Hedge Funds Are Attacking This Nordic Bank More Than Any Other

(Bloomberg) -- There’s one Nordic bank that hedge funds have singled out for a particularly aggressive attack, and it’s got nothing to do with money laundering.

Sydbank A/S, Denmark’s third-biggest listed bank, almost rivals Deutsche Bank AG when it comes to bets against it in the form of short interest. Funds have taken negative positions on about 6.7% of its free-floating shares, which is roughly a percentage point below Deutsche, according to data compiled by IHS Markit. Bets against Sydbank, which in Denmark has been given too-big-to-fail designation, have more than doubled since January.

Sydbank has dodged the dirty money affairs that have dragged down Danske Bank A/S, Swedbank AB and Nordea Bank Abp. But the issues weighing on Sydbank have been as detrimental to its share price.

Sydbank spokesman Martin K. Nielsen declined to comment on the surge in short interest, citing company policy. Shares in the bank fell 0.7% in Friday trading.

Until recently, generous dividends and share buybacks supported Sydbank’s share price, but negative interest rates and tougher capital requirements have driven down those returns as the bank struggles to make money in the current environment. Last year, Sydbank’s income fell 7% while its profit plunged 24%. Its share price followed suit, and is down by more than a fifth since late December, which is slightly worse than Danske’s performance over the period.

Per Hansen, an investment economist at Nordnet who advises retail savers on equities purchases, says “the bear case for short sellers will persist” unless Sydbank can provide “some very concrete goals that can convince the market that growth will return.” But the upshot for now is that its earnings “are under pressure,” he said.

Sydbank’s share price losses led it to be booted out of Denmark’s blue-chip stock index in June. The bank has “lost momentum,” Hansen said. Given how much investors seem to dislike Sydbank these days, “you’d think it was them, not Danske, that were at the center of a money laundering case,” he said.

Analysts tracking Sydbank seem to agree with the hedge funds. No one is advising clients to buy the stock, according to data compiled by Bloomberg. The bank has the worst average consensus rating of all Danish equities covered by more than one analyst.

Thomas Eskildsen, an analyst at Handelsbanken, wrote in a recent note that “Sydbank’s potential for lending growth remains weak, due to its risk appetite and the competitive landscape.” He has cut his estimates for the bank’s earnings and share price ahead of its Aug. 28 quarterly results.

To contact the reporter on this story: Christian Wienberg in Copenhagen at cwienberg@bloomberg.net

To contact the editors responsible for this story: Tasneem Hanfi Brögger at tbrogger@bloomberg.net, Kati Pohjanpalo

©2019 Bloomberg L.P.