From the Securities Lending Trading Desk

In the Americas, new short positions drive demand on SPDR Barclays High Yield Bond ETF (JNK) amidst rally to start 2019. In Asia, SJM Holdings, the casino business founded by gambling tycoon Stanley Ho, rose by 8% last Thursday. In Europe, Metro Bank shares fell the most since its launch as it revealed an erroneous capital shortfall. 

Americas

New short positions drive demand on SPDR Barclays High Yield Bond ETF (JNK) amidst rally to start 2019. In the last quarter of 2018, JNK dropped 8.6%, including enduring its worst month (December) in over 3 years. This marked only the second yearly loss for high yield debt since 2008. Funds scrambled to cover their short positions thus easing lending fee levels across the market as the year closed. Since that time, JNK has rallied back up 6% to start 2019 sparking renewed short interest. Fee levels have since begun to rise as liquidity tightens.

Transenterix (TRXC) short positions see renewed interest after an FDA approval and sales surge leads to a quick rebound. The medical device company saw a 30% share price increase in the first week of the calendar year, more than any week’s gain since June, after reporting preliminary Q4 revenue of $7.4m vs est. $7.35m. Also driving the rally was the FDA’s 510(k) clearance for TRXC’s Senhance Ultrasonic system. The company subsequently sold 5 of those systems in the 4th quarter of 2018. This recent uplift in share price, which had previously fallen 68% over Q4 2018, has generated new short interest and a spike in lending fees.

Asia Pacific

Shares in ZhongAn Online P&C Insurance fell sharply after forecasting higher than expected net losses. The company, which offers a wide array of insurance products and online consumer financial services, announced last week that it may record an increase in net loss by no less than 75% for the year ended 2018. ZhongAn cited higher underwriting losses, lower investment income and higher expenses, due in part to increased pre-operating expenses for its international business, as reasons for the poor forecast. Shares in ZhongAn dropped by nearly 6% on Friday, the biggest loss on the HSCEI ‘H’ share index. We have seen strong long-term securities lending demand for ZhongAn in recent months.

Shares in one of Macau’s largest casino operators rose sharply last week after the announcement of a deal between two prominent Hong Kong families. SJM Holdings, the casino business founded by gambling tycoon Stanley Ho, rose by 8% last Thursday after Mr Ho’s daughter, Pansy Ho, struck a deal with the foundation of the late tycoon Henry Fok to take control of SJM. The collaboration between Ms Ho and the Fok foundation will see them hold a combined 53 per cent stake in Sociedade de Turismo e Diversoes de Macau, or STDM, the controlling entity of SJM. The move will give Ms Ho greater control over SJM at a time when the group has been struggling with various corporate governance issues and losing market share in the competitive gambling industry in Macau. We saw muted lending demand for SJM, which has seen its share price decline by 30% since June last year.

Europe

Metro Bank shares fell the most since its launch as it revealed an erroneous capital shortfall. Metro Bank (MTRO LN) has seen increased lending demand this week as the British retail bank’s shares fell 40% following an announcement of a decrease in expected profit and a capital shortfall. The shortfall was due to the misinterpretation of risk weighting for mortgage-based loans on its balance sheet. Metro’s capital ratio fell to 15.8 per cent from 19.1 per cent at the end of September, leading some analysts to speculate that the lender might have to sell shares in order to raise further capital. Metro has previously raised £303m in July and £278m in 2017. Short interest had decreased from highs of 15% in June but saw a spike of 1.2% this week following the news. The quantity of available shares on loan has increased 7% to 66% according to Datalend.

Sirius Minerals fell 17% this week as the UK government looked to reduce taxpayer exposure to its UK mining project. Short interest is at an all-time high this week (12.89%) and lending demand remains strong as Sirius Minerals (SXX LN) provided its Q4 project update which outlined changes to the funding structure of the UK potash mine. Investor confidence fell as Sirius described a reduction in the amount of loans guaranteed by the government and added that the funding changes would lead to delays associated with the securing of the remaining funding sought. The quantity of available shares on loan has increased from lows of 52% in Aug to 73% at present according to Datalend.