Trader Talk

Why Financials Are Falling


Dow drops at least 114 points midday, financials lead declines. What's ailing financials? What isn't?

1) Reports of Goldman criminal probe

2) Financial regulatory reform: still no idea what final bill will look like

3) Greece: still the potential for bailout talks to fall through — some are worried about serious Lehman-like macro consequences if a clear deal is not reached.

Note that among financials, the big names — Citi , BofA , JPMorgan and Morgan Stanley — are down, but all the regional banks are up. What this tells us: the market is worried about banks that have capital markets.

As for Goldman, here's a comment I received from one trader:

"Remember that the past financial crisis accelerated when counterparty risk became a deep concern and clients withdrew their prime brokerage accounts. After the financial crisis settled down, prime brokerage accounts gravitated to three main players — Goldman, JP Morgan, and Deutsche Bank . Right now Goldman volatility is from uncertainty of the lawsuit and potential you are a risk manager....what do you do today? do you move your account now or wait for the mad rush?"

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