Campaigners against short-selling

by B J FOSTER on 2004-02-03 17:35:48

March 2003

"Those who call for restrictions are often trying to run companies in
trouble, or entire economies that are on the ropes. David Prosser, chief
executive of Legal & General, a British insurer, called last summer for
more 'grit in the system' to work against short-selling.

A little later, L&G tapped shareholders in a rights issue for Ł800m
($1.2 billion).

Last year, Hans Eichel, Germany's finance minister, proposed banning
short-selling in times of crisis. In 2002 the German stockmarket fell by
44%.
...
In fact, short-sellers usually deserve more praise than blame. Sometimes
they are among the first to spot trouble. For years Tyco vilified David
Tice of Prudent Bear, a fund manager specialising in short-selling, for
his negative stance on the company. Not long before Tyco went bankrupt
it was still buying full-page advertisements to campaign against
short-selling.

Jim Chanos at Kynikos, another short fund, was one of the first to
notice Enron's unorthodox accounting practices. Nor are these the only
examples.

Owen Lamont of the University of Chicago studied 270 companies that
fought short-sellers by demonising them publicly, hiring private
investigators to spy on them, or taking them to court.

The companies' shares fell on average by more than 40%, relative to the
market, over the next three years.

Listen to the likes of Mr Eichel, and you might suppose that
short-sellers drive down entire stockmarkets. In fact, they tend to
focus on individual companies. Lately, it has been big institutional
investors, such as insurance companies or pension funds, that have
dragged down stockmarkets and amplified the effects of already falling
prices.

British insurers, which own about one-fifth of the shares listed on the
London Stock Exchange, have sold billions-worth of equities to reduce
their exposure to the stockmarket and to meet regulatory requirements on
solvency. Short-sellers are minuscule in comparison, accounting for a
mere 1-3% of the capitalisation of the FTSE 100".
(http://economictimes.indiatimes.com/articleshow/39785016.cms)

AMP...