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. Because short-sellers eventually must purchase the shares to cover their positions, some investors view heavy short positions as a bullish sign.
Short interest remained high in a number of bank issues, notably Midlantic Corp., which had the second-largest short interest ratio among the over-the-counter stocks at 36 times average daily volume, up 10% in the month. Midlantic has been hit hard by real estate trouble in its region, but has reported some leveling off in new nonperformers.
The Biggest Overhangs
Also in the top 25 in short interest ratio were Howard Savings Bank, a new Jersey thrift with 36 days' trading volume outstanding; Old Stone Corp., with 17 days' volume; and Central Fidelity Bank, 15 days.
Among the 20 selected companies in the two lists of bank issues provided by Nasdaq, seven showed declines in uncovered short positions.
But the short-seller said apparent declines can be caused by technical factors in the way in which short-sellers structure their portfolios.
No banks were among the top 15 in percentage increase or decline in short interest. Valley National Corp. had the sixth-largest decline in number of short shares outstanding, as short interest in Valley declined by 525,706 shares to 1.4 million.
Nasdaq lists 199 banks in all, but does not include most major banks.
PHOTO : Banks Attract Short-Sellers