Bears hold firm as Wirecard crumbles
25 June 2020 Munich
Image: Billion Photos/Shutterstock.com
As the much-maligned German fintech giant Wirecard files for insolvency today, many short sellers are refusing to cash out until the bitter end.
Analysis by Ortex, an equity data analytics firm, shows that only 12.5 percent of Wirecard short positions have been closed in the past week, leaving 16.8 million (15 percent of total freefloat) still shorted.
Ortex estimates that open short positions were worth at least €1.6 billion at the start of the crisis, but suggests “hedge funds now stand to gain significantly more”.
Meanwhile, cost to borrow has increased by an eye-watering 116 percent over the past seven days as Wirecard’s share price plummeted more than 90 percent in the wake of the CEO’s resignation and subsequent arrest, alongside fresh accusations of accounting fraud to the tune of nearly €2 billion.
Despite the high price tag and tantalisingly large profits already within reach, the number of shares on loan is only down 9.7 percent over the past seven days, representing 16.7 million Wirecard shares.
In fact, a number of hedge funds have maintained or increased their short positions in the past week, including Slate Path Capital, Samlyn Capital, Coatue Management, Maverick Capital and Coltrane Asset Management.
Coatue Management currently has the largest open short position of 2.67 million shares, according to Ortex.
Peter Hillerberg, co-founder of Ortex, comments: “In a week when the share price dropped by over 90 percent and the CEO was arrested, it would have been easy for hedge funds to take a profit and run.
“However, our data shows that the vast majority of short sellers have been holding their positions, and in some cases increasing them, in anticipation of a further reduction in the share price. It looks like their patience will pay off.”
Wirecard has been an on-again-off-again favourite of short sellers for nearly a decade but the latest period of interest began in mid-October 2019 when average utilisation jumped from around 37 percent to 63 percent almost overnight, according to FIS Astec Analytics.
Astec data shows that demand to borrow continued to rise in October before settling at the around 70 percent, where it held firm until earlier this month when it spiked again to around 80 percent.
Today, Ortex notes that utilisation is currently sitting at around 82 percent, representing an increase of 2.7 percent over the past seven days.
Wirecard goes bust: now what?
For those involved in the securities lending transaction chain underpinning the major short selling activity towards Wirecard, the insolvency filing means trading will be suspected on the Dax 30 index-listed firm. This means borrows cannot return that stock and they will remain at nil value on their balance sheets until cleared.
Lenders, however, will have to return all or the vast majority of any collateral they were holding as part of this transaction. They will, however, be consoled by the massive lending fees they’ve been earning until this point.
Analysis by Ortex, an equity data analytics firm, shows that only 12.5 percent of Wirecard short positions have been closed in the past week, leaving 16.8 million (15 percent of total freefloat) still shorted.
Ortex estimates that open short positions were worth at least €1.6 billion at the start of the crisis, but suggests “hedge funds now stand to gain significantly more”.
Meanwhile, cost to borrow has increased by an eye-watering 116 percent over the past seven days as Wirecard’s share price plummeted more than 90 percent in the wake of the CEO’s resignation and subsequent arrest, alongside fresh accusations of accounting fraud to the tune of nearly €2 billion.
Despite the high price tag and tantalisingly large profits already within reach, the number of shares on loan is only down 9.7 percent over the past seven days, representing 16.7 million Wirecard shares.
In fact, a number of hedge funds have maintained or increased their short positions in the past week, including Slate Path Capital, Samlyn Capital, Coatue Management, Maverick Capital and Coltrane Asset Management.
Coatue Management currently has the largest open short position of 2.67 million shares, according to Ortex.
Peter Hillerberg, co-founder of Ortex, comments: “In a week when the share price dropped by over 90 percent and the CEO was arrested, it would have been easy for hedge funds to take a profit and run.
“However, our data shows that the vast majority of short sellers have been holding their positions, and in some cases increasing them, in anticipation of a further reduction in the share price. It looks like their patience will pay off.”
Wirecard has been an on-again-off-again favourite of short sellers for nearly a decade but the latest period of interest began in mid-October 2019 when average utilisation jumped from around 37 percent to 63 percent almost overnight, according to FIS Astec Analytics.
Astec data shows that demand to borrow continued to rise in October before settling at the around 70 percent, where it held firm until earlier this month when it spiked again to around 80 percent.
Today, Ortex notes that utilisation is currently sitting at around 82 percent, representing an increase of 2.7 percent over the past seven days.
Wirecard goes bust: now what?
For those involved in the securities lending transaction chain underpinning the major short selling activity towards Wirecard, the insolvency filing means trading will be suspected on the Dax 30 index-listed firm. This means borrows cannot return that stock and they will remain at nil value on their balance sheets until cleared.
Lenders, however, will have to return all or the vast majority of any collateral they were holding as part of this transaction. They will, however, be consoled by the massive lending fees they’ve been earning until this point.
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