August 5, 2011 / 3:32 PM / 9 years ago

Short-sellers flex muscles as euro zone crisis deepens

LONDON (Reuters) - Short-sellers are circling the financial stocks they view as most heavily exposed to the debt crisis engulfing the euro zone, with dealers saying they feared a fresh ban on bets that profit from tumbling prices could follow.

However, speculators resumed their hunt for opportunities after a spokeswoman for Spain’s market regulator CNMV said on Friday it had not changed its stance on equity short-selling despite steep falls in European stocks.

Italy’s embattled banking sector, a long-term sufferer of negative directional plays by hedge funds on its second-tier names, is back under the spotlight as concerns over its weak economy and ballooning debts abound.

In the week to August 4, Intesa Sanpaolo has seen the volume of its shares out on loan — a strong indicator of short-selling interest — rise 15.9 percent to 0.54 percent, research from securities lending analyst DataExplorers shows.

Rival Banco Popolare saw the volume of its borrowed stock increase by 6.7 percent to 6.2 percent by the close of trading on Thursday.

Short-selling interest in traditional target Banca Popolare di Milano also continues to grow, rising by 0.6 percent to 28.72 percent over the same period, representing 92 percent of its total stock available to borrow.

Italian insurer Assicurazioni Generali SpA, which earlier on Friday said domestic paper accounted for 39 percent of its 129.6 billion euro (112.2 billion pound) government bond portfolio, saw the volume of its shares on loan rise by 0.9 percent to 3.2 percent just on Thursday alone.

Short-sellers are making selective bets in Spain too, with the volume of stock on loan at Bankinter up 8.4 percent to 9 percent in the week to August 3.

The rise means more than four-fifths of Bankinter stock that can be borrowed by short-sellers is now out on loan.

News of the uptick in short-selling interest comes as big-name hedge funds including Man Group’s AHL, Brevan Howard and Winton continue to make money in spite of the turmoil.

Other European names are also seeing a resurgence in short-selling interest pending a significant upturn in sentiment across the euro zone.

Deutsche Bank saw the volume of its shares out on loan rise 5 percent to 1.92 percent in the week to end-Thursday, while the figure for France’s Natixis has risen by 3.8 percent to 0.6 percent.

Fellow French lender BNP Paribas, which missed second quarter profit expectations this week and has a heavy exposure to Greek sovereign bonds, has seen the volume of its shares out on loan rise 6.1 percent to 2.12 percent in the week to August 4.

Editing by Greg Mahlich

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