Friday, August 17, 2007

A Bank Stock Goes Up These Days?

The Wall Street Journal Deal Journal blog (here) raises a question about trading in First Charter stock before the announcement that it would be bought out by Fifth Third Bank.  While financial stocks have been pummeled the past few weeks as the meltdown in the subprime market is causing significant problems throughout the credit markets, especially for banks with mortgage operations, First Charter's stock increased 13% since the beginning of August.  The deal for First Charter is at $31 per share, more than a 50% premium to the previous closing price of $20.25 per share -- you don't think Fifth Third may have overpaid a little bit, do you?  Trading in First Charter shares was higher than usual in August, although that could be ascribed to the generally higher volume in the whole market due to the recent volatility, but then, some of the buying that increased the price could be due to information seeping into the market.  I was not able to locate a listing for call options on the company's shares, so buying the stock may have been the only way to bet on an increase in its price if someone had inside information about the buyout.  A premium that fat is awfully tempting to trade on, especially when so many stocks are down over the past few weeks, so the SEC will probably take a look. (ph)

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