Since the Financial Crisis, Short Sellers have Profited Greatly from March's Bank Chaos

A data firm specializing in the analysis of financial markets said just before the end of March that short sellers had accumulated profits from the mass sale of bank shares of more than $7 billion, their biggest windfall since the global financial crisis of 2008.

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Silicon Valley Bank's collapse and Credit Suisse's emergency rescue by UBS, its domestic rival, were two of the chaos-inducing events which marked this month's regulatory chaos for the global banking industry.

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It was feared that shares in the United States and Europe would deteriorate due to contagion fears, and these losses were compounded by the Federal Reserve's decision to tighten monetary policy even more.

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Short selling is a strategy in which an asset is borrowed and sold on in hopes that the value of that asset will decline and therefore the seller will be able to pocket the difference and profit from the decline of that asset.

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In the month of April, hedge funds that are shorting bank stocks had unrealized gains of $7.25 billion, according to Ortex, which is an independent measure of the market.

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There was an increase in short-selling in the banking sector in March, according to ORTEX data, which indicates it was the single most profitable month since the 2008 financial crash for short sellers.

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A total of $1.32 billion worth of unrealized profits flowed into the accounts of those who had short bets against the failed SVB, according to the data. After the shares of fellow Californian bank First Republic fell 89% over the course of the month, short sellers were able to pocket almost $848 million as a result.

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Those holding short positions against Credit Suisse's Swiss-listed stock in March were able to make around $610 million in unrealized profits as a result of its capitulation, Ortex data showed, with both short positions on the Swiss-listed stock of the bank and those on its U.S.-listed stock earning a combined $683.6 million in unrealized profits in March.

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Deutsche Bank stock also soared with the banking crisis ripple effect, despite no discernible reasons, prompting German Chancellor Olaf Scholz to say of the lender that it is a “very profitable bank” and there is no need to be concerned.”

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Short sellers in March received $39.9 million in unrealized profits from Deutsche stock.

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“It is estimated that just over 5% of DBK's free-float shares are currently shorted, Ortex said, adding that the number of shares on loan increased by 496% during March, much of which occurred at the end of the month as the stock price increased. Short sellers lost some profits as a result,” Ortex said.