Bank Holding Companies

Bank Stock Investors with Stock Losses Held at Full Service Brokerage Firms May Recover Losses For Failure to Recommend Risk Management Strategies


Many investors held concentrated positions in bank holding company stock with full-service brokerage firms which were investment bankers and market makers for these securities. These brokerage firms were in a unique position with information relied upon by investors who held bank stocks in their brokerage accounts. The brokerage firms offered a wide range of comprehensive wealth management services to investors whose bank stock holdings represented a substantial portion of their financial assets. These wealth management services included stock research, use of loans to provide liquidity for the appreciated stock positions and risk management strategies for the concentrated stock positions.

Bank holding company stocks held in customer accounts include:

  • Bank of America
  • Citigroup
  • AMCORE Financial
  • AmericanWest Bancorp
  • Bank of Commerce
  • Bank of Napa
  • Bank of New York Mellon Corporation
  • Charter Oaks Bank
  • Citizens First Bancorp
  • Colonial Bancorp
  • Community Valley Bancorp
  • Corus Bankshares
  • Cowlitz Bancorp
  • Euro Bancshares
  • First Fed Financial Corp
  • First Northern Bank
  • Green Bankshares
  • Irwin Financial
  • Lighthouse Bank
  • Lloyds Banking Group
  • National City
  • Pacific Capital Bancorp
  • Pacific State Bancorp
  • Popular, Inc
  • Prosperity Bank
  • River Valley Community Bank
  • Santa Cruz County Bank
  • Santa Lucia Bank
  • Silver State Bank
  • Sonoma Valley Bancorp
  • Summit Bancshares
  • Temecula Valley Bancorp
  • UCBH Holdings
  • United Western Bancorp
  • Wachovia
  • Washington Mutual
  • Wells Fargo
  • Wilmington Trust Corp

For many investors, their investments in bank holding company stock represented a long term holding acquired through investment, inheritance or as a founding member. These investors held the stock for the dividend which was considered to be a safe and stable source of income.

The decline in the real estate market translated into significant losses for bank stocks. To compound the problems a short sale ban was placed on bank stock, including market makers. The short sale ban removed an important risk management tool which exposed market makers to positions in bank holding company stocks and created a reluctance to recommend the sale of these community bank stocks held in customer accounts. Investors should consider what recourse is available to recover their investment losses for concentrated positions in bank holding company stock.

Full-Service Brokerage Firms Who Failed to Recommend Risk Management Strategies May Be Responsible for Damages


But there may be hope for investors, including heirs of founding members, long-time bank employees and others, who maintained large concentrated stock positions in bank holding company stock held with financial advisors in full-service brokerage accounts. Investors, including market makers, have available risk management strategies to limit the risk of concentrated stock positions, including the use of stop loss and limit orders, short sales, protective puts, option collars or pre-paid forward sale transactions, to protect against declines in concentrated positions. Full-service brokerage firms are obligated to give, and investors are entitled to rely upon, brokerage firms for competent, suitable investment advice concerning risk management strategies for concentrated positions in bank holding company stock. Since brokerage firms are required to supervise the activities in brokerage accounts, losses from concentrated stock positions can be attributed to the failure to adequately supervise the stockbroker and the brokerage account. Recommendations of unsuitable investments failure to recommend suitable risk management strategies and/or maintaining unprotected concentrated stock positions are causes of action that may be available to investors against their full-service brokerage firm in an individual securities arbitration claim filed with the Financial Industry Regulatory Authority, FINRA.