating prospects for the company, option traders sent implied volatility sharply higher to 56% – some 22% above yesterday’s gauge of fear.
VIX options are also active:
VIX – CBOE Volatility index – Our early edition wouldn’t be complete without pointing to the 8% rise in the fear gauge to 28.08 today. Its rise seems paltry considering the sudden break in sentiment today especially across certain financial names. While the overall tone has certainly steadied recently, which is why the Vix has remained beneath an index reading of 30 for about two months, there’s an awkward confluence of bearish factors rising in importance. The cash-for-clunkers program has allegedly brought forward demand from the future and was essentially a consumer giveaway. Analysts don’t expect a repeat performance anytime soon. That takes away from a bigger picture back-to-work argument and the market awaits the latest employment report this Friday. Earnings have been good, but again, many point out that this could be a one-trick pony. Asian markets have been grinding lower for fear that Chinese stimulus can’t replace external demand eternally. There was notable activity in the September contract today with 32.5 and 35 strikes being bid higher on heavy call option volume. That argues for further stock market weakness. Don’t they say that September is typically a bad month for stocks?
Cullen Roche
Mr. Roche is the Founder of Orcam Financial Group, LLC. Orcam is a financial services firm offering research, private advisory, institutional consulting and educational services.
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20 Comments
I doubt one of Warren Buffet’s favorite investments will be the catalyst for the next leg down. Isn’t C still the most likely/obvious candidate?
Did you catch CNBC’s headline yesterday “If Stock Selloff is Coming, You Don’t Have to Join the Crowd” ? I hope it’s stupidity and not malice leading Joe SixPack astray.
Yeah, I don’t think Wells is the bank people are talking about. I keep hearing large European bank….
Hmm, Allied Irish or Erste maybe????
I would think it would have something to do with RBS and ABN. Their preferred stock issues have been getting crushed lately. Yields are back to 18% again on those two.
http://acrossthecurve.com/?p=8376
The guy at Across the Curve is now writing that the bank is Corus. If that’s the case, it’s not much of a rumor. It’s been known that they are in deep trouble and I believe the FDIC is trying to arrange a takeover.
Corus has been dead in the water for months. That’s not even worthy of mention.
Kass said that WFC has a ‘large secondary’ coming
Just trying to shake the late to the game longs out…covered my shorts and went long bac and aapl. Good luck all.
The rumor is that WFC will repay TARP by year’s end. Therefore, what Van said about a secondary offering might be true.
Not that you’d want to fight the rumors…However, if one of the big banks was to fail, it would have been already. It seems the government is dead set on protect these banks.
Bank failures no longer matter. Neither do secondary offerings. Bernanke will fix all bank failures – even foreign ones. Secondary offerings no longer are seen as diluting existing shareholders, they are now seen strictly as a sign of confidence and lead to dramatic surges in the value of otherwise worthless stocks.
Rob:
True. The government can…fix everything:
http://www.youtube.com/watch?v=LO2eh6f5Go0
Did the government actually fix everything? Or did they simply prolong everything?
Prolong…the eventual. TPC I hope I convey the wishes of all blog readers when I say that we all hope that you and loved ones are not affected by the So.Cal. fires as well as the speediest possible return to normalcy.
September correction would be too obvious. The shorts are getting all juiced up only to end up having their faces ripped off yet again. The fun will start next year.
Dean,
Thanks. Luckily I am not in the Los Angeles area. The Governator has it all under control (but not really). Hopefully this storm gives us some rain in the next few days….
TPC:
I hear you.
The state tried to save money by canceling a $7 million annual contract for a DC-10 firefighting aircraft, but the recent fires led it to sign an emergency $4.6 million contract for the plane that only lasts until November.
TPC
This rumour makes me sit up and take note. I have been pondering whats going to bring about the massive sell off and this rumour might well turn true or something of real significance to the market can happen in this or next week. Btw I think I called the top correctly, though by a narrow margin
is there any correlation with the fact the LIBOR and LIBOR swaps(in USD) at 52 week lows (not mentioning other rates) or all v.v. ?
