Choosing Liquidity Channels

By Sammon, Bill | Independent Banker, May 2006 | Go to article overview

Choosing Liquidity Channels


Sammon, Bill, Independent Banker


Weighing the pros and cons of various stock exchange options

Liquidity is an important part of shareholder value. It allows banks flexibility when dealing with their current shareholders, when trying to attract new investors, and when attempting to use their stock as a currency to help grow the organization through acquisitions. Consequently more than 1,400 bank and thrift holding companies trade on a public market and report to the Securities and Exchange Commission (SEC).

Reporting to the SEC adds transparency to core fundamentals and helps the investing public better understand a potential investment. Having a liquid stock can be beneficial to current shareholders as evidenced by a review of where bank stocks are trading today versus historical price-to-book and price-toearnings multiples (see Table 1).

While these are all benefits of being publicly traded, there are associated costs. Public banks not only have to worry about the fundamentals of their organization, they must concern themselves with investor relations on a day-to-day basis as well. Management teams at SEC reporting companies must also deal with Sarbanes-Oxley Act requirements, at significant time and expense. Management is also tasked with protecting the company's stock price, which often translates into countless hours on the road talking to institutional investors, making presentations at investor forums and cultivating relationships with broker/ dealers who will tell their story and potentially write research.

Choosing a Market

Most community banks that report to the SEC list their shares on either the American Stock Exchange or the NASDAQ as few have a large enough market capitalization to qualify for the New York Stock Exchange. The American Stock Exchange, which employs a specialist to keep orderly and efficient markets, currently has 31 community banks and thrifts that list their shares on the exchange. The specialist has the ability to act as both broker and dealer. This means he can match public orders or use his own account to ensure best execution.

The NASDAQ is the largest electronic exchange in the United States. Here, broker/dealers can meet to execute trades for their clients. On the NASDAQ, a market maker is the key player for ensuring liquidity. Market makers can use their own capital to keep orderly and efficient markets. It is that capital that allows a community bank's stock to trade without wild swings in price. The key for a community bank that has its shares traded on the NASDAQ is to find a market maker that will use its capital to keep these fair markets. In today's marketplace that may be easier said than done.

"I see less capital being committed to this sector today than even five years ago," says Greg Gersack, head of sales and trading for Howe Barnes Investments who makes market in more than 300 community bank stocks. "Changes in the trading rules and consolidation of regional brokers have led to shallower markets for these stocks." With this in mind, finding a market maker that will take a risk and make sure a community bank's story is being told is crucial in creating real liquidity for shareholders. …

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

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.
Buy instant access to cite pages or passages in MLA, APA and Chicago citation styles.

(Einhorn, 1992, p. 25)

(Einhorn 25)

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

Choosing Liquidity Channels
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?

Help
Full screen

matching results for page

    Questia reader help

    How to highlight and cite specific passages

    1. Click or tap the first word you want to select.
    2. Click or tap the last word you want to select, and you’ll see everything in between get selected.
    3. You’ll then get a menu of options like creating a highlight or a citation from that passage of text.

    OK, got it!

    Cited passage

    Style
    Citations are available only to our active members.
    Buy instant access 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.

    Buy instant access to save your work.

    Already a member? Log in now.

    Author Advanced search

    Oops!

    An unknown error has occurred. Please click the button below to reload the page. If the problem persists, please try again in a little while.