Magazine article American Banker

Short Interest in Banking Stocks Tumbles as Big Mergers Close

Magazine article American Banker

Short Interest in Banking Stocks Tumbles as Big Mergers Close

Article excerpt

Despite increased short-selling of consumer-lending banks and finance companies, overall short interest in bank stocks plummeted in the month ended Jan. 15, as arbitragers covered some huge short positions on banks that completed acquisitions.

Bank-related short interest on the New York Stock Exchange and the American Stock Exchange fell 16.6% to 146.4 million shares in the period.

The three biggest declines in short position were in banks that completed deals, analyst Carole Berger of Salomon Brothers pointed out.

The short position in PNC Bank Corp., which bought MidLantic Corp., declined by 27.7 million shares. The short position in First Union Corp. fell 5.8 million shares, as the Charlotte, N.C., bank bought First Fidelity Bancorp. And the short position in Nationsbank Corp. fell by more than 3 million shares, probably reflecting the completion of its deal with BankSouth.

Short interest is the outstanding volume of shares sold short - that is, borrowed and promptly sold. Traditionally, short-sellers are betting that a stock price will fall, enabling them to cover their positions with cheaper shares.

Today, however, sophisticated investors with an eye on making money from mergers have embraced a strategy of short-selling the shares of acquirers and buying shares of their prey.

Together PNC, First Union and Nationsbank more than accounted for the 29.1 million share decline in bank-related short interest reported by the two exchanges. …

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