Magazine article American Banker

Banks with a Consumer Bent Show Surge in Short Interest

Magazine article American Banker

Banks with a Consumer Bent Show Surge in Short Interest

Article excerpt

In another sign of the mounting concerns over credit quality, short selling in the stocks of banks with strong ties to consumers rose steeply in the four weeks ending June 14.

Short interest in Bank of New York Co., which startled Wall Stret on June 19 by saying it will add $350 million to its loss reserve in anticipation of future credit card delinquencies, rose 1.6 million shares, the largest amount of any bank on the New York Stock Exchange. (See page 34 for a complete short-interest table).

The rise is even more notable given that investors knew the bank would be able to book a large gain from the sale of some of its card portfolio, said Gerard Cassidy, an analyst with Hancock Institutional Equities Services.

"It is surprising investors would short the stock in the face of the sales news," he said. Bank of New York's card line linked to the AFL-CIO is being sold to Household Finance.

Other companies with large credit card and/or mortgage operations, including Citicorp, H.F. Ahmanson & Co., Dime Bancorp, and MBNA Corp., also endured significant increases in short interest.

"The consumer credit issue is not going to disappear quickly," Mr. Cassidy predicted. "It is going to be an albatross around the necks of those banks with high credit exposures.

"Investors are clearly looking to short those financial institutions with large operations in these areas," he added.

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

Over the past months, reports have appeared with increasing frequency showing sharp jumps in the number of consumers unable to pay credit card and mortgage loans.

Bank of New York's announcement of the huge reserve addition sent shock waves through the financial services sector two weeks ago, causing stocks to plummet. …

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