Publish date:

Citigroup Shorts In Retreat

Citigroup saw short interest fall sharply during the first half of April, marking the second straight occasion that short-sellers eased off their bets against the bank.
Author:

NEW YORK (

TheStreet

)--

Citigroup

(C) - Get Citigroup Inc. Report

saw short interest fall sharply during the first half of April, marking the

second straight occasion

short-sellers eased off their bets against the banking giant.

Citigroup short interest fell to 416 million shares from 523 million at the end of March and 552 million in mid-March, according to data released late Monday from the

New York Stock Exchange

. Still, Citigroup remains by far the most heavily shorted stock on the NYSE, as is to be expected since it is also by far the most heavily traded stock.

Short-sellers borrow shares in the hope of seeing the price of a stock fall. If it does, they can buy the shares back for less than they cost to borrow and pocket the difference.

Selling Citigroup short has generally been a horrible trade over the past 12 months, and the first half of April was no exception. Shares of Citigroup gained nearly 19% from the close of March through April 15 as signals the economy was on the mend began to take hold and investors turned bullish ahead of first-quarter earnings.

Those expectations proved well-founded for most large banks, especially ones like Citigroup,

JPMorgan Chase

(JPM) - Get JPMorgan Chase & Co. (JPM) Report

and

Bank of America

TheStreet Recommends

(BAC) - Get Bank of America Corp Report

, which have large trading operations. Citigroup posted a

surprise profit

of $4.4 billion, when most analysts had been predicting a flat first quarter.

Until the end of March, short-sellers had been stepping up their bets against Citigroup with each successive reporting period, going back for at least four months. The NYSE reports short interest twice a month with an approximate two-week delay.

One important reason for the bearishness appeared to be the overhang of the large stake held by the U.S. Treasury. The government owns 7.7 billion shares of Citigroup common stock and announced Monday

it would sell

1.5 billion of those shares. Citigroup's stock price fell by 5.14% to close at $4.61.

Another factor that has driven down Citigroup's shares in recent days, and was likely a factor Monday, is the threat of increased regulation that would cut into the profitability of Citigroup and other banks. The likelihood of tougher-than-expected new rules appears to have increased dramatically since April 16, when the

Securities and Exchange Commission

stunned the markets by announcing fraud charges against

Goldman Sachs

(GS) - Get Goldman Sachs Group, Inc. (GS) Report

.

Goldman didn't appear among the top 100 shorted stocks on the NYSE in the first half of April, a trend that is almost certain to be reversed when the NYSE publishes short interest data for the second half of the month.

--

Written by Dan Freed in New York

.