How much short sellers contributed to the downward spiral reprises the debate about whether so-called shorts are market watchdogs or opportunistic investors who profit from others’ misery.
. In the case of the banking crisis, a review of data and interviews with short sellers and their critics show, the answer may be both.
Short seller Jim Chanos wrote in a March 13 client letter seen by Reuters that investors had known about the underlying balance sheet problems that brought down SVB since last summer. But it was only when the bank, which his fund was short, “First Republic and Chanos declined to comment. Signature and SVB did not respond to requests for comment.
As the crisis accelerated, JPMorgan Chase & Co. equity analysts wrote on March 17 that short sellers were “working collectively to drive runs on banks,” and venture capitalist David SacksJPMorgan and Sacks did not respond to requests for comment. Data from S&P Global Market Intelligence and ORTEX, who use different methodologies, have similar numbers showing SVB, First Republic, and Signature with relatively low overall short levels before the crisis.
An exception was Silvergate, a cryptocurrency-focused lender, which for months faced an unusually high level of short interest compared to other banks – above 75% by the time it said it would wind down operations on March 8.
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