(Bloomberg News) Antonio Guglielmi was in Italy watching a dull, tied-at-zero soccer game between AC Milan and S.S. Lazio of Rome, his hometown, at the beginning of February 2011 when his mind wandered to the subject of Europe's banks. That's something he thought about every day as a financial company analyst at Milan-based Mediobanca SpA.
As the players fruitlessly kicked the ball between goals, Guglielmi, 40, decided that when he returned to his office in London he would look more closely at the capital cushion of euro-zone financial institutions.
Bank stocks were at a post-financial crisis high at the time, with the Bloomberg Europe Banks and Financial Services Index up almost 144% from a March 2009 trough. Guglielmi and his 11-person team nevertheless saw trouble ahead. In a February 7 note, they downgraded the whole sector, saying the banks didn't have enough capital to undergird them in the event of a new meltdown.
"Denial is futile," the note said.
Following that downgrade, European bank stocks fell 34% as of August 31, according to the Bloomberg index.
Guglielmi's prediction that French and Italian bank shares would plummet makes him one of the world's top 20 financial stock pickers, according to data compiled by Bloomberg for its annual ranking of analysts and their firms. The ranking looks at the stock picks of more than 2,900 analysts at 212 firms worldwide from January 1, 2009, to August 31.
26 Out of 43
The No. 1 financial stock-picking firm was Citigroup Inc., whose London-based team of capital markets analysts made 26 accurate calls on the 43 financial stocks they follow that met the Bloomberg ranking's criteria. Citigroup was No. 5 in 2010.
"It is not, and it hasn't been for a while, a stock picker's environment," says Andrew Pitt, Citigroup's global head of investment research and a former financial company analyst. "So doing well picking financial stocks over the last 12 months has required judgment and probably also a degree of luck."
Europe's debt crisis, new global banking regulations and investors fleeing equities have made financial stock picking around the world difficult, Pitt, 45, says. Stock prices today are less influenced by companies' individual earnings performance and management decisions than by broad political and economic events, he says.
In 2011, stocks in the Standard & Poor's 500 Index have been moving in lockstep with each other to a degree not seen since at least 1980, according to a study by Westport, Conn.-based Birinyi Associates Inc. Birinyi looked at 50-day rolling averages going back three decades and found that correlations between individual members of the S&P 500 and the index as a whole had risen sharply to 0.85% in September, meaning the movement of share prices was more related to the direction of the overall market than to a company's earnings prospects.