TD Bank Group Feels The Heat

On Wednesday, data provider ORTEX revealed that hedge fund bets against Canada's TD Bank Group had increased by 45% in the past two weeks to reach $6.1 billion. This surge in short bets is believed to be related to TD's planned acquisition of U.S. lender First Horizon, which has faced criticism since the recent collapse of other U.S. regional lenders.

  • Some TD shareholders are urging the bank to abandon or renegotiate the deal
  • All while investors are betting on the deal's failure and believe that TD may be overpaying for First Horizon
  • Data provided by ORTEX shows that around 5.5% of TD's outstanding shares were being borrowed by hedge funds betting against the company, compared to Bank of America, which had $2.9 billion or 1.2% worth of short bets

According to Lemar Persaud, an analyst at Cormark Securities, the recent failures of Silicon Valley Bank and Signature Bank have raised concerns for TD Bank Group due to its significant retail operations. TD is currently waiting for regulatory approval of its acquisition of First Horizon, and is expected to discuss the $13.4 billion deal during its upcoming annual general meeting in Toronto.

Still... Short-Sellers Sit On A $1B Loss In April

Investors who were betting against European banks are facing substantial losses in April. This is because the sector has bounced back from the shock of Credit Suisse's downfall and is anticipated to report strong quarterly earnings. According to analytics firm Ortex, these short-sellers have lost an estimated $1 billion this month, after making their largest profit in over a year, $2.7 billion, in March.

  • The STOXX European banks share index has increased by as much as 18% from its lows in late March, and UniCredit, which was one of the most shorted stocks, has rallied 35% since then
  • Carlo Franchini, the head of institutional clients at Banca Ifigest in Milan, said that interest income has been significantly boosted by rate hikes, which is not expected to fall anytime soon

Just a few weeks ago, markets were preparing for a deep downturn and the possibility of central banks reversing course and cutting interest rates.

Regional Banks Suffer Most

After the collapse of Silicon Valley Bank, regional banks in the US faced a significant outflow of deposits that threatened their stability. However, they have now largely contained it. Despite this, many midsized US banks that reported earnings this week warned that the turmoil had increased competition for deposits, forcing them to increase the rates they pay to savers and thus decreasing their expected earnings.

  • For instance, Citizens Financial Group reported that its income from lending would grow at about half the rate it had forecast
  • All while Truist cut its revenue growth target for 2023 due to a lower net interest income outlook driven by higher deposit and funding costs
  • Fifth Third and Zions also lowered their outlook for lending profits for the rest of the year

This is a different picture from what bank executives and analysts predicted a year ago when they expected the rise in interest rates to result in bumper profits for lenders because they could charge more for loans without having to increase rates on deposits.

Too Big Not To Be Rescued

Some regional lenders are expected to experience further pain in the near future. In the first quarter of this year, customers withdrew almost $600 billion in deposits from all US banks, as per Fed data.

  • While JPMorgan Chase, Bank of America, Wells Fargo, and Citigroup hold around 45% of all bank deposits in the US, they represented less than 10% of the outflows
  • Some smaller lenders have reported doing worse than their larger competitors. For instance, Eagle Bank, an $11 billion lender based in Bethesda, Maryland, saw its shares fall by 20% after reporting a 14% or $1.3 billion decrease in deposits in the first quarter
  • Comerica, which is based in Dallas, reported a 9% decrease in deposits to $64.7 billion on Thursday


Please note that this article does not constitute investment advice in any form. This article is not a research report and is not intended to serve as the basis for any investment decision. All investments involve risk and the past performance of a security or financial product does not guarantee future returns. Investors have to conduct their own research before conducting any transaction. There is always the risk of losing parts or all of your money when you invest in securities or other financial products. Please note that the writer of this article is not registered as a financial advisor.


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