Banking chaos nets short sellers £1.8bn
Hedge funds have made €2bn (£1.8bn) from the banking crisis by betting against some of Europe’s biggest lenders, new figures have revealed.
Investors – most likely hedge funds – have wagered just over €15bn (£13.2bn) on falls in the share prices of European banks over the last fortnight, according to financial data provider Ortex. The paper profits made so far are the highest since the 2008 financial crisis.
The disclosure came as Switzerland's finance minister warned that so-called "too big to fail" rules drawn up by global regulators in the wake of the financial crisis were not fit for purpose.
Karin Keller-Sutter, who was at the centre of efforts to rescue Credit Suisse, told Swiss newspaper NZZ: "Personally I have come to the conclusion . . . that a globally active systemically important bank cannot simply be wound up according to the ‘too big to fail’ plan."
The Swiss have been criticised by investors and fellow regulators for the structure of the Credit Suisse rescue deal, which saw bond holders unexpectedly wiped out.
However, Ms Keller-Sutter said following the rules would have "would have triggered an international financial crisis".
It comes amid continued instability in financial markets triggered by concerns about the health of banks. Lenders around the world have seen their share prices drop sharply since the collapse of Silicon Valley Bank in the US just over a fortnight ago.
US officials are considering making it easier for mid-sized banks to borrow money from the Federal Reserve to help prevent further failures, Bloomberg reported.
The move is being considered to help support First Republic, a Californian bank that has seen its share price crash by 90pc over the last month.
Data from the Federal Reserve showed $98.4bn (£80.5bn) was pulled out of bank accounts in the week ending March 15, which was the period when Silicon Valley Bank and fellow lender Signature Bank both collapsed. Fed data suggests many Americans put their cash into money market funds instead.
Shares in Credit Suisse plummeted over 70pc before its emergency sale to arch rival UBS a week ago.
Short-sellers made €530m (£467m) alone by shorting Credit Suisse’s stock in the run up to its shotgun deal, Ortex data shows.
Short-sellers borrow shares and sell them, betting that they can buy them back at a cheaper price later and pocket the difference.
More than one in ten of Credit Suisse’s shares were on loan to short-sellers in the run up to its rescue deal, making it the most shorted European bank.
Investors have shifted their focus to Deutsche Bank over the last week, with concerns about its financial health triggering a drop of as much as 14pc in its share price on Friday.
Short-sellers have made €71m (£63m) betting against Deutsche Bank’s stock over the last fortnight, according to Ortex.
German Chancellor Olaf Scholz was forced to publicly reassure the market about the bank’s financial health on Friday and banking regulator BaFin has warned of a “contagion via psychology of markets”. Analysts have called the Deutsche Bank sell-off “irrational”.
In total, short-sellers made profits of €2.07bn over the last two weeks on bets against European banks, according to Ortex data.
Peter Hillerberg, the company’s co-founder, said: “Our data indicates this may be the largest short profit made in a two-week period in European banks since the 2008 financial crisis.”
The figure indicates paper profits, as many investors have yet to cash out their bets. Just over €15bn (£13.2bn) is still being wagered on bets that banking shares will continue to fall.
Mr Hillerberg said: “Their positions keep on increasing in most of these companies. That is a worrying sign that short sellers think that the share price is going to continue to go down, at least for a short period of time.”
After Credit Suisse, Swedish lenders Swedbank and Handelsbanken, which also operates in the UK, have been the biggest targets. 7.26pc and 5.88pc of shares in the banks respectively were on loan to short sellers as of Friday.
Matt Chessum, director of securities finance at S&P Global Market Intelligence, said: “The Scandinavian banks appear to be most shorted at the moment.
“I believe that this is due to their exposure to commercial real estate that is undergoing a repricing at the moment given the moves in rates.”
Close Brothers is the most shorted financial institution in the UK, with 4.91pc of its shares on loan to short sellers.
US and European rules mean the identities of short-sellers only have to be disclosed if the size of their bets climbs above a certain level but the cumulative totals of short bets are disclosed.
Swedbank and Handelsbanken were approached for comment.
Deutsche Bank and Close Brothers declined to comment.