* Stock out on loan up for UK, U.S., German financials
* France, Italy, Spain extended ban, Belgium kept ban in
* Hedge funds keep overall bets low
By Laurence Fletcher
LONDON, Aug 31 Hedge funds have raised their
bets against financial stocks in the UK, United States and
Germany as a short-selling ban in four euro zone countries
prompted them to focus elsewhere for ways to profit from the
banking sector's difficulties.
Figures from Data Explorers show stock out on loan -- a
strong indicator of shorting interest -- for financial stocks in
the UK, U.S. and Germany has risen strongly since Aug. 12, when
Spain, Italy, Belgium and France imposed shorting bans on
certain financial stocks.
While prime brokers say funds' overall short bets are low
after a choppy summer for European stocks, the data nevertheless
backs up anecdotal evidence that some managers have been looking
for other ways to bet against Europe's banking sector.
Short-selling, a common way for hedge funds to profit from
falling share prices, involves borrowing stocks to sell and then
aiming to buy them back more cheaply later.
Stock out on loan in Britain's FTSE 350 Financials index has
risen 16 percent to 3.02 percent since the ban came in, whereas
short interest on the broader FTSE 350 has fallen.
The rise in short interest in UK banks also comes ahead of
the Independent Commission on Banking's final report on Sept.
12, when it is expected to back its interim proposals that UK
banks should ring-fence their retail operations from riskier
investment banking operations to protect taxpayers from future
In Germany, stock out on loan on the DAX Financials index is
up 31 percent to 1.24 percent, while for the wider DAX All
Shares index it has barely changed.
In the United States, stock out on loan on the S&P 500
Financials index has jumped 44 percent to 2.75 percent, while
for the broader S&P 500 index it is up 16 percent.
"Either you express your view on financials through Germany
and the UK, or you don't do it at all," said a prime broking
executive who asked not to be named.
"It (the ban) does increase the pressure on Germany to
follow suit to protect its bank stocks."
In contrast, stock out on loan for financial stocks subject
to the ban has increased only marginally in Belgium and France
since Aug. 12, while in Spain and Italy it has fallen.
Last week Spain, Italy and France extended their
short-selling bans, while Belgium, whose curbs have no end date,
kept its ban in place.
Since Aug. 12, the STOXX Europe 600 banking index
has fallen 19 percent, while the broader European market
is down 12 percent.
However, overall short-selling by hedge funds is still not
high, and has crept downwards in recent months as managers grow
wary of being caught out on the wrong side of trades.
"Big shorts need conviction, and I don't think there's any
conviction out there," said one prime broker, who spoke on
condition of anonymity.
(Reporting by Laurence Fletcher. Editing by Chris Vellacott and