Five hedge funds interviewed by Reuters this week each gave details of a trading idea they think could result in a profit from the most significant turmoil to have roiled the banking sector since the 2008 financial crisis.
Key trade: long retail-focused bank bonds/short SME-focused bank bonds
Sriram Reddy, managing director of credit at Man GLG, favoured exposure to retail-focused banks while shorting, taking a position against, small and medium-sized ones. "For some time we have been expecting and preparing for a slowdown in growth more generally, leading us to favour more retail focused banks with a diversified depositor base and a secured asset base - it means better protections both for investors and the banks during an economic slowdown," he said.
Reddy said he preferred senior unsecured bank debt, that allowed bondholders payment ahead of some other creditors in the event of an insolvency. Taking bearish positions on banks that lend to smaller and medium sized firms could prove opportunistic if the economy weakens, he added.Size: $20 billionSpiros Maliagros, AlTi's head of alternatives, said the crisis is about confidence, so deposit flows and liquidity are key. He favours exposure to shares of bigger banks."I would go long larger, more diversified national banks that have experienced deposit inflows and short local, truly regional banks that have experienced outflows.
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