Short Interest Indicates Expectation of Systemic Shock to Spanish Banks

Spanish banks have been the focus of investor's attention since the credit crisis began, and on May 18th, Moody’s Capital Markets Research Group issued a warning that there is a ‘non-trivial possibility of a systemic shock to the Spanish banking market'.

Data Explorers has examined the short interest (as measured by Percent Shares Outstanding on Loan) for eighteen Spanish large cap financial services companies. Banco de Sabell, BBVA (BBVA) and Banco Popular Espanol have all seen relatively high short interest for the past several months. In recent weeks, we have observed a sharp rise in short interest in Bankinter SA. On May 8th, 2.84% of the outstanding shares were on loan, but by May 19th this had risen by 35% to 4.37%.

The other sharp movement in recent weeks has been in Banco Popular Espanol, where short interest has regained the previous six month highs of 8.3%, last seen in mid-April and Banco Sabell which has seen a 6% rise in short interest over the past month. The recent spike in Banco Santander (STD) was due to the dividend in April, this is also true for other names in the sector where dividends were not cut or omitted.

Overall, short base of the Spanish financial sector is relatively low but we have seen a 16% increase since 20th April (as measured by the DESLI Spanish Financials index). The index is still well below the 52 week high of 172.4 which it hit on July 7th 2008.

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