Hedge fund shorts on banks and financials reach 4-month peak- Goldman

By Nell Mackenzie

LONDON (Reuters) – Global hedge funds kicked off the largest net selling of U.S. financial stocks in 16 weeks just as earning season started in the week ending Jan. 11, a Goldman Sachs note to clients said.

Hedge funds exited long positions and added short bets that stock prices would fall in banks, insurance companies and financial intermediaries before bank earnings were released on Friday, said the Goldman note dated Jan. 12 and seen by Reuters on Monday.

The note, written by Goldman’s prime brokerage which serves hedge funds, tracked trading activity from Friday Jan. 5 to Thursday Jan. 11.

U.S. banks’ shares fell on Friday after major lenders reported lower profits in a choppy fourth quarter clouded by special charges and job cuts, with signs an income boost from high interest rates is waning and some consumer loans are starting to sour.

The S&P 500 banks index closed over 1% down after earlier hitting its lowest level since Dec. 14.

JPMorgan Chase and Bank of America posted a drop in fourth-quarter profit, while Wells Fargo posted higher fourth-quarter profit but warned that its net interest income could fall 7% to 9% this year, sending its shares down more than 3% on Friday.

Financials, consumer companies that make products that people buy but don’t necessarily need and healthcare stocks were sold, the Goldman note said.

Shorting activity focused on the finance sector was particularly elevated, said the bank. This was also true for real estate and the travel and leisure industries, it added.

U.S. markets are closed on Monday for the Martin Luther King holiday.

(Reporting by Nell Mackenzie; Editing by Emelia Sithole-Matarise)