Taylor Wimpey shares surge by 73%

Taylor Wimpey’s shares surged by 73% yesterday… though they are still only worth a lowly 10p.

However TW’s shareholders have had a tough time over the past 12 months and any good news is long overdue.

Today’s Financial Times says that the optimism was the result of continued speculation of a sweetened debt-for-equity swap which “encouraged short covering”.

Bears, those punters who believe that prices will go down in the future, had been shorting TW’s shares – i.e. borrowing shares from existing institutional shareholders and paying a small fee for the privilege, then selling them immediately in order to buy them back later at a lower price. The move amounts to a gamble but when it comes off the share price fall leaves a tidy profit.

Only this time it didn’t.

The increasingly likelihood of a debt-for-equity swap which would see banks take a 25% stake in TW, has suddenly lifted the gloom over the house builder’s future, leaving bears with a slight headache.

They faced handing the ownership of shares back to the original institutional shareholders who had collaborated in the short-selling manoeuvre when the share price was already on the up.

Their move couldn’t be delayed so they added to a brief “bull” market for TW’s shares.

The FT added: “Taylor Wimpey could also have been helped by the clearing of a stock overhand. Axa, previously its biggest shareholder, revealed that it had sold the majority of its stake on Tuesday, which had helped push the shares to a record low of 4¾p.”

Other house builders rallied:

• +11% Barratt
• +3.4% Bovis Homes
• +3.1% Bellway