AP Photo/Richard Drew
- Short sellers made $378.9 million in just one day betting against embattled regional banks, data show.
- The bearish bets against PacWest, First Horizon, and Western Alliance paid off as the shares collapsed this week.
- Such traders have been selling borrowed bank stocks before buying them back at lower levels once their price falls.
Short sellers made nearly $400 million in the space of a day betting against regional banks including PacWest Bancorp and Western Alliance Bancorp, a report says.
Reuters reported that investors shorting the regional banks, which also included First Horizon Corp., took in $378.9 million during Thursday's trading session, citing data from ORTEX, a financial analytics platform monitoring short interest.
Traders profited as fresh turmoil embroiled regional banks this week following First Republic's failure and its takeover by JPMorgan. They made a cumulative $1.2 billion in the first two days of May as shares of small and mid-sized lenders plummeted.
Shares of PacWest and First Horizon both posted 40% losses Thursday. The former said it was weighing strategic options including asset sales in a bid to raise fresh capital. First Horizon's stock nosedived after the bank mutually agreed to terminate its merger agreement with TD Bank, citing a lack of a reliable timetable for regulatory approval.
Western Alliance shares dove following a Financial Times report that it was mulling a sale. The bank denied the report, paring back some of its initial 47% losses.
According to ORTEX, short sellers have made $816 million from the three bank stocks since the start of the year.
Short sellers, who sell a borrowed security at a high price before buying it back after it falls, have enjoyed lucrative returns since the banking crisis began with the failure of Silicon Valley Bank in March. Soaring interest rates have squeezed the value of banks' investment portfolios, and the sector's problems have been exacerbated by a flight of deposits from smaller lenders.
Last month, ORTEX reported that short bets against Canada's Toronto-Dominion had swollen to $6.1 billion, having become the world's most shorted bank in early April.