Hedge funds pile into banks, insurance, consumer finance, Goldman Sachs says

By Nell Mackenzie

LONDON (Reuters) -Hedge funds bought banks, insurance and consumer finance companies last week at the fastest pace in three months, Goldman Sachs said in a research note, amid increased dealmaking expected to boost profits and an expected further loosening of regulations.

An index of European banks has risen over 40% so far this year, while U.S. banks have advanced just over 20%.

The funds picked no regional favourite, but North America and Europe took the bulk of long positions, betting that shares in these markets would rise, according to the Goldman Sachs note to clients on Friday that was seen by Reuters on Monday.

Hedge funds, which had throughout August decreased trading levels, raised gross leverage levels last week by the largest amount in eight months, the Goldman Sachs note said.

Gross leverage is a gauge of how much hedge funds are trading.

Financial companies were the second most bought sector monitored by Goldman Sachs' prime brokerage unit, followed by tech stocks.

"We were hopeful at the start of the year that pragmatism on the part of regulators and government would underpin a better year for the specialist lenders, both operationally and in terms of share prices. So far, so good," said a September 17 report by analysts at the UK bank, Panmure Liberum.

Banks generally tend to make money in times of higher interest rates, but the prospect of lower interest rates was already baked into stock prices, its note said.

The Fed last week cut rates for the first time since December and signalled further reductions at its October and December meetings given signs of a weakening U.S. labour market.

Goldman Sachs CEO, David Solomon, said in a CNBC interview earlier this month that the bank expected its busiest week for initial public offerings since July 2021.

(Reporting by Nell Mackenzie; editing by Dhara Ranasinghe and Jane Merriman)