ORTEX Data Reveals $6.1 Billion in Short Bets on Canada's TD Bank

Short interest in TD Bank Group (TD.TO) soared to $6.1 billion on Wednesday, a 45% increase from two weeks ago, as per ORTEX data calculations. The spike comes just before the Canadian lender's annual general meeting and is primarily attributed to TD's planned acquisition of U.S. lender First Horizon (FHN.N).

The collapse of U.S. regional lenders Silicon Valley Bank and Signature Bank last month has intensified scrutiny of the transaction. Consequently, some shareholders have urged TD to abandon the deal or renegotiate for a lower price. Analyst James Shanahan of Edward Jones believes that arbitrage investors betting on the First Horizon deal are responsible for the heightened short interest, as the market is concerned about the deal's likelihood of completion.

Arbitrage investors, often event-driven hedge funds, bet on mergers and acquisitions by purchasing shares of the target company and shorting the acquirer's stock. Analyst Lemar Persaud of Cormark Securities points to the uncertainty surrounding the First Horizon deal closure and its potential cost as the primary factor influencing short interest. Persaud also notes that the failures of SVB and Signature Bank have raised concerns due to TD's significant retail operations.

TD Bank is expected to address the $13.4 billion acquisition of First Horizon during its AGM on Thursday in Toronto, as it awaits regulatory approval. Hedge funds have shorted approximately 5.5% of TD's outstanding shares, while the second-most shorted bank stock, Bank of America (BAC.N), had only $2.9 billion or 1.2% worth of short bets.

Short-selling involves hedge funds borrowing stock from institutional investors and selling it back when the price falls, profiting from the difference. TD shares have dropped 0.1% since the U.S. regional banking crisis began but have risen 3.4% this week.

While the Bank of Montreal (BMO.TO) and Royal Bank of Canada (RY.TO) also have exposure to the U.S. banking system, they had around $2.1 billion and $2.2 billion worth of shares out on loan, respectively, as per ORTEX data. A TD spokesperson declined to comment on the matter.

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