Short Stories

Private Equity

Shares in private equity firm 3i (III) fell yesterday by more than a quarter to a record low of 185p; as investors digested news of the departure of the firm’s chief executive Philip Yea and a plunge in the value of its investments over the past quarter.

 

The firm, whose portfolio includes lingerie brand Agent Provocateur, currently has 3.52% of its shares outstanding on loan (%SOOL), up from 2.5% on Christmas Eve but down sharply from 5% on December 22^nd, as you can see from this graph. There were 6.5M shares traded as of close of business on Wednesday, compared to the three-monthly average of 3M. There were also a large amount of shares traded last week; 8M on January 20^th and 21^st. Utilisation is at 12.5%. 3i’s share price has fallen from 600p to 250p over the last 12 weeks.

 

Fortis (FORB), who we blogged on two weeks ago, is also in the EMEA Diversified Financials sector, and it currently has 2.4% of its SOOL. Utilisation is relatively high at 12%. Fortis’ share price has fallen from 30EUR to 2EUR over the last two years.

 

Schroders is also a member of the sector, and it has 3.51% SOOL, down from the highs of 10% last summer. Utilisation is at 32%. Schroders’ share price has fallen from 1,600p in November 2007 to around 700p now.

Fund raising rumours for Xstrata and Rio

Xstrata (XTA) announced a heavily discounted two-for-one rights issue to raise £4.5bn on Thursday and also said pre-tax profits had fallen 36% year-on-year in 2008. As you can see from this graph of the percentage of Xstrata’s shares outstanding on loan (%SOOL), the short position is low at 1.1%, but investors have started to increase their positions over the last month. Utilisation has also increased; from 4.5% to 6.5% over the last fortnight. The recent spike you can see in this graph corresponds with a higher than average amount of volume traded – 22M as opposed to the monthly average of 10M shares traded.

 

 

Elsewhere in the sector, Vedanta (VED) shed 10 to 585p after JP Morgan Cazenove analysts downgraded the whole sector to ‘neutral’ from ‘overweight.’ We spoke about Vedanta two weeks ago, and since then the %SOOL has gone from 4.65% to 4.5%, with Utilisation dropping from 42.5% to 39.5% in the same time frame.  

 

 

Rio Tinto (RIO) has said that it will not rule out the potential to issue equity as one of the options it has available following mounting speculation that it was about to announce a rights issue. The company currently has 0.86% SOOL.

 

In America, Titanium Metals (TIE) has seen a large amount of short covering, down from 11% SOOL in September to 6% now. Utilisation was extremely high in the same month at 75%, and it is now down at 50% which still means that a fair amount of its supply is being held by short investors.

Ratings agencies' short interest

The Times newspaper in London quoted the credit ratings agency Experian (EXPN) as being the company at the centre of a row in the House of Lords over the past one to two weeks, bringing us to think about the short interest in ratings agencies during the current economic climate.

 

We can reveal that Experian has an extremely small percentage of its shares outstanding on loan (%SOOL); just 0.4%, down from 2% in September 2008; which is still a very low percentage. Utilisation is at 2%. Like all financial services firms Experian has been hit by the credit crunch, warning this month that revenue growth will be slow. However, the company’s share price has risen from 300p to 400p between October and January, but down from 430 in December.

 

In America, Moody’s (MCO) has seen a much larger amount of short interest over the last six months, with nearly 18% of its SOOL in July 2008. Since last summer there has been a wide amount of short covering; down from that figure to 8% in October, but up again to 11% now. The company’s share price has fell sharply from $40 to $15 between July and November, and as you can see from this graph, short investors closed out their positions in the stock as the price decreased.

 

Another interesting American is Fair Isaac (FIC), who provide analytical software and data management products and services. FIC has 12% SOOL, and again, has seen a large decrease in its short position; down from 22% SOOL in August last year. Similarly to Moody’s, FIC has also seen its share price fall from $25 to $15 between August and now.

 

 

Finally we are going to take the credit card company Visa Inc (V) whose %SOOL has risen from 1% in July to 8% now. This short investment has been well timed, with investors coming to the trade last summer as the price started to fall – from $80 to $50, ebbing around this mark and then falling again from $50 to $40 as investors maintained their positions in anticipation of a further fall in price.

Banks stocks soar amidst growing short interest

The FTSE closed up 3% yesterday evening, with the DAX and the CAC also showing positive results, with both ending around 4% up, too. British banks also increased dramatically, with Barclays (BARC) finishing up 65%, HSBC (HSBA) finishing up 5.4%, RBS (RBS) up 21.49% and Lloyds (LLOY) up 33.47% at the close of trading.

All of these stocks have shown an uptick in short interest over the last week, with BARC increasing from 3.5% to just under 5.5% of its shares outstanding on loan (%SOOL) towards the end of last week, with Utilisation rising from 20% to 30% in the same time frame. This recent rise in price could have posed massive problems for short investors who could have suffered big losses.

 

HSBC has also risen from 1.6% to 2.4% in the same time frame as Barclays, although it must be noted that these are still relatively small percentages. Utilisation is at 10%, up from 6% from early last week.

 

RBS’ short interest was down marginally from 0.8% to 0.7% between Wednesday and Thursday of last week, with Utilisation ebbing around the 6% mark but up from 0.2% since the ban was lifted. Interestingly as RBS’ share price dropped on January 16^th, the day the ban was lifted, there was a high amount of shares traded; 750M compared to the weekly average of 400M.

 

Lloyds’ %SOOL has also dropped off from the immediate increase post the lifting of the ban, down from 1.4% SOOL to 1.2% but up from 0.9% on January 19^th. Utilisation is at 13.7%, up from 11% on January 16^th. On January 20^th when the Utilisation went from 11.7% to 15% there were 180M shares traded, compared to the weekly average of 110M.

 

Short interest activity post the short selling ban

The FSA said on Thursday it did not believe short selling had driven sharp falls in banking prices over the past week. A ban on the short selling of financial shares in some of the biggest banks have suffered big losses since then and after the government’s second rescue plan failed to calm market nerves on Monday. City AM’s p2 said today that short selling was not to blame for the sharp falls in banking share prices over the past week.

We can now give you the data as of c.o.b on Wednesday, the most recent in the market. As you can see from these graphs of Lloyds TSB (LLOY) Barclays (BARC), HSBC (HSBA) and RBS (RBS), minimal short activity has taken place, however, there has been an uptick in short interest activity.

Lloyds has increased slightly from 1.10% of its shares outstanding on loan to 1.45%, with Utilisation increasing from 9% to 14% over the past week.

 

Barclays has risen from 3.47% to 5.2%, with Utilisation rising from 17% to 27%.

 

HSBC has risen from 1.63% to 2.05%, with Utilisation rising from 5% to 7.5%.

 

RBS has risen from 0.37% to 0.81%, with Utilisation rising from 1% to 6%.

 

Low short interest in global mining stocks

In the UK, Vedanta Resources (VED) and Morrisons had earnings releases yesterday. Vedanta, down 2.32%, has seen a significant amount of short covering – from nearly 9% of its shares outstanding on loan (%SOOL) in August, to 4.4% now. The London listed company’s share price has fallen from 2,000p in July, to 500p now, which means that short investors have taken profits in this stock; closing out their short positions as the price continues to fall. Utilisation is at 42%, down from 50% in December.

BHP Billiton’s (BLT) London listing, up 1.2% today, has also seen a low amount of short interest, down from 2% SOOL in November to 0.57% now. Utilisation is at 4%. The mining company’s share price has risen from 800p to 1,200p over the last two months.

BHP’s Sydney listing (BHP, up 1.6% has seen short covering, down from 6% SOOL to 1.4% now, with Utilisation at 10%. The company’s share price has fallen from $40AUD in September $30AUD now, but up from $20AUD in late November.

In the United States, Alcoa Inc (AA), listed on the S&P 500 has seen a large rise in its short position, up from 2% SOOL to just under 6% now. Short investors came to the trade fractionally late, missing the company’s dramatic fall in share price during August and September, down from $30 to $17 in the space of eight weeks.

Short covering in Lloyds and US Bank Stocks

According to Reuters, and in a letter to Financial Services Authority to chief executive Hector Sants, Treasury Committee chairman John McFall said there had been anecdotal evidence that some hedge funds had been short selling UK bank stocks since the ban was lifted on January 16.

Our data reveals that there has been scarce short interest activity among the banned financial stocks as of the close of business on Monday, our most recent data and the most up-to-date data available globally. Moreover, the short position in Lloyds has decreased from 1.27% of its shares outstanding on loan (%SOOL) to 0.88% now. In comparison to HMV’s %SOOL of 22.78% SOOL this is a relatively low figure.

 

 

US banking stocks also hold similar short positions, with Citigroup (C), Bank of America (BAC), JP Morgan chase (JPM), State Street (STT) and Wells Fargo (WFC), all having under 2.5% of their SOOL.

Citigroup has seen a rise in short interest since January 12^th, from 1.01% SOOL to 1.38% on Monday. JPM has risen from 0.57% to 0.68% in the same time frame. State Street has risen from 0.96% to 1.09%, with Wells Fargo rising from 2.01% to 2.04%.

Friday's short interest activity on banned stocks

Tuesday is first day that our data shows the short selling trading for Friday 16th January, the day when the UK lifted the ban on the short selling of financial stocks.

We can reveal that there was little movement on the short selling front, with the short position in Barclays (BARC) increasing from 3.14% of its shares outstanding on loan (%SOOL) to 3.2%. Utilisation, or the percentage of the available supply out on loan to short investors, however, did increase from 17% to 19.5% in Friday trading. Interestingly, BARC saw the volume of its shares traded at 140m, compared to last week's average of 60m and and the six-month average of approximately 90m. Please see below the chart for BARC's Utilisation.

 

The short position of HSBC (HSBA) also increased, buy only minimally, from 1.53% to 1.58%, as did Lloyds TSB (LLOY), from 1.19% to 1.27%. Aviva (AV.) and Prudential (PRU) also saw a minimum rise in their short positions, from 0.16% to 0.2% and 0.18% to 0.23% respectively.

American earnings releases

There were numerous American earnings releases out today, including Steak N Shake, Hershey (HSY), Harley Davidson (HOG) and Ambac (ABK).

Steak N Shake has seen, in general, a rise in the percentage of its shares outstanding on loan (%SOOL), up from 14.7% in December to just under 15.5% now. This is juxtaposed with a rise in share price, from $3 in November to $7 in early January, and down to approximately $5 now. Therefore short investors may have been waiting to take profits before the recent fall in share price. Utilisation is high in proportion to the %SOOL at 63%.

Hershey has much lower short interest; down from 7% SOOL in October to 5.2% now. The share price has also dropped, from $38 to $34 over the same time frame. Utilisation is at 28%.

Harley Davidson have 11.23% SOOL, up from 9% in December. The share price has dropped from $26 to $14 over the last three months. Interestingly, Utilisation has risen sharply, from 45% to 52% over the past three weeks.

Ambac, who last week asked the government for a $1.5bn capital injection through preferred equity, have seen a large amount of short covering over the past three months; down from 14% SOOL in October to 8.38% now. The company’s share price fell sharply in early November; from $3.5 to $1.5, halving itself in the space of a week. As you can see from this chart, short investors came to the trade after the price fall, when the %SOOL rose from 10% to 13% over three weeks.

 

Banks shares fluctuate as ban is lifted

Bank shares fluctuated this morning after the ban on the short-selling of UK financial sector shares was lifted. There had been fears that the midnight expiry of the short-selling ban would put the sector under further pressure. However, RBS, the part-nationalised lender, saw its shares rise 7.52% to 42.9p in early trading, while Barclays swung between losses and gain with its stock edging ahead to 131.2p. Shares in Lloyds TSB, which is set to complete its takeover of HBOS, owner of Halifax and Bank of Scotland, rose 2.9% to 106.5p. HBOS shares were suspended pending the completion of the deal.

 

Barclays

 

Currently, HBOS has 0.46% of its shares outstanding on loan, with Utilisation at 3.77%. RBS has 0.22%, with Utilisation at 1.34%. HSBC has 1.48% SOOL, with Utilisation at 4.78%. Barclays has 3.04% SOOL, with Utilisation at 16.85%. Standard Chartered has 0.33% SOOL, with Utilisation at 2.65%, indicating very low percentages as the ban if lifted.

 

We will be back on Monday and Tuesday when our data will reveal the trading activity of yesterday and today.