Are investors showing the same pessimism about the future prospects of other European banks as they did towards Allied Irish Banks (ISE:AIB) and if so which ones? We have sifted through our equity and fixed income datasets looking for negative sentiment in the form of: rising demand to borrow both the equity and bond issues of listed banks as well as reducing inventory across both. Those best fitting this description are Italy’s mid tier banks: Banca Monte Dei Paschi Di Siena (BIT:BMPS) and UBI Banca Scpa (BIT:UBI). Also fitting the bill are Portugal’s main banks, Banco Comercial Portugues (ELI:BCP), Banco Espirito Santo (ELI:BES) and Banco BPI spa (ELI:BPI). There is a clear pattern here and the overall message is that Ireland is far from alone when it comes to investor nervousness.
This trend is especially noticeable in Italy’s mid-sized banks. Banca Monte Dei Paschi Di Siena (BIT:BMPS) shows short selling as just off a 3 month high. Institutional investors (who own their bonds and make them available for lending) have been dramatically selling their holdings while at the same time the demand to borrow has spiked. This activity has generally taken place since September and is most pronounced in the following maturities: April 2014 and Oct 2012.
UBI Banca Scpa (BIT:UBI) witnesses short interest in its equity shares at a 3 month high at 1.8% of all shares. This is nothing like the scale of the short selling in Spain’s equivalent banks or those of Portugal but the trend is worth observing and we could be understating the real figure. There is also some recent demand to borrow UBI’s bonds with most action in the Dec 2019, Nov 2012 and Feb 2011 issues.
Meanwhile, over in Portugal, we have already highlighted the size of the short position in Banco Comercial Portugues (ELI:BCP) which is 7% of total shares and close to the maximum it can be. Funds who lend and who are long BCP are not panicking and are holding steady which could imply they are index tracking funds who will not sell unless they leave an index. Meanwhile holders of the BCP Jan 2012 bonds have been selling them since mid October (120m down to 30m)and there is a spike demand to borrow but this is less significant.
It is a similar story for BCP’s peer Banco Espirito Santo (ELI:BES). Demand to borrow the ordinary shares has doubled in November from 1% to 2% of the company. This is the biggest movement in short selling since investors covered their shorts back in late May from 3% to under 1% as the shares rallied post the Greek bailout. There is negative sentiment also to be observed in the Jan 2012 bonds, Feb 2013 and Feb 2015 in the form of selling by bond holders who lend and rising demand to borrow.
The biggest spike in stock on loan of them all is in Banco BPI spa (ELI:BPI). With no dividend until May next year I struggle to see any other reason for this borrowing than to support short selling especially since it tallies with an increase in trading volume. The shares on loan went from 12m to 22m in recent days taking it to 2.4% of the company. There has been some reduction in institutional ownership over the period but not much. The main BPI corporate bond showing a reduction in inventory amongst lending funds as well as a spike in new loans is the Jul 2012 issue.
There are far more mid tier European bank bonds than we have capacity to review in a single day yet we suspect that we would find many more examples upon further inspection. Spain, for instance, qualify except that there is evidence of institutions buying more shares of late in their mid tier banks. Bottom line: Ireland are most definitely in good company when it comes to negative investor sentiment.
