Short Selling of Banks Accelerates as New Financial Stress Test

[Joanne98]

May 4 (Bloomberg) -- Short sellers, the bane of Wall Street executives last year, are back.

The number of Citigroup Inc. shares borrowed and sold short increased sixfold since Feb. 27, the day the U.S. Treasury announced it would convert some of its preferred shares in the New York-based bank into common stock.

Short interest in Bank of America Corp., MetLife Inc. and American Express Co. climbed more than 40 percent in the same period, according to data compiled by Bloomberg. In total, short sales of the 18 publicly traded financial companies undergoing government stress tests were twice as high on April 15 as they were at their peak last year in July, two months before Lehman Brothers Holdings Inc. collapsed.

“People are either positioning themselves for the potential of a preferred-to-common conversion, or they have an increased perception of risk in these companies,” said Andrew Baker, an equity strategist at Jefferies & Co. in New York.

The Federal Reserve plans to release results of the tests on May 7. At least six of the 19 firms under review will require additional capital to absorb losses if the recession worsens, people briefed on the preliminary results said last week.

Short sellers borrow shares and sell them hoping to make a profit by replacing the stock after prices fall.

http://www.bloomberg.com/apps/news?pid=20601109&sid=aAbmnwDjaZ1s&refer=home