A new report from investment bank Goldman Sachs (NYSE:GS) claims that hedge funds are dumping bank stocks heading into year’s end. According to Goldman, hedge funds sold bank and financial related stocks for a 10th consecutive week through Dec. 8. Hedge funds now have their lowest exposure to the banking sector since March 2020 when the Covid-19 pandemic began and markets around the world crashed.
Goldman Sachs notes that hedge funds that have retained their holdings of bank stocks switched their positions to short bets, which means they’re betting that the stocks will decline further in the near-term. Clearly this is not a good time to own stocks of banks and other financial institutions.
Bank stocks have had a terrible year in 2023, especially after the failures of several regional lenders in the spring. For the year, the S&P 500 Banks Index is down 5% versus a 20% gain in the benchmark S&P 500 index. Here are three bank stocks I wouldn’t touch with a 10-foot pole.
Barclays (BCS)
We’ll start with British lender Barclays (NYSE:BCS), which just announced plans to cut 2,000 jobs as part of a $1.25 billion cost reduction plan. The layoffs come as Barclays financial position continues to deteriorate. The bank has never fully recovered from poor trading decisions in its investment banking unit that cost the bank hundreds of millions of dollars in losses and forced it to take drastic steps to try and right its ship and boost its struggling share price.
Barclays has reduced its expenses in recent years by cutting or eliminating bonuses, as well as jobs in its retail and investment banking units. The latest round of sackings will occur in Barclays back office, said the bank. The headcount reduction will save the bank about 7% of its annual operating budget of $18 billion. Executives are under pressure to boost the bank’s share price ahead of an investor presentation that’s scheduled for February 2024. BCS stock is down 9% this year and down 8% over five years, making it a very bad long-term investment.
Bank of Nova Scotia (BNS)
Up north to Canada and let’s look at the Bank of Nova Scotia (NYSE:BNS). Canada is home to five large banks that control nearly the entire market, operate under a government-protected monopoly, and act in concert with one another. If one of the bank’s raises its quarterly dividend payment, so do the rest. If one bank lowers the interest charged on a home mortgage, the others follow. However, among the five big banks, Bank of Nova Scotia stands out for being a particularly bad investment.
Bank of Nova Scotia, which is Canada’s third-largest bank by assets, recently reported third-quarter financial results that missed analysts forecasts. In October, the bank announced that it was laying off 3% of its staff, or approximately 2,500 employees, as it tries to streamline operations and boost its stock. The latest financial results arrive weeks before Bank of Nova Scotia’s new CEO Scott Thomson, who took the helm this past February, unveils a new business strategy to get the bank and its stock back on track.
Markets remain skeptical judging by the fact that BNS stock is down 7% this year and down 17% over the past five years. This is a bank stock nobody should touch with a 10-foot pole.
Citigroup (C)
Now to an American turnaround story and Citigroup (NYSE:C). The U.S. lender is another bank that is trying to reverse its declining fortunes through a series of corporate layoffs and retrenchment. In November, Citigroup’s CEO Jane Fraser informed staff that a series of job cuts is coming and likely to impact both lower-level employees and senior executives. The exact number of layoffs hasn’t been announced at the bank, which employs 240,000 people worldwide.
However, earlier this year, Citigroup cut its management layers from 13 to eight, reduced its overall headcount by 15%, and eliminated 60 internal committees at the bank. It’s all part of Citigroup’s effort to become a leaner and more efficient organization and get its stock back up to its former glory. C stock has suffered not only from bloated internal costs but also from the lender’s global exposure, particularly in Asian markets. In recent years, Citigroup has been pulling back to concentrate on the U.S. market.
While C stock is up 6% this year, it is trading 12% lower than where it was five years ago, and is 90% below the all-time high it reached back in 2007 before the global financial crisis occurred.
On the date of publication, Joel Baglole did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
