Financials

We’re seeing continued short covering today in Charles Schwab Corp  (SCHW), over 500k of new buys to cover this morning.

SCHW short interest is $686.7 million; 15.14 million shares shorted; 1.26% of float; 0.30% stock borrow fee.

German regulator, Bafin, banned short selling in Wirecard Ag on February 17^th, the first such ban on an individual stock in the German market. In the almost two months since the ban came into effect Wirecard shares shorted have decreased by 4.9 million shares, -26.27%, while its share price has increased by $11.09, +9.85%.

Canadian GDP grew by only 0.4% in the 4^th quarter, well below analysts’ estimates, with household consumption growth revised down to 2.0% in the first half of 2018 and dropping to 0.7% in the 4^th quarter. Residential housing growth has declined and unsold inventories are beginning to stack up, even the turbo-charged markets in Vancouver and Toronto are experiencing slowing demand and price fragility.   With housing numbers continuing to look weak, Canadian banks such as CIBC (CM CN\CM US) and Toronto Dominion (TD CN\TD US) have increased loan loss provisions in anticipation of future mortgage defaults and bankruptcies.

Banco Bradesco’s (BBD US) stock price has been cratering since mid-February, down 12%, as the Brazilian market has declined by 4.2%.

Banco Bradesco ADR (BBD US) short interest is $152 million; 13.83 million shares shorted; 0.41% of float; 0.30% stock borrow fee.

On Monday, the German securities regulator, BaFin, banned short selling in the internet payment and
processing services company Wirecard AG (WDI GR) through April 18th due to reports of alleged financial
fraud in its Singapore office. Short sellers are now prohibited from initiating or increasing short positions
in the company. BaFin has previously used this prohibition in 2008 when it prohibited naked short selling
in eleven financial and insurance sector companies during the credit crisis to maintain stability in the
financial system and avoid a possible liquidity crisis. ESMA, the European Securities & Markets Authority,
issued an opinion agreeing with BaFin’s actions stating that Wirecard’s volatile price movements could
erode German market confidence.

German global payments company Wirecard AG’s (WDI GR) stock price fell 17.16% this week, their lowest stock price since April 2017, after a report by the Financial Times alleging the firm of accounting fraud. Today Singapore police raided their local offices, which dragged down Wirecard’s sock price over 17 euro. Wirecard’s CEO, Markus Braun, maintains that the report and allegations are based on “false allegations” based on “agreements and invoices that may be fictitious.”

The Australian banking sector rallied over 4% after the release of the Royal Commission final report which deemed that no major regulatory changes were necessary, just increased and tighter oversight and stronger and more judicious enforcement of existing regulations. The fear of tighter lending rules and a massive overhaul to banking regulations had spurred heavy short selling in the sector over the last several months.

Short selling in the Australian banking sector has been increasing since September 28^th when Commissioner Kenneth Hayne released his interim report of the Royal Commission into Misconduct in the Australian Banking, Superannuation and Financial Services Industry. Today the commissioner delivered the final version of the report which will be published on Monday. The expectation of a completely reformed regulatory infrastructure to address systemic misconduct and structural failures in the sector based on the report’s findings has led short sellers to increase their short exposure by 67% since the end of the 3^rd quarter 2018.

iShares iBoxx High Yield Corporate Bond ETF  (HYG) short interest is $6.71 billion, 84.25 million shares shorted, 55.72% of the float.

It is the fourth most shorted ETF in the U.S. behind SPY, QQQ and IWM.

Hong Kong\China short sellers have been actively shorting into the declining Hong Kong and Chinese markets and generated $17.3 billion in mark-to-market profits, +18.0%, as the Hang Seng Index declined 16.7% and the CSI 300 Index declined by 25.8% in 2018. Short sellers continue to increase their positions as their profits build, adding $1.7 billion in new shorts throughout the year. Hong Kong\China with $80 billion in short interest is the second most shorted country behind the U.S. ($911 billion) and ahead of Japan ($73 billion) and the U.K. ($66 billion.)