First Republic Short Sellers Are Struggling to Find Stock to Bet Against

(Bloomberg) — Wall Street traders see good reasons to short First Republic Bank anew as the standoff grows between the US government and the banking industry.

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The problem: Only 4% of shares are actually available to make bearish bets.

Trouble at the San Francisco-based lender has rewarded short sellers, who’ve netted paper profits of about $1.2 billion this year as shares plunged roughly 95%. It’s a winning trade — if you can locate and afford one of the few shares still available to bet against.

Read more: First Republic Stuck in Standoff Between US, Bank Industry

About 96% of the shares that can be used for the bet are already taken, according to data from S3 Partners LLC, turning it into a difficult and expensive trade.

That’s bad news for investors who see further opportunity in First Republic’s losses. Short selling — a trade in which investors borrow a security, then sell it in hopes of buying it back at a lower price — offered a profit on Tuesday of $455 million after the bank reported a plunge in deposits.

The fee for borrowing new shares, though, has soared to a range of 20% to 35% as supply dwindles, according to Ihor Dusaniwsky, managing director of predictive analytics at S3.

Traders with existing short positions are paying a roughly 20% fee. In comparison, the fee for existing short bets against Truist Financial is 0.30%, according to S3 data.

Of course, there are other ways to bet against First Republic using options — but they’ll still likely come with a big price tag.

Steve Sosnick, chief strategist at Interactive Brokers pointed to a “synthetic short” that can be made by selling bullish call options while buying protective puts at the same strike price.

“There are still opportunities on the short side,” he said. “But they would require extreme moves in a short period of time.”

Swirling questions about First Republic’s health going forward are also in focus. While SVB Financial Group’s meltdown earlier this year minted paper profits for short sellers and options traders, the settlement process has been quite messy for both.