GameStop debacle forces Credit Suisse to abandon short-selling

Dealers work at a dealing room of Hana Bank in Seoul in this January file photo. Yonhap

By Lee Min-hyung

Goldman Sachs and Credit Suisse have reportedly abandoned their position as large short-selling holders of shares of Celltrion and HLB, two Korean stocks most vulnerable to the trading practice amid an escalating fear that they could end up mired in a possible Korean version of the GameStop saga.

According to the Korea Exchange, the two major investment banks were excluded from a list of “large short-selling holders” for Celltrion and HLB, respectively, as of Feb. 1.

Officials from Credit Suisse declined to comment on details over the issue, saying that they were not authorized to speak on market issues.

Investors with the position refer to those whose short-selling balance exceeds 0.5 percent of outstanding shares of a listed firm here.

The move is seen as part of their movement to hedge risks amid concerns over the possibility of heavy losses as in the recent “stock war” between U.S. hedge funds and retail investors surrounding GameStop.

This is the first time since January 2018 that Goldman Sachs has been excluded from the list. It also marks the first time for Credit Suisse since April 2019.

For now, only two companies ― Bank of America-Merrill Lynch and Morgan Stanley ― retain the status for Celltrion. Three global investment banks ― Merrill Lynch, Morgan Stanley and Citigroup Global Market Securities ― also have more than 0.5 percent of shares for short-selling in HLB.

But with Goldman Sachs and Credit Suisse abandoning the position, the balance of short-selling for the two Korean biopharmaceutical firms has declined by a huge margin. As of Feb. 1, Celltrion's short-selling balance reached 4.92 million shares, up 1 million from the previous trading day. The portion of the short-selling balance out of outstanding shares reached 3.65 percent. This is the first time in more than four years that the figure dropped to the 3-percent range.

The short-selling balance of HLB also came in at 2.77 million shares, down by 520,000 during the same period. The short-selling balance portion also dropped to 5.24 percent from the previous 6.22 percent. This is the lowest in more than two years since October 2018.

On the same day, foreign investors engaged in a mass buying spree of Celltrion and HLB, proving that the two investment banks launched a massive short-covering campaign to prevent them from being stuck with huge losses.

“Chances are that the investment banks' decision to reduce their short-selling balance of the two Korean companies was due to escalating worries of a Korean version of the GameStop saga,” an official from the investment industry said, explaining why the two banks took preemptive measures.

“Retail investors are asked to remain thoughtful before purchasing bio shares vulnerable to short-selling disputes,” the source said.

In January, Melvin Capital, a hedge fund based in the U.S., is known to have lost around 53 percent of its total capital by betting against retail investors in GameStop. The estimated loss from for investors ― including Citron Research, another big hedge fund along with Melvin ― betting GameSaga would fall is known to reach $5 billion.

A dispute surrounding short-selling is a major talking point here, after the financial authorities decided to extend a ban on short-selling until May 2. This came in response to a growing call from retail investors that the resumption of the practice only favored foreign and institutional investors.