Magazine article American Banker

Short Interest Up Sharply in Bank Shares on Nasdaq

Magazine article American Banker

Short Interest Up Sharply in Bank Shares on Nasdaq

Article excerpt

Short Interest Up Sharply In Bank Shares on Nasdaq

The bear hug on banks grew tighter in the 30 days that ended Nov. 15.

While the broader market saw short positions increase by 2.2% during the month, the short-sellers increased their positions by more than 14% in a sample of 20 selected bank stocks.

All told, short positions on the Nasdaq market reached a record of 369.3 million shares.

Recovery Called Doubtful

Bears scoffed at predictions that banks would soon rebound from credit problems related to real estate.

"Ridiculous," one professional short-seller said. He said many banks that lent heavily on real estate are ultimately doomed by "massive overbuilding with borrowed money that requires square foot rates two times the market rate.

"I don't care if the market does flatten out," this short-seller said. A bank with a high exposure to such loans "isn't going to make it."

Are Things Worse?

The seller, who insisted on anonymity, said the industry's prospects are unchanged or worse than they were a year ago. He acknowledged that many who sold bank shares short sustained heavy losses when banks rallied. But he noted that many issues have recently retreated near the same trading ranges as a year ago.

Shorts sell borrowed shares on the expectation of a decline in share price. If the price does decline, they cover their positions and pocket the difference.

The negative opinions expressed through short-selling, however, are not the whole story. …

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