Financial Stocks


A major area of concern to investors and regulators is that brokers made speculative plays in financial services stocks on behalf of their retail clients. Sensing a bottom, many brokers loaded up their clients with stocks like Citigroup, Merrill Lynch and even Bear Stearns. Fannie Mae and Freddie Mac seem to have been highly recommended to many investors at an inappropriate time as well.

Perhaps the most startling example is Lehman Brothers, which has experienced massive losses while management issued overly rosy explanations of the firm’s balance sheet.

Trying to catch a falling knife is not an appropriate recommendation for an investor with a moderate or conservative risk profile and we are seeing such complaints become more common. Zamansky LLC has filed claims on behalf of investors with these types of complaints.

Clearly, brokers fell asleep at the wheel on two levels: there was no reasonable basis for expecting the financial services industry was finished with its subprime mortgage write-downs unless they were duped nor was there any reasonable basis for many investors to buy financial stocks during the past year and a half.

During the tech-bubble, Zamansky LLC filed many claims on behalf of investors whose brokers pushed them into bottom fishing for tech stocks that were rightly beaten down. This is another example of Wall Street’s history repeating itself.

Needless to say, any broker who recommended buying bank stocks in the past year and a half should be prepared to explain their rationale in a securities arbitration hearing.