JPMorgan Chase Is The Most Shorted US Bank Stock, But Short Sellers Like This Canadian Bank Even More

The Invesco KBW Bank ETF KBWB is down 27.8% year-to-date in 2022 as investors grow increasingly concerned the Federal Reserve will be unable to navigate a soft landing for the U.S. economy, and short sellers have made a killing on bank stocks.

The Numbers: U.S. and Canadian stocks have $29.3 billion in total short interest, and worldwide banking short interest stands at $56.4 billion.

Bank stock short sellers have been covering their positions in the last month, reducing bank short interest by about 10%, S3 Partners analyst Ihor Dusaniwsky said Friday. 

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Short interest in U.S. and Canadian banks dropped 12.9% in the last 30 days, including $2.63 billion in short covering. Here's an overview of the five most shorted U.S. and Canadian bank stocks:

• Toronto-Dominion Bank TD, $4 billion in short interest.
• JPMorgan Chase & Co JPM, $2.9 billion in short interest.
• Bank of Nova Scotia BNS, $2 billion in short interest.
• Canadian Imperial Bank of Commerce CM, $1.6 billion in short interest.
• Bank of America Corp BAC, $1.5 billion in short interest.

Recent Short Covering: The good news for U.S. bank stock investors is that short sellers were aggressively exiting U.S. bank stocks in the past 30 days. JPMorgan's short interest dropped by $220.8 million in the last month, while Bank of America's short interest declined by $940.4 million, according to S3.

"With Central Banks not signaling an end to their rate increases any time soon, we should expect more short covering in the banking sector if the recent trend continues," Dusaniwsky said Friday.

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So far in 2022, bank stock short sellers have an aggregate gain of 22.8%, Dusaniwsky said.

Benzinga's Take: Rising interest rates typically boost banks' net interest margins and profitability, but only if the economy remains stable. Bank stocks have struggled in recent months on fears loan growth will be negatively impacted in a slowing economy.

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