More short coverage

Short selling ban

Now that the FSA have announced plans to restore the UK to normal market status with the lifting of the short sale ban on financials, the commentary has begun.  Is it good or bad, does it add liquidity or is it morally questionable?

The Financial Times covers the subject as its main headline today:  "FSA to end shorting ban".  One very odd comment is attributed to Jonathan Weetman, an analyst at Royal Bank of Scotland.  He is quote as saying:

“[This is} bad news for bank share prices for those who believe our view that the domestic UK banks have further to fall”. 

RBS is saying that UK bank shares are likely to fall.  OK, that’s their view.  He doesn’t say that bank shares will fall because of short selling, just that they are likely to drop.  Let’s remember to point that out to the media when they blame short sellers for bank share price drops in the near future.  You know it will come, don’t you?   There is pent up demand building in anticipation of the expiry of the ban and shorts will follow.

The article doesn’t go into why the analyst thinks the removal of the ban is bad news.  Will the shares fall more quickly to get to RBS’ view of fair value?  Is that in itself bad?  Will the shares go through the level RBS thinks is correct?  What makes their number correct?  Why did the FT have this quote in a separately highlighted box in the middle of the page?  

On BBC Radio 4 this morning, Andrew Baker, deputy CEO of the Alternative Investment Management Association and Vince Cable the treasury spokesman for the Liberal Democrat party in the UK were interviewed about the short selling ban. Unsurprisingly Mr Cable is not keen on having the restrictions lifted.  He seems to think that traders will have free rein to gamble with the public’s money by recklessly short selling the bank shares.  First, RBS – part owned by the government - thinks the bank shares will go down as noted above.  Second, he refers to properly run companies that are unfairly targeted by short sellers.  He is a trained economist, so I’m quite surprised he can refer to the overleveraged and overextended banks that have needed bailouts as being properly run.   Third, he was the first politician to come out in favour of nationalising the banks.    Finally, the traders are gambling with their own money and if the investment community thinks they are wrong about the value of the banks, the traders will lose money.  If the market thinks the traders are right, it is manipulative for the regulators or politicians to intervene.  I haven’t heard of any bailout plans for hedge funds, but who knows, the year is early!

GSL Summit

I’m speaking at the GSL Event next week and we are doing the preparation work for the panel I am sitting on.  Our subject is “Risk”.  Fairly wide open with lots of scope for discussion.  If you have any suggestions on risk issues you would like me to raise, just email me roy@stocklendingtoday.com