Short sellers generated paper profit of $14 billion betting against bank stocks in March amid SVB chaos
- Short sellers betting against bank stocks logged $14.3 billion in paper profit in March, said S3 Partners.
- Chaos around SVB, Signature Bank and Credit Suisse spurred a 11.4% rise in new short selling in global bank stocks.
Bets against bank stocks worldwide resulted in paper profit of $14.3 billion for short sellers during a chaotic March, according to S3 Partners data.
There was an 11.4% rise in new short selling in global bank stocks, amounting to $12.8 billion, said S3, a firm that tracks short interest on Wall Street, in a report released Wednesday.
That jump in activity came as the start of the month witnessed the first US bank failures since the global financial crisis in 2008, leading to regulators to seize Silicon Valley Bank and Signature Bank New York to tamp down on risk of a broader run on banks by depositors.
Days later, Swiss officials raced to broker emergency talks that led to UBS buying Credit Suisse in a deal that valued that troubled lender at more than $3 billion, a fraction of its earlier market cap.
Short interest was $109.7 billion in the global banking sector this month, with 75% of total short selling centered in bank stocks listed in the US, Canada and Europe. Shorted stock prices fell by 13.9% this month.
The turmoil surrounding SVB and Signature Bank New York, along with Credit Suisse's takeover, produced "outsized price volatility" in those banking regions, said S3.
"The main reason for the rush to short banking sector stocks in this volatile stock price environment was a wide swath of profitable trades that returned +17.2% in less than a month," Ihor Dusaniwsky, managing director at S3, said in its report. The return rate was on an average short interest of $82.4 billion.
The data showed that 78% of every shorted bank stock was profitable, and 97% of every dollar shorted was profitable.
But bank stocks as a whole have come off their worst levels of the month on signs that the banking crisis is settling down, including a deal for First Citizens to buy most of Silicon Valley Bank. Stripping out SVB Financial Group and Signature Bank, those selling bank stocks short were down 4.5% since March 23, handing back $587 million of their profit made this month.
"If this upward price trend continues in the rest of the regional banks, we should see short covering as short sellers rush to realize some of their mark-to-market profits," said Dusaniwsky.