Short interest in the shares of banks and other financial companies traded on the major exchanges in New York rose 2.1% in the month ended April 15.
Analysts said the rise while financial stocks were falling fast indicated that some investors believed the stocks would fall even more- possibly because of rising interest rates.
A bigger factor, they said, was the increased use of short sales on behalf of banks as a way to speed share buybacks and by arbitragers using sophisticated hedging strategies to profit from announced merger deals.
Traditionally, investors short sell stocks when they expect trouble. The short-seller borrows shares and sells them, hoping to make a profit by replacing the borrowed shares with cheaper ones after a decline in the price.
Data from the New York Stock Exchange and American Stock Exchange indicate that more than 176 million shares of "bank-related" shares were sold short at the end of the period, up 3.6 million for the month. (See table on facing page.)
Michael R. Long, who tracks short sales at Short Alert, Charlotte, N.C., said the rising short position as financial stocks dropped about 10% was "countertrend."
Normally, he said, one would expect short positions to decline as short- sellers cash in on falling prices by buying shares to cover their short positions.
But he noted that a number of major banks, including NationsBank, have engineered short sales of their own stock in an increasingly popular strategy to accelerate share buyback programs.
Indeed, NationsBank had the second-largest short position in the industry-14 million shares-although its position declined by 10.8 million during the month.
Joseph P. Elmlinger, a vice president at Salomon Brothers who oversees the unit that offers the accelerated buyback service, declined to say which banks initiated programs in the month.
But it is a "a reasonable conclusion" that the buyback activity contributed to the rising short interest, he acknowledged.
Banc One Corp.'s 47.2 million-share short position, the largest in the industry, has been tied to an accelerated share repurchase program.
The short position in the Columbus, Ohio, bank, which has come under some fire for its plans to buy credit card specialist First USA Inc., was up by 2.5 million shares.
