Exchange traded funds indexed to the U.S. financial sector led the charge in stocks Thursday as the Dow soared more than 500 points in a powerful snapback rally.
Equity ETFs bounced amid talk of a short-sale ban in Europe as officials try to roll back the spreading credit crisis. [Stocks Up; Treasury ETFs Fall After Auction]
Financial Select Sector SPDR Fund (NYSEArca: XLF) climbed 7.5% heading into Thursday’s closing bell. Bank of America (NYSE: BAC) shares were active again — the stock added 9% following its recent vicious slide. [Stock ETFs in ‘Orderly Crash’]
Investors are worried about U.S. banks’ exposure to the debt turmoil in Europe. Citigroup (NYSE: C), JP Morgan (NYSE: JPM) and Bank of America all have exposure to several of the European countries mired in debt. For instance, Citigroup is the U.S.’s third largest bank, and recently reported total exposure of $31.7 billion to Greece, Portugal, Ireland, Italy and Spain, reports Alexander Schachtel at Wall Street Cheat Sheet.
“Citi currently believes that the risk of loss associated with these exposures is materially lower than the exposure levels,” the bank said. “Citigroup continues to actively monitor its exposures to these, as well as other countries.” [Financial ETFs Higher on Debt Talks, Wells Fargo.]
Of the at-risk assets, $1.6 billion is in bonds, $6.4 billion is tied to credit and financial institutions, and $3.9 billion from corporations. [Sector ETFs: Navigating the Stock Sell-Off.]
JP Morgan is the second largest bank in the U.S. and has about $14 billion tied to European nations under stress, with $3.6 billion alone tied to sovereign debts concentrated in Spain.
The largest U.S. bank, Bank of America, is exposed to Europe with $16.7 billion, with exposure to all five of the near-defaulted nations within the EU. A recent filing noted that B. of A. has purchased about $1.77 billion of credit-default protection as a hedge against potential losses. [Financial ETFs Slips 6% as Bank of America Pressured Again.]
Financial Select Sector SPDR Fund
Tisha Guerrero contributed to this article.
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