Bank Insider Sales Setting Records

In what may be a sign of skepticism about the prices bank stocks have reached, insider sales have been running at a record-setting pace.

Insider selling typically surges in the first quarter as bankers cash in stock options to sidestep hefty yearend capital gains taxes.

But in the financial industry, according to Market Profile Theorems, insider selling unrelated to options surged a whopping 10% over the year- earlier level in the 100 days since Nov. 20. In fact, most non-option insider trades in the period-51%-were sales.

"This is an inordinate climb, relative to history," said Michael Painchaud, director of research at the Seattle-based research firm. "There has been more willingness to sell stock in the financial industry than ever before." He noted that 77% of the companies in his financial group are banks.

Before 1995, bank insiders aggressively bought shares. When bank stocks appreciated, a drop-off occurred, said David Coleman, editor of Vickers Weekly Insider Report, a newsletter.

"This means that shares are fairly valued, or that there are as-good-or- better investments elsewhere," Mr. Coleman said. "The most important signal is a change from the historical profile."

Some bank analysts said the selling is not necessarily a bearish sign.

Marc Paley, head of equity capital markets at Lehman Brothers, linked the selling in part to the tremendous performance of finance stocks.

"Its hard to see this as an ominous sign about the market," Mr. Paley said. "The market been very strong, the financials have performed extremely well, so individuals want monetize that."

Analyst Michael Mayo of Credit Suisse First Boston maintained that "insider selling is not necessarily inconsistent with a bullish view of the industry relative to other industries.

"To the extent that investors want to outperform the market as a whole, banks are the place to be. But those who look at banks on an absolute basis may not want to hold on to their shares," Mr. Mayo explained.

"It seems the banks themselves believe their valuations relative to the market are unusually low, given the fundamentals," he said. "At the same time, they're concerned about the market levels overall."

Mr. Coleman stressed that investors must look at the selling on a "case- by-case basis."

But Mr. Painchaud expressed concern about his findings.

"Such a dramatic jump from last year is not a positive for the industry," Mr. Painchaud said. "When people stop buying, it may reflect uncertainty about valuations and prospects for the industry."

Mr. Painchaud added that the selloff appears to reflect a change in attitudes as banks grow larger.

"Holding stock in one's own institution has become less of a priority than ever before," Mr. Painchaud said. "As community banks become less locally biased and the regionals become more like money-centers, insiders are losing some of the political drive to purchase stock as a way of showing commitment to the institution."

Insider selling has been concentrated in the money-center banks, whose stocks have undergone the steepest climbs.

According to Vickers, insider trading of Chase Manhattan Corp. stock was only slightly bearish in October. But a dramatic pickup in sales as documented in February filings with the SEC brought Chase's ranking on Vickers' scale to a very bearish level.

Vickers rates insider trades on signals such as the number and value of shares traded, percentage change in the insider's position, and the trend among insiders.

Citicorp insider trading has swung dramatically on Vickers' scale, from very bearish in October to neutral in November. The rating is now bearish again, but less so than in October.

Also, the number of insider trades by directors and executives of financial companies that Market Profile Theorems follows has fallen, to 706 in the latest 100-day period from 1,200 a year earlier.

"Those who would sell due to interest rate, credit quality, or acquisition concerns have had plenty of opportunity to sell," Mr. Mayo said. "The more nervous money has left the group, and the long-term holders are left."

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