Shorting of U.S. Bancorp Soared in Wake of Deal to Buy West One

By Matthews, Gordon | American Banker, May 26, 1995 | Go to article overview

Shorting of U.S. Bancorp Soared in Wake of Deal to Buy West One


Matthews, Gordon, American Banker


Short interest in shares of U.S. Bancorp. shot up 137% in the month ended May 15, after its agreement to buy West One Bancorp.

The gain in short interest probably reflects acquisition-related arbitrage activity, but the deal has also come under heavy fire from analyst Thomas K. Brown of Donaldson Lufkin & Jenrette Securities Corp.

Shorting a stock involves selling borrowed shares on the prospect the shares can later be replaced profitably with cheaper ones. The aggregate shares of a company sold short is its short interest.

Beyond hedging and arbitrage, short selling is customarily based on a negative view of a company and its stock.

Mr. Brown does not represent short sellers, but he has cut his investment rating on U.S. Bancorp to "underperform" from "market performer."

He feels the company, whose management he otherwise admires, based its deal for West One on an rosy scenario and is paying too high a price at $1.6 billion, or twice the Idaho bank's book value.

"There's very little upside potential in this deal," Mr. Brown said. "If everything goes according to management projections, which I don't think it will, the deal adds about a nickel (per share) to 1997 earnings."

"Given the risks being assumed, I just don't think that makes sense for the shareholders," said the analyst, who "feels strongly" that West One's current high level of profitability is unsustainable.

"Their (loan loss) provision is not going to stay down where it is, and their margin, like most other banks, will be coming under pressure from here on," he said.

Total short sales in U.S. Bancorp., headquartered in Portland, Ore., rose to 1.57 million shares. It was the largest jump among Nasdaq-traded bank stocks, according to data from the National Association of Securities Dealers. (See tables above and on page 22)

Short activity in West One, based in Boise, Idaho, fell 11.2% to 1.93 million shares. But it has the largest short position among Nasdaq banks because of ongoing hedging activity related to its $50 million of 7.75% convertible notes.

Meanwhile, short interest in First Security Corp. stock declined 91.8%, in another reflection of the impact of the West One sale. Investors now expect the stock of the Salt Lake City-based company will rise now that it is the only major target left in the region.

Overall, short interest in major Nasdaq bank stocks rose 5% from mid April to mid-May.

***

Bank of New York Co. shares were downgraded to "neutral" from "buy" Thursday by Lawrence W. Cohn of PaineWebber Inc., based on their recent rise in value.

"Our price target has been mid-40s and at $41 they've come within 10% of it," said Mr. Cohn. The stock has been strong in the wake of the bank's deal to buy the global custody business of J.P. Morgan & Co.

"Bank of New York continues to have excellent fundamentals, and the Morgan deal is going to add to earnings," he said. "But you have to ask how much it is worth. We figure $45 a share."

The move leaves Mr. Cohn, currently a skeptic about prospects for bank stocks, with only three "buy" recommendations: Morgan, Bankers Trust New York Corp. and Bank of Boston Corp.

Of the recent rally in banks, he said: "There's no question the group has benefited from the performance of the bond market, which is strong because the economy is slowing.

"Our genuine conviction is that at some point the market will decide a slowing economy may be good for the banks' (net interest) margins, but it could be bad for their asset quality. …

The rest of this article is only available to active members of Questia

Sign up now for a free, 1-day trial and receive full access to:

  • Questia's entire collection
  • Automatic bibliography creation
  • More helpful research tools like notes, citations, and highlights
  • Ad-free environment

Already a member? Log in now.

Notes for this article

Add a new note
If you are trying to select text to create highlights or citations, remember that you must now click or tap on the first word, and then click or tap on the last word.
One moment ...
Default project is now your active project.
Project items

Items saved from this article

This article has been saved
Highlights (0)
Some of your highlights are legacy items.

Highlights saved before July 30, 2012 will not be displayed on their respective source pages.

You can easily re-create the highlights by opening the book page or article, selecting the text, and clicking “Highlight.”

Citations (0)
Some of your citations are legacy items.

Any citation created before July 30, 2012 will labeled as a “Cited page.” New citations will be saved as cited passages, pages or articles.

We also added the ability to view new citations from your projects or the book or article where you created them.

Notes (0)
Bookmarks (0)

You have no saved items from this article

Project items include:
  • Saved book/article
  • Highlights
  • Quotes/citations
  • Notes
  • Bookmarks
Notes
Cite this article

Cited article

Style
Citations are available only to our active members.
Sign up now to cite pages or passages in MLA, APA and Chicago citation styles.

(Einhorn, 1992, p. 25)

(Einhorn 25)

1

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Cited article

Shorting of U.S. Bancorp Soared in Wake of Deal to Buy West One
Settings

Settings

Typeface
Text size Smaller Larger Reset View mode
Search within

Search within this article

Look up

Look up a word

  • Dictionary
  • Thesaurus
Please submit a word or phrase above.
Print this page

Print this page

Why can't I print more than one page at a time?

Full screen

matching results for page

Cited passage

Style
Citations are available only to our active members.
Sign up now to cite pages or passages in MLA, APA and Chicago citation styles.

"Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn, 1992, p. 25).

"Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn 25)

"Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences."1

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Cited passage

Thanks for trying Questia!

Please continue trying out our research tools, but please note, full functionality is available only to our active members.

Your work will be lost once you leave this Web page.

For full access in an ad-free environment, sign up now for a FREE, 1-day trial.

Already a member? Log in now.