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Oil concerns bleeding into regional banks: Markit

[NEW YORK] Investors have shown their concerns for banks that financed the boom in shale oil by increasing their short positions, with regional banks particularly hit, according to a report on Tuesday by data firm Markit.

The average short interest across North American banks has increased by 30 per cent since the start of 2015, reaching 2 per cent of shares outstanding on loan for short selling, Markit data shows.

At the forefront of that increase are regional banks, with the iShares US Regional Banks ETF showing 3.5 per cent of its shares out on loan, up from 2.5 per cent in early 2015.

As oil prices languish near $30 a barrel, banks in the Texas region are leading the rise in shorting action with the average stock on loan of the 13 banks domiciled in the state over the past 12 months showing an average of 3.6 per cent of shares outstanding on loan, Markit said.

San Antonio-based Cullen/Frost Bankers, is the most shorted among the Texas banks, as short sellers have built up US$246 million in positions. On January 20, the bank said its provision for loan losses in the fourth quarter is expected to be US$34 million due to the downturn in the energy sector and the stock is down 28 per cent for the year.

Outside of Texas, Oklahoma-based BOK Financial is down nearly 23 per cent for the year and has seen an increase in short positions with shares outstanding on loan up to 6.5 per cent. The bank raised its provision for loan losses as a result of the commodity downturn on Jan 13 and is scheduled to post quarterly results on Wednesday.