The central bank said the common traits of a short selling strategy include influencing market participants’ perceptions by extensive use of social media platforms, sensationalist language and an ongoing campaign against the targeted entity. Deputy Governor of the Sarb, Francois Groepe, said last week that this type of “short selling” strategy had the potential to create financial instability, especially if the targeted company is a deposit taking institution.
“Although a decline in a bank’s share price does not necessarily create systemic risk, there may be a risk to financial stability. The negative feedback loop can exacerbate the circumstances, even if the trigger event was based on inaccurate information,” Groepe said.
“In the Capitec case, statements by the Sarb and appropriate responses by Capitec calmed fears and led to a recovery in Capitec’s share price.” Capitec’s share price tanked in January after Viceroy released a scathing report into the bank’s business model labeling it “a wolf in sheep’s skin”.
Viceroy in the report said: “Based on our research and due diligence, we believe that Capitec is a loan shark with massively understated defaults masquerading as a community micro finance provider. We believe that the South African Reserve Bank & Minister of Finance should immediately place Capitec into curatorship.”