Written by Nell McKenzie
LONDON (Reuters) – Global hedge funds benefited from last week's plunge in U.S. regional bank stocks, a JPMorgan Prime Brokerage note to clients said on Saturday, citing data as of Jan. 31. He says he is ready to get it.
U.S. regional bank stocks fell about 8% on Jan. 31 after New York Community Bancorp's unexpected earnings report sent its stock plummeting more than 40%, signaling broader turmoil in the sector.
Short sellers targeting stocks in regional U.S. banking groups, including New York Community Bancorp, increased their paper profits by about $1.04 billion in the week ending Feb. 2, according to data and analytics firm Ortex.
A short position is a bet that the asset's price will fall.
Hedge funds abandoned the trade in December, but the hedge funds changed their minds and accumulated short positions at the beginning of the year, JPMorgan said in a note.
As stocks fall, JPMorgan said in a note on Saturday that “reaction to the decline in stock prices earlier this week was quite limited.”
More short positions in large banks were added in January, according to JPMorgan, but the majority of hedge funds still say they expect these stocks to rise.
Hedge fund trading in major bank stocks was relatively light compared to the past, the paper said.
Short positions were also added to insurance stocks, which are also considered part of the financial stocks sector, the paper added.
Goldman Sachs said in a separate note Friday that hedge funds sold financial stocks for the second straight week and were net sellers for seven of the past nine weeks.
The bank said the volume of short positions remains near the highest level in five years compared to the number of bets that the stock will rise.
(Reporting by Nell McKenzie; Editing by Amanda Cooper and Jamie Freed)
