Ortex data shows that, on paper, short sellers focusing on the SPDR S&P Regional Banking ETF have made $977m so far this year. From January 2024 to date, this ETF declined by 9.2% as troubles at New York Community Bancorp (NYCB.N) continue.
Short sellers pocket close to $1bn by targeting regional US bank ETF
This bank holding company’s stock plummeted by 23% at the close of trading on Monday, 4 March 2024, only days after it appointed a new CEO and identified issues with its internal controls regarding its loan practices. Even though the bank indicated these obstacles would not affect its 2023 financial results, its stock continues to slide.
Investors reportedly lost confidence in this sector after NYCB’s involvement in the problematic commercial real estate sector came to light. Reuters quoted Robert Riva, a member of the real estate division at corporate law firm Cole Schotz, who said:
I think it (CRE exposure) is going to affect a lot more banks whether or not they have underwritten properly. This is not something that’s localized to someone who’s maybe repeating the mistakes of Lehman Brothers, just 15 years later. It’s an industry-wide problem.
Short sellers peddle borrowed securities and repurchase them at cheaper prices. Analysts noticed the same trends regarding the Invesco KBW Regional Banking ETF, where investors turned paper proceeds of about $663m.
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Based on the Ortex data, Bank of Hawaii Corp (BOH), Axos Financial, Inc. (AX), and Columbia Financial, Inc. (CLBK) are also targeted by short sellers. Similarly, these banks also prominently feature in the commercial real estate market.
