The collapse of Barclays shares last week and earlier this week will offer fodder for the anti-shorting crowd. UK hedge fund Lansdowne Partners earned £12m ($16.2 million) over four days, shorting Barclays, immediately after the short-ban lifted. Recall that even the company coming out and saying it would produce a huge profit over the coming year couldn’t reverse the decline.
Guardian: While bank shares, particularly those of Barclays, Royal Bank of Scotland and the newly formed Lloyds Banking Group, have been savaged since the ban was lifted, the FSA insisted yesterday that short-sellers were not to blame.
But the FSA is demanding that short-sellers, who borrow shares they do not own to sell them with a view to buying them back at a lower price, disclose any such positions. Lansdowne is the only hedge fund to admit to such a trading strategy in Barclays. It revealed yesterday it had started to buy back the shares it began to sell on Friday, generating a profit of around £12m.
Even with the timing, the connection between the ban, shorting and share movements is tenuous. Financial stocks fell hard during our own ban on shorting (and they’ve continued to do so since that was lifted). What’s more, if these banks need to be nationalized or whatnot, the dramatic declines only hasten that outcome. Vilifying shorts is the ultimate shooting of the messenger.
Banks Stocks MAULED: Barclays Down 40%