By Nell Mackenzie
(Reuters) – Investors have been adding to bets that Credit Suisse’s shares still have further to fall after a social media storm forced a fresh look at the Swiss lender’s problems.
A four-fold increase in the amount of the bank’s stock borrowed by investors over the past two weeks reflects a spike in so called “short selling” or “shorting” of the shares.
This bet by speculators, such as hedge funds, comes after a number of tumultuous weeks for the bank and underscores the scale of the challenge as it prepares a structural overhaul to draw a line under a series of scandals and heavy losses.
Data from S&P Global Market Intelligence shows that 15.9% of the bank’s stock was on loan on Oct. 19, the most recent date for which information is available, one of the highest levels among European banks.
That compares with just 3-4% two weeks ago, around the time the lender, which until then had remained below day traders’ radar, found itself at the centre of a frenzy on Reddit and Twitter speculating about its financial health.
Although the bank’s chairman has affirmed its capital is robust, the speculators appear to scent an opportunity.
The level of borrowed shares is more than three times the 4.4% normally on loan for an average Swiss company stock, the figures from S&P show.
Credit Suisse short bets soar https://graphics.reuters.com/CREDIT-SUISSE/jnpwyggenpw/chart.png
The struggling Swiss lender is due to outline an overhaul of the group next week, although much of the revamp is yet to be finalised. Credit Suisse declined to comment.
Its shares have lost roughly half their value so far this year, to around 4.5 francs. Shortsellers borrow these shares in order to sell them, believing they can then buy them back at a lower price before returning them and pocketing the difference.
Roy Zimmerhansl, a securities lending consultant at Pierpoint Financial, said a typical short position with borrowed stock is worth about $1 million – a level beyond small retail investors who would typically make bets worth hundreds of dollars.
In terms of financial firms subject to the highest amount of short selling, Credit Suisse currently stands fourth behind investment firms T. Rowe Price, BlackRock and Blackstone, according to data specialist FIS.
There was $80 million worth of fresh short selling in Credit Suisse’s Swiss- and U.S.-listed shares in the seven days to Oct. 19 and $592 million so far this month, according to data provider S3 Partners.
In Switzerland, hedge funds and others do not often have to say when they are taking large short positions in a bank, so the data reveals short-selling that is normally hidden from view.
Credit Suisse and the short bros https://graphics.reuters.com/CREDIT-SUISSE/zdpxdyyowpx/chart.png
“Retail investors were all over developments in Credit Suisse,” said Ivan Ćosović, founder of data group Breakout Point, which tracks the sentiment of retail traders on platforms like Reddit.
Credit Suisse was the subject of a flood of unsubstantiated rumours and critical memes including titles such as: “Everything is Fine?” or “Debit Suisse” said Ćosović.
(Reporting by Nell Mackenzie, additional reporting by Vincent Flasseur; editing by John O’Donnell and Kirsten Donovan)
