Bears Adjust Short Bets In Financials For 2010

By Eric Fox | January 19, 2010 AAA

The latest short-interest update showed some major changes in short-interest positions across the financial sector, with large percentage increases and decreases in short bets on a wide range of bank stocks.

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Largest Short-Interest Drops
Wells Fargo (NYSE: WFC) saw one of the largest drops in short interest with 52.4 million shares shorted as of December 31, 2009. This was down 34% from the short-interest level just two weeks earlier. In December, Wells Fargo redeemed the outstanding preferred stock issued as part of the Troubled Asset Relief Program (TARP), so perhaps this was perceived by the market as a sign of strength.
Short interest on Hancock Holding Co. (Nasdaq: HBHC) fell 22% from 2.6 million to 2.04 million shares. Hancock Holding is a regional Gulf Coast bank with $6.8 billion in assets scattered across Mississippi, Alabama, Louisiana and Florida. The bank raised $175 million in capital in November 2009 and refused participation in TARP when it was offered in 2008.

East West Bancorp (Nasdaq: EWBC), another West Coast regional bank, had a 16% drop in short interest, from 7.5 million to 6.2 million shares. Although the company does business in California, ground zero of the housing bubble, the bank has a niche business serving the Asian community and has branch offices in Hong Kong, Beijing and Shanghai. The stock price has quadrupled since the stock market bottom in March 2009.

Double-Digit Percentage Increases In Short Interest
Synovus Financial
(NYSE: SNV) and Northern Trust (Nasdaq: NTRS) both saw large double-digit percentage increases in short interest.

Synovus Financial's short interest increased from 38.3 million to 45.7 million shares, up 19%. While this was a large increase, the amount sold short represents only four days to cover since the stock trades at such high volume.

Synovus Financial has been suffering from credit quality issues related to its real estate portfolio and concentration of loans to investors rather than owner-occupied properties. The bank charged off $497 million in loans in the third quarter of 2009.

Northern Trust had a 17% increase in short interest, from 7.6 million to 8.9 million shares. The stock has seen its days-to-cover ratio move higher during the last 12 months, from about one day at the start of 2009 to the current 4.9 days.

Northern Trust has done quite well during the recession and financial crisis. It has a diversified range of financial businesses including asset management and trust services. The bank reported net income of $188 million in Q3 2009.

Short-Interest Report Monitors Bearish Sentiment
The short-interest report is an effective method to monitor bearish sentiment in the stock market. A look at the last report of 2009 shows that the bears of the financial sector are still roaming the street, although they have adjusted their short bets for the new year. (Learn more about using short interest in Short Interest: What It Tells Us.)

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