Daily Archives: October 14, 2008

Shorting Bank Shares

Who says you can’t short bank shares?

Back in August, I invested in a small shareholding in Lloyds TSB, a bank that’s suffered but remained sufficiently prudent not to be a total basketcase. Commonly described as boring. For me, holding banking shares is a hedge against any recovery in house prices: so longer as houses are crashing, I’m quids in, no matter what happens to the value of my shares. And that’s on top of a generous dividend.

Come September. Lloyds TSB to bail out the basketcase HBOS – an albatross around its neck. Share price plummets. But then the shorting ban, and for a few hours the price soared. I caught it and sold up at a small profit, with a view to re-establishing my position at a price not more than half what I sold for.

Today I’ve done exactly that. I now own twice as many LloydsTSB shares as before. And I’m still sitting on a cash profit that’s over 10% of what I paid. Guess I just successfully closed my first virtual short position, just where it was supposed to be banned 🙂 The dividend may be shattered, but it’s still a gamble on longer-term prospects, and a hedge on housing.