NEW YORK, July 5 (Reuters) – European hedge funds have rapidly reduced their exposure to US banks since the start of the year, while roughly maintaining their position in European banks, Goldman Sachs (GS.N) told clients in a recent report.
In general, shares of European banks are outperforming their US peers as they have failed to weather the deposit flight in the United States.
The STOXX Europe 600 Banks Index (.SX7P) is up about 8% this year, while the Dow Jones US Banks Index (.DJUSBK) is down 9%.
“In Europe, hedge funds have rotated from banking and insurance to financial services in recent months, but positioning in European banks still remains stronger than in US banks,” Goldman Sachs said in the report obtained by Reuters.
The Wall Street bank runs one of the world’s largest prime brokerages, providing lending and trading services to investors and being able to see how major hedge funds and asset managers evolve.
Goldman Sachs did not immediately comment on the report.
The data shows that European investors are more optimistic about banks on their own continent, while taking a more neutral approach to US banks.
The Wall Street bank uses the so-called long/short ratio to measure investor sentiment by dividing long positions by short positions.
At the end of June, this ratio was close to 100% for US banks, meaning hedge funds are on average one bank stock long and one bank stock short.
For European banks, however, the ratio was around 190%.
The gap between the positioning of European hedge funds in European and US banks has widened especially after a crisis this year in which US bank Silicon Valley Bank and two other lenders failed.
European banks did not escape unscathed. UBS (UBSG.S) acquired rival Credit Suisse in a Swiss government-orchestrated bailout, but it was not seen as a systemic crisis.
Investors worldwide are also increasingly betting that shares in American banks will fall, says data provider Ortex.
Short-term interest rates as a share of the free float in US banks grew from 1.8% in January to 2.3% in June, while for European banks it remained stable at 0.6%.
The US banking crisis terrified investors in all regions. Bridgewater Associates, one of the world’s largest hedge funds, sold US bank stocks in the first quarter as some regional lenders went bankrupt.
It exited positions in five US banking giants, namely JPMorgan & Co (JPM.N), Bank of America Corp (BAC.N), Wells Fargo & Co (WFC.N), Goldman Sachs Group Inc (GS.N) and Morgan Stanley (MS.N), regulatory filings in May.
Reporting by Carolina Mandl; Edited by David Holmes and Clarence Fernandez
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