HomeStreet sees largest jump in short interest among public US banks in May

Seattle-based HomeStreet Inc. logged the largest increase in short interest in May, as deteriorating business performance became a potential cause of souring investor sentiment.

HomeStreet reported EPS of 27 cents in the first quarter, down 73% from $1.01 recorded during the first quarter of 2022, and down about 80% from $1.35 posted in the first quarter of 2021. Net interest margin as reported declined 30 basis points sequentially to 2.23% in the first quarter, leading to a $6.3 million decline in net interest income compared to the prior quarter.

Short interest in HomeStreet increased 8 percentage points from April 28 to 11.06% of all shares outstanding as of May 31, making it the fifth-most-shorted US bank stock during the month, according to S&P Global Market Intelligence data. HomeStreet was also the worst-performing US bank stock for the second consecutive month in May, with a return of negative 45.4%.

Wedbush analysts David Chiaverini and Brian Violino downgraded HomeStreet shares to "neutral" in late April, which they said "reflects pressure on the company's fundamentals."

The analysts cut their core EPS estimates for HomeStreet to $1.10 and $2.15 for 2023 and 2024, respectively, from $2.15 and $2.90 due to lower net interest margin assumptions.

Janney Montgomery Scott analyst Timothy Coffey in a May 16 note said HomeStreet's stock trades at "exceptionally low multiples" to the company's tangible book values because investors think the bank may require more capital.

Philadelphia-based Republic First Bancorp Inc. posted the largest decrease in short interest with a 3.2-percentage-point decline to 10.96% of all shares outstanding, making it the sixth-most-shorted US bank stock.

Out of the 10 banks with the largest decreases in short interest during the month, four were regional banks with assets in excess of $50 billion, including First Horizon Corp., which posted a 1.8-percentage-point decline in short interest following the collapse of its merger deal with Toronto-Dominion Bank.

PacWest remains atop most-shorted list

For the second consecutive month, PacWest Bancorp was the most-shorted US bank stock. Short interest in the bank's outstanding shares increased 7.8 percentage points to 24.54% as of May 31. That marked the second largest percentage point increase in short interest among all publicly traded banks during the month.

Odeon Capital Group analyst Dick Bove said the company continues to be in a "very stressful position," though its situation is stabilized for now thanks to some asset sales and the purchase of brokered deposits at rates up to 5.35%.

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Real estate investment company Kennedy-Wilson Holdings Inc. recently closed on an initial tranche of loans from the company's banking subsidiary Pacific Western Bank as part of a $5.7 billion loan portfolio acquisition.

New York-based Metropolitan Bank Holding Corp. moved two positions since April to become the second most-shorted US bank stock in May. Short interest in the bank's outstanding shares jumped 6.8 percentage points to 19.51% as of May 31.

Short interest increases at slower pace

The median short interest for all US public banks increased just 1 basis point to 1.19% of all shares outstanding, with much of the activity seen in regional banks in the $10 billion to $100 billion asset range. Banks with $10 billion to $100 billion in assets logged a 28-basis-point increase in short interest to 3.11% of all shares outstanding as of May 31.

Most banks in the analysis were in the below $5 billion assets category, which altogether saw an increase in short interest of 3 basis points.