) -- The shorts have targeted a handful of financial stocks, including

TCF Financial



Zions Bancorp

(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

Federal Reserve

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%.

Among large-cap banks, Zions takes the cake for short interest. Shorts hold 18 million Zions shares, or about 10.7% of its float - more than three times the median of 3% for the big-bank segment. Short interest has declined 6% over the past two weeks; it would take an investor 5.8 days to cover a short position in Zions, vs. a median of 3 days for peer stocks.

Bears in Zions might be taking a contrarian view: The stock is up nearly 50% over the past 52 weeks, thanks to credit improvements and M&A speculation. Yet it may also reflect the fact that no long-awaited deal involving Zions has transpired yet, as well as the fact that Zions still owes bailout funds to the federal government.

Several large-cap peers announced deals to repay TARP toward the end of last year. Meanwhile, an array of M&A occurred in the regional space, with

Marshall & Isley

( MI) snapped up by Bank of Montreal, and

First Niagara



M&T Bancorp

(MTB) - Get Report


Prosperity Bancshares

(PRSP) - Get Report

, among others, acquiring smaller competitors.

Among all the 33 bank stocks analyzed by Deutsche Bank analyst Matt O'Connor, the average short interest was 5.1%, with the median at 4.1%. Median large-cap short interest was 3.8%; median mid-cap short interest was 6.6% and the trust bank median was lowest, at 1.5%.

The stock with the least short interest was

First Citizens Bancshares

(FCNCA) - Get Report

, which had just none of its float sold short. The mega banks also saw relatively little interest from bearish investors. Short investors borrowed 357 million shares of


(C) - Get Report

, or 1.2% of its float; 113 million shares of

Bank of America

(BAC) - Get Report

, or 1.1% of its float; 39 million shares of

JPMorgan Chase

(JPM) - Get Report

, or 1% of its float; and 49 million shares of

Wells Fargo

(WFC) - Get Report

, or 1% of its float. All of those positions have declined over the past two weeks and would take just a day or two to cover.

Besides TCF and Zions, the stocks with major short interest above the median of their peer group include a number of regional banks:


First Bancorp

(FBP) - Get Report

recently announced a dilutive $350 million capital raise. The Puerto Rico-based lender is implementing a one-for-15 reverse stock split to comply with New York Stock Exchange listing rules, following a sharp decline in its share price from around 50 cents to around 35 cents. Shorts targeted the bank after the capital raise was announced, borrowing 47 million shares, or 16.2% of the float, up 13% over the past two weeks. Following the reverse split on Friday, however, First Bancorp shares were up 5.3% at $5.66, perhaps part of a short squeeze.



(SNV) - Get Report

is another troubled regional bank that still owes TARP and has also faced

unfulfilled M&A rumors. Shorts represent 12.1% of the company's float, with 94 million shares, down 6% over the past two weeks. It would take a short investor 6 days to cover his position. Synovus shares were recently trading down 2% on Friday at $2.64, though the stock has run up sharply since the start of December.


First Horizon

(FHN) - Get Report

is also a regional, mid-sized bank that has faced M&A speculation, though the bank announced plans to repay TARP funds last month. The stock shot up from below $10 in late-November to nearly $12.50 in recent sessions as a result. But shorts still seem to see downside ahead: Bearish investors hold 30 million First Horizon shares, or 11.7% of the float, with no change over the past two weeks. It would take a short investor 8.3 days to cover his position.

¿ Despite

a run-up in


(CMA) - Get Report

shares last month, the stock has dropped sharply in recent sessions on little news. Short investors hold a decent position in the Dallas-based bank's stock, however, having borrowed 14 million shares, representing 8% of the float. That's down 10% from two weeks earlier, though. It would take a short investor 6.3 days to cover his position if the stock starts running higher again. On Friday, Comerica shares were trading lower, down 0.7% at $41.02.


Associated Banc-Corp


also ran up sharply last month, only to see some bearishness during the first week of the new year. Jeffries downgraded the stock from buy to hold on valuation concerns and shorts have a significant presence in the stock. Bearish investors have borrowed 13 million shares, or 7.3% of the float, betting the stock will go lower. That's down 3% over the past two weeks, though it would take a short investor more than two weeks' worth of trading days to cover his position.


City National


stock shot up more than 14% last month, as the company hired executives to expand its wealth-management operations and long investors got more bullish about the Los Angeles-based bank's prospects. Since September, the stock has surged from below $48 to above $62 in recent sessions. The stock has generally held its ground in the new year, but short investors represent a decent stake in the float. They have borrowed 3 million shares, or 7.2% of those available, and it would take 11.7 days to cover a position. Still, the short position has fallen 9% in the past two weeks.

-- Written by Lauren Tara LaCapra in New York


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