Regional banks drop on short-sell ban end, credit worries

giovedì 9 ottobre 2008 22:32

By Anurag Kotoky and Adheesha Sarkar

BANGALORE Oct 9 (Reuters) - Shares of most U.S. regional banks plunged on Thursday as rising concerns that the banks' credit quality is bound to deteriorate prompted investors to take advantage of the expiry of a ban on short selling.

"A lot of people are shorting regional banks today with the expectation that they don't have enough capital to withstand the asset quality storm that's coming in the next two quarters," FTN Midwest analyst Brett Rabatin said by phone.

Shares of Zions Bancorp (ZION.O: Quotazione), Fifth Third Bancorp (FITB.O: Quotazione), Synovus Financial Corp (SNV.N: Quotazione), Susquehanna Bancshares SUSQ.O and Fulton Financial Corp (FULT.O: Quotazione) fell between 15 percent and 25 percent.

U.S. securities regulators had, for the past three weeks, temporarily banned the practice of short-selling in more than 950 stocks as the credit crisis intensified. That ban expired midnight on Wednesday.

Short sellers borrow shares they consider overvalued and sell them in hopes of making a profit when the price drops. It is a legitimate form of trading that can prevent stocks from being overvalued, but often is blamed when a company's shares fall.

The pre-announced results of Whitney Holding Corp WTNY.O and United Community Banks Inc (UCBI.O: Quotazione) proved that credit quality has worsened, analysts said.

Shares of United Community, which forecast a huge loss for the third quarter on Monday, and those of Whitney, which expects to earn just half of what analysts forecast in the quarter, also fell on Thursday.

Shareholders' belief that the banks could rebound after the approval of the U.S. government's $700 billion bailout plan has taken a hit, analysts said.   Continua...