Why TD Bank Is the Most Shorted Bank in the World

now we like to think of this as a U.S story but certainly it has come north of the border with TD the most shorted Bank in the world right now part of that does have to do with just a natural Arbitrage that happens when you have a bank buying another bank typically you shorten the buyer and you go long the company that they are trying to buy but there's other issues at play as well it's trying to buy a U.S Regional right now there's a lot of anxiety around that sector even if they are different from say the Silicon Valley banks of the world let's bring in Mark Sebastian who's the founder of optionpit.com and CIO of carmenline capital from Chicago mark thank you so much for joining us if we can start with the bank narrative I think that would be very helpful for our viewers who own TD right it's one of the most widely held stocks in this country they're seeing it down three percent and waking up to news that it's the most shorted Bank stock in the world how can that be when it seems like it's nowhere near the epicenter of the crisis yeah that actually caught my attention as well um you know it's in the middle of buying out first horizon and I think that's that's creating some of this as you said um it also is intertwined with Charles Schwab take a look at a chart of Schwab it is just a a trail of sadness uh going straight down since this banking Crisis began and it it has me wondering where's the bottom in some of these Banks because you know this is not uh a 2008 type of scenario everyone I've talked to has said this looks more like an Enron where there's going to be a few players that really get taken down but most of these these firms are going to be all right but at a certain point you have to wonder you know where where is the money going to start stepping in and buying uh we have not seen that happen yet uh in some banks that are relatively high quality uh you know TD is a good bank uh Fifth Third uh Comerica uh you know they continue to just slide and slide and slide died at some point there's going to be a bottom here you're going to have to hold your nose and buy it but uh you're going to want to tread very carefully because there may be another shoe to drop we continue to see big bearish bets in the option markets on kre which is the Regional Bank ETF uh on Monday New York Community Bank we saw a massive buyer of uh out of the money puts which which caught my eye because I thought that that was uh you know had kind of cleared some of some of the the trouble and uh for that that amount of put behind us to step in really raised my eyebrow it tempting right to look at some of this and really start doing your homework on these stocks but but then again also picking away at the key vulnerability of fractional Reserve banking right which is you just assume deposits are sticky but they're really not and that's kind of what's happening at Schwab as well which you think about is trading people are looking at the return that they get keeping it at Schwab versus in Money Market funds and and things like that and they're kind of losing their own deposit base that they use for other things how do you get confidence around that concept even if it's a bank you know I was just talking about Western Alliance seventy percent of its deposit bases insured and that's not enough right um to stem you know a little bit of anxiety a little bit of fear you know one of the things somebody brought up one of the Traders I work with um brought up to me is looking at the the short-term CD uh interest rates the higher that short-term interest rate is the more liquidity needs that that bank might have so a really high three-month CD might sound really tempting but that actually could be a sign that a bank is uh in need of some some short-term cash that's actually something our audience a CD is is a certificate of deposit it's it's a you put money in a bank uh a three-month bank that you give they give you a certificate deposit back they give you an interest rate you're not allowed to touch that money for three months um so you can't withdraw your money out of a CD without taking a big penalty so that that is what a CD is a certificate of deposit and uh that is uh I don't know if they do that in Canada they do that here in the United States um and you can you're basically locking up your money for three months but you get a a an attractive interest rate for those three months and um the higher that short-term interest rate is the the more risk there may be in that bank that's something just to kind of keep in the back of your head when you're if uh when you're looking at some of these different banks okay so having said all of that and expressing concerns that still linger at the sector are there any Pockets that you are willing to put your money where your mouth is uh and you can buy here I mean I think that if you go one level down there's Big Value in community banking here in the United States they are the most conservative investors on the on the planet conservative lenders um there is definitely some value in the community banking sector uh so I'm taking a look at Fifth Third Bank I think they're they're you know they've gotten pretty darn big uh almost too big to fail Comerica is another one that I'm kind of interested I have not jumped in yet but I'm taking a very hard look at these names uh and uh and looking to see where uh if and when I want to enter but those are two that are on my radar would you or what would it take for you to consider a TD Bank which is not a regional it has big exposure in Canada it's Diversified it is not just you know deposits and Loans it's got wealth management it's got Capital markets and I think this is why people think it's unusual that you would come for a Canadian bank because one of our things is they're so Diversified right well let's say Schwab go up for a couple of days in a row and then I'll start uh I'll start having some confidence here but um it's relationship with with Schwab I think might be the problem uh it just Schwab is just like I said it just keeps going down and down and down uh when that finds a floor then I'm gonna jump in I'd be interested in jumping into the TD with uh both hands

Channel: Bloomberg Television

Views: 94,551

Keywords: Bloomberg

Id: aI9AlIqnZs0

Length: 6min 9sec (369 seconds)

Published: Wed Apr 05 2023