Digging in their heels

The bank’s short sellers are waiting for its stock to tank, before they give back their shares

Capitec’s war against short sellers Viceroy Research and others is not yet won, with Viceroy expanding on its sour report on the bank and insisting the bank should be placed under curatorship even as Capitec’s shares recover.

Safkhet Capital, a US hedge fund also shorting Capitec shares, is also keeping its short position until its investment thesis comes to bear.

On Monday, Viceroy hit back at the SA Reserve Bank’s assurances that Capitec was sound, claiming that the bank’s books can’t be relied on.

Comparing Capitec with the Bank of America and Citigroup (but without similar analysis of SA banks) Viceroy analysts say Capitec’s longer-dated loan book seems to be “the best performing set of unsecured personal loans in the world”, which they deem irregular.

“There is almost no delinquency and astonishingly low charge-offs,” says Viceroy.

Viceroy believes this warrants an R11bn impairment, which will bankrupt the bank.

Capitec rejects this.

“The Viceroy report presents information that is not clearly comparable and fails to present information that is easily available in the public domain,” it said on Monday.

Viceroy took a short position around January 19, according to founder Fraser Perring. This means it borrowed the stock at R1,020/share.

As rumours swirled that Capitec would be Viceroy’s next target after Steinhoff, the stock plunged 25.1% — to R800.60 — between January 25 and January 31, the day after it released the report. The share regained 15.4% to trade at R924.27 on Monday afternoon, before retreating 4% on Tuesday afternoon amid a global market rout.

But short sellers are not giving back their shares, despite the prospect of a short squeeze — when short sellers are forced to buy back their shares and return them to investors who loaned them out, usually at a loss.

One of those short sellers is Fahmi Quadir, founder and chief investment officer of Safkhet Capital, who specialises in identifying frauds or accounting vulnerabilities which could cause a 60% plunge in market value.

Clark Gardner, CEO of financial well-being firm Summit Finance Partners, which is suing Capitec on behalf of clients for reckless lending, gave away Quadir’s game when he told the Business Day she was one of three hedge fund managers who called him ahead of the Viceroy report, and the only one he agreed to speak to.

Though Quadir says she is unable to discuss any specific positions due to her company’s policies, she does hint at her intentions for Capitec.

“Drops in stock price do not make us happy, they keep us in business and fund our research,” she says. “We are happy when abusive practices are