Fitch Ratings said on Friday that it might lower the credit ratings for a few U.S. banks, including Bank of America Corp (BAC) and Citigroup Inc (C).
Fitch’s reason is the proposed new banking rules that don’t put banks in a protected category of being “too big to fail” and using tax payers dollars to prop them up, an option that was popular with then President Bush and his republican administration.
Last week, the U.S. Federal Deposit Insurance Corporation issued guide-lines related to how it will identify “systemically important” banks under the new Dodd-Frank financial reform law.
Fitch said its warning most affected Bank of America and Citigroup, because both companies “have benefited from support provided by the U.S. government.” Each bank was given about $45 billion in U.S. taxpayer money during the financial crisis.
So what’s the big deal about a downgrade from Fitch? If you get downgraded, it costs you more to borrow money.
Citigroup, which is still 12% owned by the U.S. tax payer, reported its third consecutive quarterly profit on Monday to the tune of a $2.2 billion profit.
Daily Chart of Citigroup (C)
That sideways move over the last week doesn’t provide much confidence in what direction this is going to go; however, the bulls still control the trend but barely.
The 200 day MA is the pivot point. A close below with confirmation would signal a pullback to $3.91.
Daily Chart of Back of America (BAC)
Unlike the previous chart of Citigroup (C), it’s clear where Bank of America (BAC) is headed, down. This chart is in a strong downtrend. Nothing looks good about this chart and the first warning was the negative divergence between the Accum/Dist and the price that I wrote about last week.
Folks, you’d have to be half-retarded to play banking stocks. Don’t be so hard-up desperate. Always look for strong uptrending stocks in uptrending sectors and leave stocks like these alone.