Global hedge funds were positioned to profit from last week’s plunge in US regional banking stocks, according to a report by Reuters citing a JPMorgan prime brokerage note to clients. 

US regional bank stocks fell 8% on 31 January after New York Community Bank (NYCB) reported an earnings miss that resulted in a 40% fall in its stock price — a sign of broader turmoil in the sector.

Reuters cited data from global financial analytics company Ortex as revealing that short sellers targeting shares of certain US regional banks including the NYCB were up about $1.04bn in paper profits in the week ending 2 February.

The JPMorgan client note observed "fairly limited reactions to the sell-off earlier this week" once stock prices declined, adding that more short positions in large-cap banks were added in January but most hedge funds still held bets that these stocks would rise. JPMorgan also highlighted insurance stocks — which are also considered part of the financials stock sector – which saw short positions added.

A separate note from Goldman Sachs cited in the report found that hedge funds sold financial stocks for the second straight week and were net sellers for seven out of the last nine weeks. Goldman Sachs observed that the number of short positions was hovering near a five-year high compared to the number of bets expecting these stock prices to rise.