Insiders' Buying by Banks, Insurers Rises to Highest Since 1995
By Daniel Hauck and Michael Patterson
Aug. 27 (Bloomberg) -- Not since 1995 have so many chief executive officers of so many financial firms and their insiders bought so many shares in their companies as in August, when the market swooned.
Stock purchases by executives at banks, consumer lenders and insurers in the Standard & Poor's 500 Index climbed this month to the highest in 12 years, data compiled by Bloomberg show. That's the strongest ``buy'' signal, according to analysts at Muzea Insider Consulting Services LLC and InsiderScore.com, which work for hedge funds tracking executive trading patterns.
Wachovia Corp., American Express Co., CIT Group Inc. and American Capital Strategies Ltd.'s CEOs or directors added to their holdings as the rising cost of credit spurred by mortgage defaults sent the S&P 500 Financials Index to a 13-month low on Aug. 15. Insiders at companies in the index have bought $26.9 million of stock so far in August.
``That is a good sign that people closest to the business have confidence in it and invest in it,'' said Kevin Cronin, who oversees $187 billion as head of investments at Putnam Investments LLC in Boston. ``It's just indicative of how overly discounted the value of some of these financial stocks has become.''
Putnam increased positions in banks and insurance companies over the past month as the shares declined.
SEC Filings
U.S. laws require company executives and directors to disclose stock purchases and sales within two business days in filings with the Securities and Exchange Commission, providing investors with clues about company prospects. Bloomberg compiled the monthly insider trading figures using data on open market purchases from the Washington Service, a research firm.
The increase came as the S&P 500's biggest drop in four years wiped out $1.41 trillion in market value between July 19 and Aug. 15.
``You've got very negative sentiment, the public is frightened, a lot of hedge funds have sold out, and now there's insider buying,'' said George Muzea, founder and president of Reno, Nevada-based Muzea Insider Consulting. ``If you can't make money at this point in time, you can't make money.''
Muzea charges as much as $500,000 a year for his service and wrote a book on insider buying and selling called ``The Vital Few Vs. the Trivial Many: Invest With the Insiders, Not the Masses.''
Stanley Druckenmiller, the founder of Duquesne Capital Management LLC and a former chief strategist at George Soros's Soros Fund Management, is one of his clients.
`Extraordinary'
The seven days ended Aug. 14 had the ``most bullish insider sentiment we've ever seen in the financial space,'' said Ben Silverman, director of research at InsiderScore.com, which advises more than 350 institutional investors.
The Princeton, New Jersey-based firm uses a scoring system that weighs the importance of insider trades according to criteria such as the seniority of officials, the size of a transaction and how much it affects total holdings. Individual buyers outnumbered sellers in the week ended Aug. 21 by 208, the most since InsiderScore.com began tracking the data in 2003.
``This is an extraordinary amount of activity,'' said Silverman. He cited Charlotte, North Carolina-based Wachovia, ``a name that historically does not see a lot of insider buying,'' and American Express as firms whose executive share purchases signal buying opportunities.
Ernest S. Rady, a director at Wachovia, bought a combined 95,000 shares in the company for $4.42 million on Aug. 2 and 3. Wachovia, the fourth-largest U.S. bank, rebounded 10 percent since Aug. 3, after its shares had tumbled 15 percent in the previous three weeks.
Rady declined to comment through Wachovia spokeswoman Christy Phillips-Brown.
American Express
American Express directors Jan Leschly and Robert Walter snapped up shares of the third-largest U.S. credit-card network this month. Leschly, who is also CEO of Princeton, New Jersey- based private equity fund Care Capital LLC, purchased 32,000 shares of American Express for $1.99 million on Aug. 8. He was traveling abroad and couldn't be reached for comment.
Walter, the founder of Dublin, Ohio-based drug distributor Cardinal Health Inc., bought 30,000 shares for $1.87 million on Aug. 8. New York-based American Express lost 13 percent from July 19 through Aug. 15. Since then, the stock climbed 7.3 percent.
Walter's assistant said he was traveling and couldn't be reached for comment.
CIT, American Capital
Insiders at other consumer-finance companies are also stepping in to buy. CIT Group CEO Jeffrey Peek purchased 14,300 shares Aug. 8, betting that the stock of the biggest independent U.S. commercial finance company would recover from an almost 40 percent loss. He added another 10,000 shares last week.
Curt Ritter, a spokesman for New York-based CIT, said Peek's purchase ``reflects his confidence in the company and its employees and his belief that the stock is now undervalued.''
Peek's counterpart at American Capital Strategies, Malon Wilkus, also made multiple purchases this month after shares of his investment firm fell 21 percent from July 6 through Aug. 1. He bought 53,000 shares of the Bethesda, Maryland-based company on Aug. 2 and 13,850 on Aug. 16.
``It's a great time to buy American Capital,'' Wilkus said in an interview from Bethesda. ``The price is outstanding and the opportunities couldn't be better.''
Conspicuous in their absence from lists of insider buying in August are executives at Wall Street's five biggest securities firms -- New York-based Goldman Sachs Group Inc., Morgan Stanley, Merrill Lynch & Co., Lehman Brothers Holdings Inc. and Bear Stearns Cos.
Investment Banks
Officers at Goldman, the firm led by CEO Lloyd Blankfein that this month injected about $2 billion to help shore up one of its hedge funds, haven't bought shares in the company since January, according to data compiled by Bloomberg. Goldman's stock has dropped 23 percent from a record in June.
Goldman spokesman Ed Canaday declined to comment.
Bear Stearns executives including CEO James Cayne have refrained from buying since March, excluding a purchase of 2 shares by board member Frederic V. Salerno on July 27. Bear Stearns has tumbled 28 percent this year after wrong-way bets in bonds tied to residential mortgages forced two of its hedge funds into bankruptcy. The Amex Securities Broker/Dealer Index has dropped 6.1 percent this year.
Bear Stearns spokesman Russell Sherman said the firm wouldn't comment on stock purchases by officers.
``It may be still too early to step back in,'' said Russ Koesterich, a San Francisco-based portfolio manager at Barclays Global Investors, which manages about $2 trillion. ``Until we start to see some evidence that there's no more toxic debt on those books, you probably want to be cautious.''
Market Turmoil
Brian Barish, whose Cambiar Opportunity Fund has outperformed the S&P 500 for eight years, agrees that shares of some securities firms may continue to slide as market turmoil hurts earnings from trading and debt underwriting.
``It wouldn't be my first place to go bargain hunting right now,'' said Barish, who oversees $10 billion at Cambiar Investors LLC in Denver. He's buying insurance companies such as Northbrook, Illinois-based Allstate Corp. that have been dragged down by the slump in financial shares.
Insider purchases at Allstate, the largest publicly traded U.S. home and auto insurer, totaled $535,698 this month.
At Newark, New Jersey-based Prudential Financial Inc., the second-largest U.S. life insurer, Chief Financial Officer Richard Carbone bought 10,000 shares for $866,447 this month. Carbone declined to comment through a spokesman.
`Good News'
The last time insiders bought more shares of financial companies was in October 1995, when they purchased $37.2 million, Bloomberg data show. That was three months after the Federal Reserve cut its benchmark interest rate to 5.75 percent from a four-year high of 6 percent. The central bank lowered borrowing costs again in December 1995 and January 1996, helping to spur a six-year rally in financial shares.
``You only buy if you think you've got some good news in front of you,'' said Robert Doll, who oversees $1.2 trillion as chief investment officer of global equities at BlackRock Inc. in Plainsboro, New Jersey. ``The financial industry is saying, `My goodness, the prospects we have over the next period are a lot better than this devastation to our share prices, so let's go out and buy some.' That's a good sign for the financials.'' |
