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  • Writer's pictureThe San Juan Daily Star

TD World’s Most Shorted Banking Stock, Shares Down -ORTEX Data

Hedge fund bets against Canada’s TD Bank Group on Wednesday hit $4.2 billion, making it the most-shorted banking stock globally, according to data provider ORTEX’s calculations, with some analysts concerned about the bank’s exposure to U.S. regional lenders.

Around 4.1% of TD’s outstanding shares were out on loan to hedge funds, while the second-most shorted bank stock, JP Morgan, only had $2.3 billion worth of shorts, showed the data.

Hedge funds profit when they borrow a stock from an institutional investor and sell it back when the price falls, pocketing the difference, a practice known as short-selling.

Turmoil in the banking sector began last month with the collapse of regional banks Silicon Valley Bank and Signature Bank, sparking a crisis of confidence. The Biden administration on Thursday called for stricter rules to reduce future risk.

TD is the midst of acquiring U.S. regional lender First Horizon Corp for $13.4 billion, though some shareholders have urged the Canadian bank to either scrap the deal or renegotiate a lower price.

The First Horizon deal would catapult TD to the sixth-biggest commercial bank in the U.S. from the tenth-largest now, according to the Federal Reserve. The next-largest Canadian bank in the U.S. is BMO, which is number 23 on the list.

TD shares are down 15.7% since the beginning of the regional bank crisis and down 3.4% this week. Peer Bank of Montreal (BMO) is down 15.8% over the same time period and is down 2.2% this week. Around 2.9% of BMO’s outstanding shares were out on loan to hedge funds, or about $1.8 billion.

A spokesperson for TD was not immediately available for comment.

“The bank’s acquisition of First Horizon is also not looking great in the current context,” Eric Compton, equity analyst at Morningstar, told Reuters via email. “TD has the most exposure to the U.S. regional banking system,” Compton added.

He noted TD also has a material stake in Charles Schwab, which is down 40% year to date.

TD awaits regulatory approval of its takeover of First Horizon.

Western Alliance Bancorporation said on Wednesday its first-quarter deposits were 11% lower than at the end of 2022, as customers spooked by the sudden collapse of two U.S. mid-sized lenders pulled out funds.

The stock regained some lost ground and was last down 11% at $29.81 in midday trading. It fell as much as 19% in the session.

Western Alliance said total deposits were $47.6 billion as of March 31, down from $53.6 billion at the end of 2022.

Total insured deposits represented roughly 68% of its total deposits, significantly higher than the proportion at year-end.

“While earnings are under material near-term pressure, we think the stabilization of deposit pressures should allay investor concerns of severe deposit outflows,” analysts at Truist Securities said.

Regional banks have been trying to assure customers that their deposits are secure after recent bank runs following the failures of Silicon Valley Bank and Signature Bank last month.

The collapses triggered the biggest banking crisis since 2008 and stoked heavy volatility in the sector, worsening existing jitters of an imminent recession.

Policymakers have sought to emphasize that the current crisis is different from the last one as lenders are now better-capitalized, but Federal Reserve data showed that banks sought record amounts of emergency liquidity in mid-March.

Analysts at RBC Capital Markets wrote in a note that while Western Alliance has reported a large decrease in deposits it believes that “this is ultimately an acceptable and manageable outcome for the company.”

The banking sector is due to kick off first-quarter reporting season next week, with investors expected to closely watch the balance sheets for signs of further stress and liquidity crunch.

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