Citadel hedge fund units exit Ryanair short positions

US hedge fund giant Citadel is believed to have completely exited its short positions in Ryanair, likely having generated hefty profits from the bets against the carrier’s shares.

Citadel’s US and European arms had a more than €200m bet against the carrier’s shares at one stage during the summer, and is likely to have made a solid profit from the positions after the carrier’s shares were hit by sectoral turbulence and weaker profits.

Short positions exceeding 0.5pc of a company’s stock must be publicly disclosed under EU rules.

Filings with the UK’s Financial Conduct Authority (FCA) now show that there was now no notifiable short position in Ryanair’s shares. During the summer, the FCA became the competent authority for the oversight of short positions in Ryanair’s ordinary shares.

Founded by chief executive Ken Griffin, Citadel has about $30bn (€26bn) of assets under management.

When investors short a share, they are betting that its price will drop. They borrow a company’s shares from other shareholders and can profit if the price falls by buying back the shares at a lower price to return them to their original owner.

But short positions can sour if the share price in the target company rises.

In early April this year, Citadel first revealed it had a taken a short position in Ryanair.

It was the first time since the EU rules were introduced in 2012 that a short position in the airline had been disclosed. Ryanair’s shares were trading at €11.16 at the time.

Citadel raised its short position over the next couple of months, holding a 0.95pc position by the end of May. It had increased its short position following the release of Ryanair’s full-year results that month. The airline reported that its profit for the period slumped 29pc to €1.02bn, largely due to lower fares.

When it released its results, Ryanair’s shares fell more than 5pc initially, despite the company announcing a €700m share buyback.

By July, Citadel’s US and European arms had raised their combined short positions to 1.7pc of Ryanair’s stock, equivalent at the time to a €204m stake.

At the time, Ryanair’s shares were trading at about €10.89.

The shares slumped to about €8.50 in August as the carrier faced pilot strike threats in Ireland and the UK.

However, since then the shares have climbed, and were trading yesterday at €11.96.

After the airline’s annual general meeting last month, Ryanair chief executive Michael O’Leary defended a share incentive plan that could earn him as much as €100m over the next five years.

Under the plan Mr O’Leary’s 10 million share options are exercisable at €11.12 per share, if the airline’s profits exceed €2bn in any one year up to 2024, or if the share price exceeds €21 for a period of 28 days between April 1, 2021 and March 31, 2024.

Mr O’Leary said the potential €100m share plan aligned his interests with shareholders.

“I’m not taking a big salary, I’m not taking a big bonus,” he said. “I get nothing if I don’t double the share price [and] don’t double the profit.”

Last month, a profit warning from Aer Lingus owner IAG sparked a sell-off in airline shares. IAG, which also owns British Airways, Iberia, Vueling and Level, said that its full-year profit will be hit to the tune of €215m, with €137m of the hit due to strikes by pilots at British Airways.

IAG also said its low-cost carriers, Vueling and Level, had experienced weakened booking trends.

However, the airline group stressed that the weakness in booking trends seen at Vueling and Level was related to very specific markets, rather than being a general trend.

It said that the weakness in fourth-quarter bookings at Vueling was primarily related to inbound traffic to Spain, mainly from Italy and France.

With Level, the weaker trend is seen on its services across the South Atlantic, primarily to Argentina.

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