NEW YORK (
) -- The shorts have targeted a handful of financial stocks, including
(TCB - Get Report)
(ZION - Get Report)
, ahead of earnings season, according to a report by Deutsche Bank.
TCF has the greatest amount of its shares being shorted by bearish investors. Shorts hold 23 million TCF shares, according to Deutsche, representing nearly 18% of the company's float - or the stock available to ordinary investors. That's more than double the median of 6.6% for other mid-cap peers, though short holdings in TCF have declined 1% over the past two weeks.
Short investors seek to profit from a stock's decline by borrowing shares from long investors for a set period of time and re-selling them to other long investors, hoping to buy them back at a lower price later and pocket the difference. The danger in short sales is that, if the stock happens to rise instead, shorts are often left scrambling to recoup the investment quickly to limit losses, driving up the stock in the process known as a "short squeeze."
It would take a short investor about 10.2 days to cover his position in TCF, vs. a median of 8.3 days for competitors.
TheWayzata, Minn.-based regional bank is being targeted for a simple reason: Interchange fees. The Dodd-Frank financial reform bill has tasked the
with limiting those fees, which are charged to merchants who accept debit cards. TCF is locked in litigation with the Fed over the rules, which haven't yet been finalized. But, as it stands, TCF will take a big hit if the Fed implements its proposed rules.
TCF would receive $105 million in interchange fees this year, representing 9% of annual revenue and 24% of projected pre-tax, pre-provision earnings, according to Deutsche - a lot more than other large debit card issuers. Management has yet to outline a comprehensive plan to make up for the income loss, though TCF's CEO has said that, if the company's litigation is unsuccessful, it will have to pass the fees onto consumers in various ways.
Since the time the financial reform bill passed, TCF shares are down about 8%.