Hedge funds drop short trades on U.S. regional banks - Goldman

First Republic Bank

04/09/2023 10:04

By Nell Mackenzie
       LONDON, Sept 4 (Reuters) - Hedge funds ditched short
bets against U.S. regional banks as of the end of August and
turned bullish on the broader U.S. financial sector, according
to a Goldman Sachs  GS.N  note, just as bank stock prices began
to rise.
    U.S. financial services companies including banks, trading
firms and those working in capital markets were among the most
sought-after stocks in the week ended Sept. 1, according to the
note by Goldman's prime brokerage desk, which serves hedge
funds. 
    The ratio of long trades compared with short positions on
U.S. regional banks has risen by 26% since a year low in
mid-July 2023, when traders were mostly short the sector, the
bank said. A short or bearish bet borrows a stock in order to
sell hoping its price will decline.     
    An index of U.S. regional bank stocks  .SPLRCBNKS  has
recovered roughly 20% of its value from a two-year low hit in
May following the failure of Silicon Valley Bank  SIVBV.UL ,
Signature Bank  SBNY.PK  and First Republic  FRCB.PK .          
    
    Treasury Secretary Janet Yellen said in May that nearly all
banks had access to sufficient liquidity, but warned that profit
pressures might lead to consolidation in the sector.
    Short positions on larger U.S. banks have also declined
since mid-July, with hedge fund long positions rising about 14%
against short bets, the Goldman note showed.
    Most of the stock buying on U.S. regional banks comprised of
hedge funds buying back stock that was borrowed for the purpose
of short bets, or so-called short covering, Goldman said. 
    Across broader U.S. financial services, hedge funds finished
August with net long positions, the note said.
    The sector often includes companies such as larger banks,
savings and loans, asset management companies, credit services
and investment brokerage firms.       

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U.S. regional bank stock price performance    https://tmsnrt.rs/3L9uWLs
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 (Reporting by Nell Mackenzie; Editing by Dhara Ranasinghe and
David Holmes)
 ((Nell.Mackenzie@thomsonreuters.com; https://twitter.com/nellmooney;))