Mortgage woes have been the overriding concern of investors in the country's largest banks in recent months. Not any more. In the wake of Standard & Poor's downgrade of U.S. government debt on Friday, fears about capital markets exposure are now taking precedence over mortgages and cancelling out the perceived safety that investors normally ascribe to the largest banks.

The winners as of early Monday afternoon -- or more aptly, the smallest losers -- were Wells Fargo & Co and U.S. Bancorp. Each is a massive retail banking institution with relatively small positions in the capital markets, including activities such as proprietary trading and financing via short-term debt markets.

Wells and U.S. Bancorp were handily outperforming the KBW Bank Index. Wells, in fact was outperforming the S&P 500's 3.9% loss at 1 pm on a day when the bank index was off 6.7%. JPMorgan Chase & Co., meanwhile, was performing closely in line with the KBW index. Capital markets-heavy Citi, in contrast, was down 10.7%.

Investors' aversion to capital markets exposure among banks is the latest sign of their shifting priorities. As American Banker Magazine noted last week, the cost of credit default swaps on JPMorgan Chase & Co.'s debt recently came in line with those of mortgage heavy but capital markets light Wells Fargo.

Bank of America, meanwhile, continues to show volatility far in excess of even its 2.2 average beta, a barometer that measures a stock's volatility relative to the market's. With its stock down 30% in less than three trading days, B of A's market value is now only about one-third of its book value. Opening substantially lower than other bank stocks, the giant conglomerate managed to largely mirror the KBW index's movements until around 11:15 a.m., when it took a steep fall unmatched by its peers.



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