THE PROPORTION of Anglo Irish Bank's stock that could be used for betting against the bank's share price in short-selling positions rose in April, despite an investigation by the Irish Financial Services Regulatory Authority into unusual trades and the spreading of false rumours about the bank.
The amount of Anglo's stock on loan rose to 12.78 per cent in April from 12.67 per cent in March, according to monthly data updated yesterday by Euroclear (formerly Crest Co), the Brussels-based securities settlements firm.
This is the third month in a row that Anglo's stock on loan increased. Some 11.79 per cent of its stock was on loan in February.
Short selling, which is essentially a bet on a company's share price falling in value, involves investors selling borrowed shares in the hope they can buy them back at a lower price and later return them to their original owner. The investors receive the difference as profit.
The practice is an acceptable form of trading on stocks.
However, the financial regulator is examining whether short-selling investors took unfair advantage by spreading false rumours while trading on the back of them. This is in breach of regulations.
The percentage of Irish Life Permanent (ILP) stock on loan rose to 7.51 per cent in April from 5.75 per cent in March and 5.1 per cent in February. Some trades in ILP are also being examined by the regulator.
The regulator launched its investigation into unusual trading and "false and misleading rumours" in the two financial institutions following unusual volatility in their share prices around St Patrick's Day. Anglo Irish Bank, the primary focus of the investigation, lost 15 per cent of its value in trading that Monday, following the rescue of US investment bank Bear Stearns the previous Friday.
Patrick Neary, the regulator's chief executive, said last week that its investigation was progressing but would take time to complete.
A spokesman for Euroclear said loaned stock could be used for short selling, but it could also be used by investors in normal share trading, such as overnight trades or to allow investors to accumulate voting power ahead of a company's annual meeting. He said there was no exact way of quantifying short selling in public companies.
"The loaned stock could be used for short selling, but more than likely it is not," he said.
The amount of Bank of Ireland stock on loan also increased last month, to 5.3 per cent in April from 4.64 per cent in March, while AIB's stock on loan increased slightly, to 1.75 per cent in April from 1.47 per cent in March.
Irish companies linked to the construction sector also have a large percentage of stock on loan. The amount of stock loaned in housebuilder McInerney fell to 12.01 per cent in April from 13.76 per cent in March.
Anglo is due to release its interim results for the six months to March 31st, 2008, today. It is forecasting earnings growth of 15 per cent for the six months and its full year to September 30th.
Anglo rose just less than 1 per cent to close at €9.20 last night. A year ago, the stock was trading at €17.20.
