Magazine article American Banker

Short Position in Fifth Third Triples; Arbitrage Is Cited

Magazine article American Banker

Short Position in Fifth Third Triples; Arbitrage Is Cited

Article excerpt

The short position in Fifth Third Bancorp tripled during the 30 days ended March 15, an increase that analysts attributed to arbitrage activity. Fifth Third's short interest rose 202.2%, to 2.36 million shares, pushing the bank's short position into second place among financial stocks traded over Nasdaq. Only Olympic Financial Ltd.'s 4.7 million-share short position was larger. (See tables this page and page 28.)

Short interest is the outstanding volume of shares sold short, that is, borrowed and promptly sold. Short sellers commonly are betting that the stock price will fall so that the borrowed shares can be replaced profitably with cheaper shares.

But analysts said the short position in the well-regarded Cincinnati bank could result from technical factors. "There is no fundamental reason for the bank to be shorted," said Livia Asher of Merrill Lynch & Co.

Fifth Third's March 7 inclusion in the S&P 500 index and the expectation that the bank could convert $143 million of debt to 3 million shares of common stock probably contributed to the rise in the short position, analysts said. Fifth Third shares closed trading Wednesday at $58.50. "With Fifth Third's addition to the S&P 500, there was naturally a high level of buying activity from the index funds. I suspect that some of the sellers may have shorted the stock," said Joseph C. Duwan, analyst at Keefe, Bruyette & Woods Inc.

The expectation that Fifth Third may convert outstanding convertible debt also could influence the short position, said Mr. …

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