Shorting Canada’s banks is a lonely enterprise

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A story about the manager of a small hedge fund going short Canada by betting against the dollar and banks has generated plenty of discussion.

What's clear from the numbers is that the manager, Vijai Mohan, has not got a lot of company on the trade of shorting Canada's banks.

Hedge fund sources say the short loonie trade is common among the managers of so-called "trend following" funds. (There's about $300-billion of capital in funds running the trend following strategy.) But shorting the banks is tougher. They have big and rising dividends, and they have a lot of support from the government in the form of policy intervention and mortgage insurance.

What do the numbers show? That over recent weeks, short interest in aggregate in Canada's six biggest banks has climbed by about 17 million shares, or 15 per cent. But that represents a tiny fraction of bank shares, of which there are billions outstanding.

Here, courtesy of TMX Group Inc., are the short-interest numbers and how they have moved in the last month.

The biggest short interest as a percentage of a bank's total shares outstanding belongs to National Bank of Canada. The bank also saw the biggest increase in shorts over the most recent 30-day period for which there are comparable figures.

The short interest jumped from 4.7 million shares on March 15 to 8.9 million shares on April 15. That's 5.5 per cent of the bank's shares outstanding.

Next up is CIBC, at 3.65 per cent of shares outstanding. The short interest bumped up from 11.2 million shares March 15 to 14.7 million on April 15.

Toronto-Dominion Bank is third with 26.5 million, or 2.9 per cent of its 920.5 million shares outstanding, sold short. That is up a bit from March 15, when the short interest stood at 24.2 million.

Bank of Nova Scotia clocks in with 2.6 per cent of its stock sold short. The interest has risen to 30.6 million on April 15 from 23.6 million 30 days prior.

Bank of Montreal's short interest went the other way, dropping from 22.4-million shares to 15.8 million on April 15. That's 2.4 per cent of the bank's common shares.

The bank least likely to be shorted is Royal Bank of Canada's, the country's biggest. Investors have bet 23.2-million shares, or 1.6 per cent of its outstanding stock, on a decline in RBC shares. That's little changed from 30 days prior.

(Boyd Erman is a Globe and Mail Reporter & Streetwise Columnist.)

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