TD Bank has biggest short in the industry

According to an analysis by S3 Partners, Toronto-Dominion Bank (TD) is the world’s largest bank short with short sellers having roughly $3.7 billion on the line vis-à-vis Canada’s second-largest lender. This puts TD ahead of BNP Paribas SA and Bank of America Corp. Analysts suggest that part of this could be due to worries about TD’s exposure to Canada’s housing slowdown, which is a key concern among investors, and the bank’s ties to the US market through its stake in Charles Schwab Corp. and a planned regional bank acquisition.

Short interest as a percentage of TD’s shares available for trading, or float, remains relatively low at 3.3% and up from 2.8% a year ago. However, TD’s position atop the list of biggest bank shorts comes as it seeks to close a $13.4 billion deal for First Horizon Corp. TD is expected to renegotiate the deal after the recent bout of turmoil among US regional banks drove share prices lower in March. As a result, traders are “playing with short interest for TD more than normally” because the bank has become a merger arbitration play, according to Daneshvar Rohinton, a portfolio manager at Industrial Alliance.

Some short sellers have also targeted TD because of its roughly 10% stake in Charles Schwab, which recently lost $47 billion in market value as it came under scrutiny over its unrealized bond losses, as well as TD’s position in Canada’s housing market, where variable-rate mortgages are common and consumer insolvencies are on the rise. Rohinton says that “TD sits uniquely in the middle of two broad headwinds. The fears around Canadian housing will be projected onto TD.” However, short-seller profits can evaporate just as fast, particularly when they are the result of a broad-based rally, says S3’s managing director of predictive analytics, Ihor Dusaniwsky.