‘The big mall short’: Icahn scores $1.8b betting against shopping centers

Star investor and corporate raider Carl Icahn’s bet on the downfall of brick-and-mortar retailers produced a $US1.3 billion ($1.82 billion) gain during the first half of the year as they struggled in the coronavirus pandemic.

The profit came from a short position on [bet against] commercial mortgage-backed securities, Icahn Enterprises said on Monday in a regulatory filing. Icahn’s publicly traded holding company has committed capital to his proprietary investment funds and thus reports on their returns quarterly.

Carl Icahn made a profitable bet against brick-and-mortar retailers.

Icahn, 84, began making the bet, frequently called the “mall short,” in mid-2019 by purchasing credit default insurance using CMBX 6, an index highly exposed to shopping mall loans. The likelihood of bad loans and credit defaults soared in March as the COVID-19 pandemic led to store closures and prompted more consumers to shop online, accelerating a trend already well underway.

A representative for Icahn Enterprises declined to comment on the counter-investment.

Icahn has shied away from specifying the exact size of the bet against shopping centres, though he told Bloomberg in April, “we have billions and billions on the short side of this.”

Short selling is betting against a security by borrowing it and selling it on the open market with the aim of buying it back later at a lower price to pocket a profit.

As of July 3, traders had wagered a net $US8.3 billion on the BBB- slice of CMBX 6 and an additional $US2.2 billion on the junk-rated portion of the index, according to the International Swaps & Derivatives Association. ‘BBB-‘ and ‘junk’ refer to the credit ratings of the loans tracked by the index.

Icahn’s investment unit generated an 11.7 per cent profit during the June quarter and a loss of 7.9 per cent in the first six months of the year, according to the filing.

Icahn’s high-profile six-year bet on Hertz Global Holdings came to an end with a loss of almost $US1.6 billion when the rental-car company filed for bankruptcy protection in May.

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