Short sellers take aim at regional banks, seeing windfall profits of $3.53 billion in March to date — at least on paper

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Short sellers taking aim at U.S. regional-bank stocks are seeing windfall profits of $3.53 billion in March to date — and of more than $2.29 billion in just the last three days of trading — according to data analytics company S3 Partners Research, which tracks short-selling data.

That’s at least on paper, based on their mark-to-market positions. Short positions are a bet that a stock will fall.

It comes after the collapse of three banks in the last week — Silicon Valley Bank
Signature Bank


and Silvergate Capital — which have sent the SPDR S&P Regional Banking Sector ETF

down 23% from March 8 through March 13.

See also: SEC chief Gensler pledges investigation in wake of bank failures

Regional banks staged a rally on Tuesday after the Federal Reserve intervened over the weekend to backstop deposits, but that rally quickly dissipated early Wednesday amid more bad news for the sector.

That included a Bloomberg report that Bank of America had received more than $15 billion in fresh deposits in recent days as customers yanked funds from regional banks and moved to the too-big-to-fail systemically important financial institutions.

See also: Regional banks are seeing flight of deposits to too-big-to-fail megabanks

Then Credit Suisse’s

stock plunged to a record low after its biggest shareholder, Saudi National Bank, ruled out investing any more into the bank in a Bloomberg interview on Wednesday. The Saudi bank has just under a 10% stake in Credit Suisse, and crossing that threshold would subject it to new rules.

On Tuesday, Credit Suisse said in its annual report that it had material weaknesses in financial controls. Credit Suisse has lost money for five straight quarters, and its wealthy clients in the fourth quarter withdrew about $100 billion from the bank.

Credit Suisse shares fell as much as 31% to break below the 2-franc level, bringing their 12-month decline to 78%. The move weighed on bank stocks across Europe, adding to the jitters in the U.S. since last week.

Both Silicon Valley Bank parent SVB Financial Group and Signature Bank are in the top 20 most-shorted stocks in the regional-banking sector, according to S3. The most-shorted stock is PNC Financial Services

where short interest totals $724 million, or about 1.38% of the overall float.

From the archives: Short sellers are not evil, but they are misunderstood

“We have seen increased short selling in the sector over the last seven days with $416 million of new short selling partially offsetting a $3.9 billion decline in the stock prices of shares shorted,” S3 wrote in commentary.

For now, with Silicon Valley Bank and Signature Bank trading halted, shorts who failed to exit their positions ahead of the halts are left paying daily stock-borrow financing rates. The short positions will remain open until the Nasdaq and the Depository Trust Company determine the stocks are delisted and worthless, “providing for technical close outs of long and short positions, or the short seller’s Prime Broker locates an [over-the-counter] trade with a long shareholder.”

Short sellers of Silicon Valley Bank and Signature Bank “are sitting on massive mark-to-market profits but have no way to realize those profits at the moment,” they noted.

Separately, some Robinhood

users said that company was not allowing them to sell put options or get paid for those contracts taken out on Silicon Valley Bank or Signature Bank, according to a Forbes report. The options are set to expire on Friday, but with the shares no longer trading, it’s tricky for Robinhood to buy them to satisfy the contract. Robinhood did not return a Forbes request for comment.

Other retail traders said Fidelity had followed suit, Forbes reported. Fidelity also did not return requests for comment from Forbes.

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