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 ๐Ÿ™‚ The dividend may be shattered, but it’s still a gamble on longer-term prospects, and a hedge on housing.

Posted on October 14, 2008, in economics. Bookmark the permalink. 2 Comments.

  1. Spare a thought for the poor buggers whose only savings are in their property!

  2. Hehe. And those who failed to sell shares at the right time? That includes me, with some of my other holdings, though they haven’t lost quite as much in three weeks as Lloyds (nice to see a gain of 10% today. ๐Ÿ™‚

    Homeowners fall into two categories. Those who bought before the bubble (say, up to 2001/2002) and are still sitting on big, unearned profits *at the expense of the productive economy*. And those who bought for the first time at stupidly inflated prices. The latter are in effect victims of a scam, and are more likely to get my sympathy.

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