It's been a tough couple of months to be a bank.
Several prominent banks have gone under, including Silicon Valley Bank (later taken over by First Citizens BancShares), Signature Bank (later taken on by New York Community Bancorp). Credit Suisse (later taken over by UBS UBS ), and First Republic (later taken over by JP Morgan (JPM)).
On Tuesday, Sen. Elizabeth Warren and six other U.S. senators sent 10 of the largest banks and credit providers a letter demanding insight into their late-fee practices.
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Scrutiny is growing, and many investors have adopted a cautious -- and in some cases, aggressive -- approach to the financial industry.
"Both SVB and Signature Bank suffered from a toxic mix of poor risk management and weak supervision," Sen. Warren said in a scathing March address on the Senate floor, urging President Biden to consider stiffer regulation of the banking industry.
Jamie Dimon Slams Short Sellers
It's not shocking, then, that banking CEOs are feeling the heat. One of the most outspoken in the cohort is JP Morgan CEO Jamie Dimon, who slammed bank short sellers on Thursday.
"The SEC has the enforcement capability to look at what people are doing, by name, in options, derivatives short sales. And they should," Dimon said in a Bloomberg interview. "If someone’s doing anything wrong, if they are in collusion, or people going short and then making a tweet about a bank, they should go after them, and vigorously."
Short sellers bet that an asset's price will decline so they borrow the asset and sell it, in hopes of buying it back later for a much lower price, thereby making a profit.
Dimon's comments come in the wake of a letter last week from the American Bankers Association to SEC chairman Gary Gensler.
The letter called for a probe of suspicious trading in bank stocks. "Some of our members have experienced significant short sales of their publicly traded equity securities that do not appear to reflect the issuers’ financial status or general industry conditions," the ABA wrote. "We have also observed extensive social media engagement about the health of various banks and the sector generally that appears disconnected from the underlying financial realities. We urge the SEC to investigate this behavior."
Typically, the more short interest an asset has, the more bearish investors tend to feel about that asset. In this case, JP Morgan has a 0.65% short interest percent float. This isn't much compared to Carvana (CVNA), for example, which has an over 10% short interest.
Still, the CEO is clearly upset that some investors are betting not just against his bank but against the industry as a whole. In January 2022, the banking sector had a short interest of approximately 0.29%. In mid-March 2023, however, that number nearly doubled to 0.46%.
Dimon noted that unscrupulous people can use a variety of financial instruments to hide their short positions, and avoid scrutiny.
