Could These Small-Cap Financials Rally with Europe?

Everyone knows that major financial institutions such as Goldman Sachs GS, Morgan Stanley MS, and JP Morgan JPM would be better off if the European sovereign debt crisis were solved quickly. However, are there any smaller companies that would benefit just as much, if not more than large financial institutions?

Smaller financial institutions and smaller companies in general typically offer investors the chance to take part in a growth story that could result in much larger returns that large-cap, blue-chip stocks. If the European crisis were to become positive, financial institutions would be the first companies to rally in the equity markets, simply because traders will be bullish about the fact that they can operate without worrying about debt exposures and counter-party risk.

M&F Worldwide Corp

M&F Worldwide MFW is a small-cap institution that operates various subsidiaries that relate to financial services. One of its primary subsidiaries provides treasury supplies as well as fraud prevention services. Other subsidiaries deal with technology products as well as data management solutions. M&F Worldwide would clearly benefit from a positive Europe, since customers would be more willing to spend money on auxiliary services. Currently, customers are trying to only spend money on necessary services, and technology support as well as fraud prevention may be bolstered if everyone's finances become more positive.

NewStar Financial

NewStar Financial NEWS is a financial institution that specializes in commercialized lending. It specializes in complex loans for public and private companies in the middle market sector. One of the reasons that NewStar Financial has significant growth prospects is the fact that it is a middle market player. While middle market companies do not transact with billions of dollars, the high volume of transactions makes up for the lack of size. NewStar would be definitely benefit from European strength, as interest rates are likely to go down. Capital markets would also be frothier, allowing NewStar to bolster its own balance sheet and also lend more money to its clients, ultimately increasing profits.

KBW Inc

KBW KBW is a pure investment bank that focuses on the middle market as well. It specializes in mergers and acquisitions, capital raising, sales and trading, and research. As with other investment banks, KBW is absolutely dependent on economic stability. Whether the markets are affected by the American economy, European economy, or Asian economy, any market fluctuations directly affect KBW's various business segments. Capital raising as well as M&A activity tend to slow down significantly in uncertain economic times, and sales and trading may be hurt significantly as well. Trading operations may be profitable, however, if the traders have the foresight to place the right bets in light of economic trouble. Therefore, it isn't hard to see why KBW would benefit from positive European sentiment.

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