Reuters: London As of the end of August, according to a Goldman Sachs note, hedge funds abandoned short bets against U.S. regional banks and turned bullish on the larger U.S. banking industry, just as bank stock prices started to increase.
According to a note from Goldman’s prime brokerage desk, which caters to hedge funds, U.S. financial services companies, including banks, trading companies, and those involved in capital markets, were among the most sought-after stocks in the week ending September 1.
According to the bank, the ratio of long trades to short bets on U.S. regional banks has increased by 26% since mid-July 2023, when traders were primarily short the industry. A short or bearish bet borrows a stock to sell in the anticipation that its value will drop.
Following the failure of Silicon Valley Bank, Signature Bank, and First Republic in May, an index of U.S. regional bank stocks fell to a two-year low. Since then, the index has recovered almost 20% of that loss.
Although nearly all banks had access to adequate liquidity, Treasury Secretary Janet Yellen cautioned that profit pressures could force the sector to consolidate in May.
Since mid-July, short positions on larger U.S. banks have also decreased, according to a Goldman report, with hedge fund long positions increasing by around 14% relative to short bets.
According to Goldman, the majority of the stock purchases made by U.S. regional banks were hedge funds repurchasing stock that had been borrowed for short bets.
According to the paper, hedge funds ended August with net long holdings across the full spectrum of U.S. financial services.
The industry frequently consists of businesses including bigger banks, savings and loans, asset management firms, credit services providers, and investment brokerage firms.