Trader Talk

Why Financials Are Falling

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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 liabilities...so 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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