Investors are betting $3.7 billion against Toronto-Dominion, making it the world's most-shorted bank. Here's why, and how their wagers could spell trouble for the financial system.
Investors appear more bearish on Canada-based lender Toronto-Dominion than any other bank in the world.
Short sellers have increased their bets against TD to $3.7 billion – the biggest short position against any financial institution,Short selling, also known as shorting, refers to investors borrowing stock to sell with the goal of buying it back later at a lower price and returning it to the lender, pocketing a profit. Traders engage in short selling when they expect a company's stock price to decline, and want to make money if that happens.
The lender first announced its $13.4 billion buyout of First Horizon in February 2022. But sentiment has turned against regional banks following the collapse of Silicon Valley Bank, and TD's shareholders aren't so enthusiastic about the deal anymore. told ReutersFirst Horizon shares are trading about 30% below TD's offer price of $25 a share. Since announcing the takeover, shares of Canada's second-largest lender are down about 11%.
Meanwhile, TD's exposure to Canada's housing slowdown is also eroding investors' confidence in the bank. That's because the lender operates in an environment where variable-rate mortgages are popular and consumer insolvencies are growing., the total number of insolvencies rose by 13.5% in January. If fewer people are repaying their debts, that could pose problems to TD if it has a substantial number of consumer loans on the line.
"TD sits uniquely in the middle of two broad headwinds," Daneshvar Rohinton, a portfolio manager at Industrial Alliance, told Bloomberg."The fears around Canadian housing will be projected onto TD," he added. – whose stock price tumbled after it revealed $28 billion in unrealized losses on its bond holdings as of December 31 – has contributed to investor bearishness toward TD.
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