Short Interest in Small Cap US Financials Ahead of Earnings

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Mid October means the leaves are about to fall, the clocks fall back and American Financials update their shareholders. The pendulum of negative sentiment seems to have swung away from Europe’s banks and over to the small financials in the US. We will look at Brookline Bancorp (BRKL), Century Banc(CNBKA), Hampton Roads Bankshares (HMPR), South Financial Group (TSFG), Westamerica Bancorp (WABC), City National (CYN) and others.

If we run a screen on US Financials we see rising short interest and falling inventory from the funds who lend in the regional banks. A standout name is Hampton Roads Bankshares (HMPR). Short selling was at maximum capacity before the shares fell from $3 to 1$ and thereafter investors closed their shorts. But, they have reopened them very recently to 6% of the shares in issue, which is close to all that can be borrowed.

Of course, titan JPMorgan Chase (JPM) announces results on Wednesday but short selling is low here while institutional investors who lend are not expressing much of a view either. On Friday Brookline Bancorp (BRKL) has earnings and 4% of its shares are on loan after a recent upwards spike. This mid cap company is quite popular with funds who lend.  They own 33% of its shares which is close to an annual high. Century Bancorp (CNBKA) has short selling at a 52 week high but the actual level is not that significant at 1.3% of total shares even if the upward trend is noteworthy.

South Financial Group (TSFG) also ranks amongst the  10 stocks with signs of negative investor sentiment according to our analysis. There remain some shorts to cover (3% of the company) but institutional investors have reduced their holding by 38% in the last week. Westamerica Bancorp (WABC) has 12% of its shares on loan.  This has been higher over the past year and it seems that the short sellers have yet to time this one right.

City National (CYN) shows a resumption of short selling to 9% of its shares after short covering took saw the shares on loan decline from 19% to 6% from this time last year to July.

As depressing as it is to point out given that it feels like we have “been here before”, it is nonetheless worth knowing this trend ahead of the upcoming results.