Short-sellers significantly increased their bets against European banks Santander and ING amidst a turbulent month for the global banking sector. Madrid-headquartered Santander’s stock saw the biggest surge in short interest among European banks since Mar. 13, the week following Silicon Valley Bank’s collapse. This increase amounted to $1.17 billion, according to CNBC Pro’s analysis of data from stock market provider Ortex . SVB’s failure, partly due to losses on its bond investments, sparked a worldwide search for weakness in banks’ balance sheets. These developments fueled fears of contagion, plummeting shares across the U.S. and Europe. The data also revealed that Dutch bank ING had the second largest increase in short interest at $1.12 billion during the same period up to Apr. 19. Swiss bank UBS , which was forced to rescue rival Credit Suisse last month, had the third largest increase in shorts at $542 million. In total, short-sellers ramped up bets against 24 banks in the Stoxx Europe 600 Banks index by $5 billion over the same period. The table below shows 10 European banks with the largest increase in shorts between Mar. 13 and Apr. 19. ING and Santander did not respond to CNBC’s request for comment. Meanwhile, France’s BNP Paribas had attracted the largest short interest in dollar value among European banks, followed by Santander and ING. These figures also reveal that a significant portion of the short interest against the Spanish and Dutch lenders was created only since the SVB crisis. The below table lists the 10 European bank stocks with the largest short interest as of Apr. 19. Short selling, a practice that involves borrowing a stock and selling it with the expectation of buying it back at a lower price to profit from its decline in value, has proven highly profitable for hedge funds betting against bank stocks. By the end of March, these funds held $7.25 billion in unrealized profits, marking it their largest windfall since the 2008 financial crisis, CNBC first reported earlier this month. Credit Suisse’s downfall generated around $683.6 million in unrealized gain for short sellers betting against its stock in March. Deutsche Bank was also affected by the banking crisis despite no apparent catalyst, yielding short sellers $39.9 million in unrealized gains in March. However, markets have been less generous to investors who set up bearish trades in April. Reuters reported last week that short-sellers are estimated to be sitting on a $1 billion loss so far this month. Investors were caught off guard as the stress in the banking sector eased and more rate hikes were factored in, leading to a recovery in banking stocks. But despite the 11% increase in the Stoxx Europe 600 Banks index, the rally is set to be short-lived. According to a survey by Bank of America, fund managers decreased their bank exposure in April — reaching its lowest point since May 2020 — as they shifted toward more recession-proof defensive sectors.
