- Major hedge funds have opened or increased short positions against European banks amid record low interest rates after the European Central Bank cut rates again.
- Bearish bets in Jyske Bank, the Danish bank that recently launched world's first negative interest rate mortgage, is now at a record high, according to short-selling research firm Breakout Point.
- Funds like Citadel and Merian are benefiting from uncertainty in European lenders who keep their deposits within the ECB.
- Click here for more BI Prime stories.
Merian, Citadel and Marshall Wace are among hedge funds ramping up their short interest in European lenders amid loose central bank policies and record low interest rates.
Funds like have increased their short interest positions against European lenders and opened new positions in some cases. Danish lender Jyske Bank, the lender that recently launched world's first negative interest rate mortgage, is now at a record high, according to short-selling research firm Breakout Point.
Other banks targeted by the hedge funds include another Danish lender, Sydbank, as well as Italian banks including Banco BPM, Unione de Banche Italiane, and Banca Popolare dell Emilia Romagna. Spanish lender Banca de Sabadell and Germany's Aareal Bank have also lured short bets, according to Breakout Point.
Sydbank has also seen short interest increase from other funds such as Connor, Clark & Lunn Investment Management, World Quant, and Marshall Wace shorts in the stock make up just above 3% of the total shares outstanding, making the overall bet worth around $29 million.
Business Insider has reached out to Connor, Clark & Lunn Investment Management, World Quant, Marshall Wace, Merian, and Citadel for comment.
Citadel Europe and Citadel Advisors have a combined short interest of 1.63% in Jyske Bank which began offering borrowers a 10-year mortgage loan at -0.5% interest in August. The bank's share price initially fell in the weeks following the news WHICH NEWS?, but has since risen.
Unlike in the US, many European countries require funds to disclose short positions to regulators. The disclosures, filed through September, were compiled and analyzed by Breakout Point.
The European Central Bank cut interest rates to a record low of -0.5% on Thursday signalling a continuation of its attempts to stimulate Europe's economy through negative rates. It also unveiled plans to continue bond purchases.
Commercial banks in Europe are the main source of lending when it comes to households and small and medium-sized companies, and are therefore vital to the European economy.
Because "commercial banks hold their deposits within central banks, if rates are positive they gain from it, but negative rates actually act as a charge" for the likes of UBS and Deutsche, Jack Allen-Reynolds, senior Europe economist at Capital Economics, said in an interview with Business Insider before the ECB announcement.
This charge is a "burden," Volker Hofmann at the Association of German Banks said, according to the Financial Times, which cited Hofmann at a conference as saying that lenders pay €7.5 billion ($8.27 billion) a year in negative rates on the excess deposits they hold at the ECB.