Sunday, December 16, 2007

Fed Can't Stop the Bleeding in Financials Funds

Anyone who thinks the Federal Reserve has been cutting interest rates to bail out financial services companies hasn't been paying attention to stock prices in that sector recently.

On Tuesday the Fed threw the badly wounded financial industry a Band-Aid by cutting the fed funds target rate by 0.25 percentage points to 4.25%, only to see the financials stocks sell off even further. The carnage was so bad that the following day the Fed announced a coordinated program with other central banks to add liquidity to the banking sector.
These efforts didn't prevent the shares of Citigroup(C:NYSE) from falling 4.4% on Tuesday and another 5.3% on Wednesday. The nation's largest bank, which traded as high as $57 a share less than a year ago, closed on Dec. 13 at $31.01, down 9.72% for the week and off 44.3% for the year to date.
Citi had plenty of company in the loss column. Washington Mutual(WM:NYSE) tumbled 18.51% for the week while National City(NCC:NYSE) swooned 12.07%. The already-battered mortgage industry continued to retreat, with Countrywide Financial(CFC:NYSE) falling 16.69% and MGIC Investment(MTG:NYSE) down 12.23%.
Mortgage industry giants Fannie Mae(FNM:NYSE) and Freddie Mac(FRE:NYSE) both suffered double-digit percentage setbacks.
Fears that the credit crunch could spread to other areas of the money-lending business drove prices lower in the consumer finance sector. SLM(SLM:NYSE), also known as Sallie Mae, took a 25.05% hammering, while First Marblehead (FMD:NYSE) sank 20.32% and IndyMac(IMB:NYSE) surrendered 18.01%.
The Dow Jones financials index retreated 5.05% for the period, led southward by an 11.20% setback in the mortgage finance subindex, an 8.77% decline in the consumer finance group, a 6.40% backtracking in the banking gauge and a 7.09% retrogression in full-line insurance.
Of 60 financial services funds -- including open-end mutual funds, closed-end funds and exchange-traded funds but excluding leveraged and inverse funds as well as redundant classes of multiclass funds -- the average performance for the week ended Dec. 13 was negative 3.82%.
The bottom trio of performers -- one of which suffered a double-digit setback for the week -- all are leveraged funds. Investors who took positions in those funds in hopes of achieving outsized gains are now learning that multiplicative nature of geared investments can also produce extra painful losses.
ProShares Ultra Financials(UYG:NYSE), an exchange-traded fund that seeks to reproduce twice the daily performance of the Dow Jones Financials Index, slid 11.19%. ProFunds Bank Ultra Sector (BKPIX), which tracks 150% of the Dow Jones U.S. Bank Index, lost 9.61%, and ProFunds Financial Ultra Sector (FNPIX), which tracks 150% of the Dow Jones U.S. Financials Index, lost 7.69%.
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ICICI Bank

ICICI Bank is India's second-largest bank with total assets of Rs. 3,446.58 billion (US$ 79 billion) at March 31, 2007 and profit after tax of Rs. 31.10 billion for fiscal 2007. ICICI Bank is the most valuable bank in India in terms of market capitalization and is ranked third amongst all the companies listed on the Indian stock exchanges in terms of free float market capitalisation*. The Bank has a network of about 950 branches and 3,300 ATMs in India and presence in 17 countries. ICICI Bank offers a wide range of banking products and financial services to corporate and retail customers through a variety of delivery channels and through its specialised subsidiaries and affiliates in the areas of investment banking, life and non-life insurance, venture capital and asset management. The Bank currently has subsidiaries in the United Kingdom, Russia and Canada, branches in Singapore, Bahrain, Hong Kong, Sri Lanka and Dubai International Finance Centre and representative offices in the United States, United Arab Emirates, China, South Africa, Bangladesh, Thailand, Malaysia and Indonesia. Our UK subsidiary has established a branch in Belgium.
ICICI Bank's equity shares are listed in India on Bombay Stock Exchange and the National Stock Exchange of India Limited and its American Depositary Receipts (ADRs) are listed on the New York Stock Exchange (NYSE).