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US banks fall out of favor with European hedge funds, according to Goldman Sachs

In a recent report, Goldman Sachs informed its clients that European hedge funds have significantly reduced their exposure to U.S. banks since the start of the year. At the same time, these hedge funds have maintained their positioning in European banks.

Unlike their U.S. counterparts, European banks have outperformed the market due to the absence of significant deposit flight.

The STOXX Europe 600 Banks index has experienced an approximate 8% increase this year, whereas the Dow Jones US Banks index has declined by 9%.

Goldman Sachs, in the report obtained by Reuters, stated, “In Europe, hedge funds have shifted their investments from banks and insurance to financial services in the past few months, although they still maintain stronger positioning in European banks compared to U.S. banks.”

As one of the world’s largest prime brokerages, Goldman Sachs possesses insights into the movements of major hedge funds and asset managers, offering lending and trading services to these investors.

Goldman Sachs has not yet provided immediate comments on the report.

The data indicates that European investors possess a more optimistic outlook toward banks within their own continent, while maintaining a more neutral stance on U.S. banks.

To gauge investor sentiment, Goldman Sachs employs the long/short ratio, which divides long positions by short positions.

As of the end of June, the long/short ratio for U.S. banks hovered around 100%, suggesting that hedge funds, on average, hold long positions in one bank stock while shorting another.

In contrast, the long/short ratio for European banks stood at approximately 190%.

The disparity between European hedge funds’ positioning in European and U.S. banks has notably widened following a crisis earlier this year that led to the failure of Silicon Valley Bank, a U.S.-based bank, along with two other lenders.

While European banks have not been entirely unaffected, UBS successfully acquired Credit Suisse in a rescue effort orchestrated by the Swiss government, which was not perceived as a systemic crisis.

On a global scale, investors are increasingly anticipating a decline in the shares of U.S. banks, according to data provider Ortex.

Short interest, measured as a share of free float, in U.S. banks rose from 1.8% in January to 2.3% in June, while remaining stable for European banks at 0.6%.

The U.S. banking crisis has created unease among investors across different regions. Bridgewater Associates, one of the world’s largest hedge funds, sold off U.S. bank stocks during the first quarter as regional lenders faced collapse.

Regulatory filings in May revealed that Bridgewater Associates exited positions in five major U.S. banking giants, including JPMorgan & Co, Bank of America Corp, Wells Fargo & Co, Goldman Sachs Group Inc, and Morgan Stanley.

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