In the space of just three days, short sellers of US regional bank stocks pocketed $2.29 billion following the collapse of Silicon Valley Bank, Signature Bank and Silvergate Capital, according to analysis from data analytics company S3 Partners Research.
The declines between the 9th and 13th March “produced windfall profits for short sellers,” said S3’s analysts Ihor Dusaniwsky and Matthew Unterman in their report.
About 98% of each dollar short in the sector over that three day span was profitable, they added.
They noted that for traders who bet against SVB or Signature, the tally for those paper gains was almost 40% of the total over the timeframe.
For now, though, short sellers have to wait as the shares have been halted. This means that traders are sitting on “massive mark-to-market profits but have no way to realise those profits at the moment,” the analysts said.
Unsurprisingly, the banking sector took the brunt of the news and while there were glimmers of a rally, the ongoing troubles at Credit Suisse delivered another blow.
The Swiss bank saw its stock plunged 24% on the 15th March in the biggest one day sell off on record after its biggest shareholder, Saudi National Bank, ruled out investing any more into the bank.
The Saudi bank has just under a 10% stake in Credit Suisse, and crossing that threshold would subject it to new rules.
Credit Suisse annual report also revealed it had material weaknesses in financial controls and had lost money for five straight quarters.
This further depressed US regional banks but US giants also felt the pain with Citigroup sliding 2.9% and JPMorgan down 7%.
Their European peers also suffered with BNP Paribas losing 10%, Société Générale off 12%, and Deutsche Bank and Barclays down 9% respectively.
As for the wider equity markets, the S&P 500 fell 1.9% while Nasdaq was off 0.9%.
In Europe, the benchmark Stoxx 600 declined by 3% FTSE 100 plunged 3.8% and the CAC 40 skid 38%.
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