Buyback Ploy Puts Banc One Shares Atop Short-Sell List

An unusual strategy used by Banc One Corp. in its share buyback program has pushed short interest in the Columbus, Ohio, holding company's stock dramatically higher.

Short interest in Banc One rose 354% to 19,730,698 in the one-month period ending March 15, according to the New York Stock Exchange.

The surge in Banc One's short interest was the biggest among stocks traded on the New York or American Stock Exchanges and made its short position the largest among industry stocks. (see tables on page 31).

Short interest is the outstanding volume of shares sold short - that is, borrowed and promptly sold. Usually, short-sellers are betting that the stock price will fall, so their short positions can be covered profitably with cheaper shares.

But the rise in Banc One's short interest is an example of the increasingly prevalent use of short-selling for sophisticated capital management strategies.

"It was an artificial short-sell created to allow Banc One to do their share repurchase in one transaction,"said Anthony Davis, analyst at Dean Witter Reynolds.

To pay a 10% stock dividend in March of this year, the company used 24 million shares it already held and 15 million shares acquired through the stock buyback. Banc One bought back the shares from a third-party that apparently had borrowed them, creating the short interest position.

Banc One "helped initiate the position as a means to facilitate their share buyback," said Michael Mayo, an analyst at Lehman Brothers.

The strategy has allowed Banc One to buy back stock "in a more timely fashion, as opposed to buying it in an open market." said John Russell, a spokesman for the bank. "When we bought 20 million shares (for the 1995 acquisition of Premier Bancorp), it took all year."

Analysts said the investment strategy is a relatively new one.

"It's the first time I've seen it," said Nancy Bush of Brown Brothers Harriman & Co. She said it is possible the technique has been used before, but added, "it is certainly eye-catching."

Short interest in bank related stocks rose a modest 1% in the one-month period, to 155.82 million shares. Short interest in all stocks traded on the New York exchange rose 1.6%. Short interest in stocks traded on the Amex rose 4.6%.

Some short-sellers have built positions in the stock of large superregional banks in response to an interest rate rise in early March, said Anthony Polini, an analyst at Advest Group. "I think it's investors' way of hedging their bets. They see the interest rate go up and it looks like a negative."

National City Corp., which had the second-biggest short interest among banks traded on the New York or American Stock exchanges - 12,147,864 shares - followed by Chemical Banking Corp., with 11,998,694 shares sold short.

Assuming normal trading volume, it would take 43 days to cover the short position in the Cleveland bank - the largest days-to-cover ratio among banking companies.

Financial companies with the largest percentage decreases in short position included Dean Witter, Discover & Co., off 56.3% to 300,416 shares and Cincinnati's Star Banc Corp., off 42.9% to 123,234 shares.

The short position in Citicorp declined by 2.3 million shares, to 4.3 million.

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