Toronto-Dominion Bank’s outsized exposure to the U.S. may have put it in the crosshairs of short sellers in recent weeks, but those looking for a bank crisis in Canada will likely end up disappointed, market watcher say.

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On April 4, data from S3 Partners showed that short interest in TD totalled $4.71 billion ($3.63 billion on Canadian markets and $1.08 billion in the U.S.). That gave TD the honour of having the largest total short interest of any bank worldwide, according to S3, a fact that made the headlines.

Investors and analysts, however, were quick to downplay concerns about the state of the bank, questioning aspects of the general downside thesis that TD faces greater risk than other Canadian banks because of its U.S. footprint, as well as the significance of the short interest figure, which is a raw total and does not take into account the size of the bank.

“No Canadian should say ‘Holy s–t, TD is the most shorted bank! Should I get my money out of TD?’” said Barry Schwartz, chief investment officer at Toronto-based Baskin Wealth Management. “I think we’re trying to create a story where there isn’t one, we’re trying to backfill a narrative.”

Schwartz said that the case for shorting TD has included the bank’s exposure to a potential housing downturn and its operations in the U.S., where regional banks have been under pressure since the collapse of Silicon Valley Bank last month. But he added that a lot of North American banks have similar risk exposures.

Canaccord Genuity analyst Scott Chan, meanwhile, pointed out that as of March 15, the Canadian Imperial Bank of Commerce was the most shorted bank when considering short interest as a ratio to float. Based on Bloomberg data, Chan said CIBC’s short interest was 4.28 per cent while TD stood at 3.15 per cent.

“That’s the best way to look at it, in proportion to its size and not the big number that I think every media outlet I’ve seen has picked up and have asked me about,” Chan said.

Chan said TD was likely popping up as a short candidate for some obvious recent reasons.

“I think the U.S. kind of looks at the housing market in general for ways to short the Canadian banks and I think the SVB fail has disproportionately impacted TD in terms of the larger short relative to historical standards,” he said.

The SVB storm has hit TD both due to the bank’s increasingly uncertain bid to acquire U.S. regional bank First Horizon, but also because TD holds a 12 per cent stake in The Charles Schwab Corp., which has seen its stock price plunge.

National Bank of Canada analyst Gabriel Dechaine calculated that every ten per cent drop in Schwab’s stock translates to a $1.8 billion decline in the value of TD’s stake (or a stock price hit of about 1.5 per cent).

Since March 8, Schwab stock is down by more than 30 per cent while TD shares are off by nearly nine per cent.

Dechaine said that Schwab’s decline represented about half of TD’s share price drop and the reason it has fallen behind other banks.

“I would put nearly 100 per cent of the underperformance since March 8 to the Schwab situation,” he said.

Dechaine dismissed the argument that housing headwinds would be a logical reason to short TD, noting the bank’s exposure to housing and consumer credit quality was not disproportionately larger than its peers.

Schwartz said there’s another factor working against the shorts: TD’s dividend.

“It’s hard to short sell a stock that pays a dividend like that — that’s painful!” Schwartz said. “I don’t expect (TD) to be a story in the next few weeks.”

• Email: shughes@postmedia.com | Twitter: StephHughes95