Speculators bet Credit Suisse shares will fall further

Oct 21 (Reuters) – Investors have added to bets that shares of Credit Suisse have yet to fall after a social media storm forced a fresh look at the Swiss lender’s troubles.

A four-fold increase in the amount of bank shares borrowed by investors over the past two weeks reflects a spike in what is known as stock “shorting” or “short selling.”

The gamble by speculators, such as hedge funds, comes after several tumultuous weeks for the bank and underscores the scale of the challenge as it plots a structural overhaul to draw a line under a series of scandals and heavy losses.

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Data from S&P Global Market Intelligence shows that 15.9% of the bank’s shares were on loan on Oct. 19, the most recent date for which information is available, one of the highest levels among European banks.

That compares to just 3-4% two weeks ago, around the time the lender, which until then had remained under the radar of day traders, found itself at the center of a frenzy on Reddit and Twitter speculating on its financial health.

Although the president of the bank has claimed that its capital is solid, speculators seem to smell an opportunity.

The level of shares borrowed is more than three times higher than the 4.4% normally loaned for an average share of a Swiss company, according to figures from S&P.

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The struggling Swiss lender is due to outline an overhaul of the group next week, although much of the overhaul remains to be finalised. Credit Suisse declined to comment.

Its shares have lost about half their value so far this year, at around 4.5 francs. Short sellers borrow these shares to resell them, thinking they can then buy them back at a lower price before returning them and pocketing the difference.

Roy Zimmerhansl, securities lending consultant at Pierpoint Financial, said a typical short position with borrowed shares is worth around $1 million – a level beyond small retail investors who would typically make bets worth hundreds of dollars. dollars.

In terms of financial firms subject to the most number of short sales, Credit Suisse currently ranks fourth behind investment firms T. Rowe Price, BlackRock and Blackstone, according to data specialist FIS.

According to data provider S3 Partners, there were $80 million in new short sales of Swiss and U.S.-listed shares of Credit Suisse in the seven days to October 19 and $592 million up to 19 October. now this month.

In Switzerland, hedge funds and the like don’t often have to say when they take large short positions in a bank, so the data reveals short selling that is normally hidden.

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“Retail investors everywhere were aware of Credit Suisse developments,” said Ivan Ćosović, founder of data group Breakout Point, which tracks retail trader sentiment on platforms like Reddit.

Credit Suisse has been the subject of a flood of unsubstantiated rumors and critical memes including headlines such as: “Are you okay?” or “Swiss Debit” says Ćosović.

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Reporting by Nell Mackenzie, additional reporting by Vincent Flasseur; edited by John O’Donnell and Kirsten Donovan

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