Short-selling of bank stocks has accelerated on Wall Street, apparently in tandem with banks' share repurchase programs and increased merger activity. As bank stocks reach ever-loftier heights, some traders may be hedging against a decline by taking short positions. But the 6.2% increase in banks' short interest from mid-June to mid- July, compared to a 0.6% decline on the New York Stock Exchange, was probably driven by repurchase programs, analysts said. "The top 50 banks are all buying back stock," said Thomas D. McCandless, a bank analyst at Natwest Securities. He noted that the majority of stock is repurchased in the first quarter of each year for the greatest impact on earnings per share but that buybacks can continue throughout the year. CoreStates Financial Corp., Philadelphia, currently offers an example of the link between short interest and share buybacks. According to Short Alert, a firm in Charlotte, N.C., that tracks short- selling, CoreStates recently ranked as the fifth most heavily shorted stock of all large capitalization companies in the market. NYSE data show that from June 13 to July 15 short interest in shares of CoreStates jumped by 3.7 million shares, or 92.8%, to a total short position of 7.7 million shares. CoreStates chief financial officer Albert W. Mandia chalked that up to a repurchase of 22 million shares, which had been nearly completed by the end of June. An additional six million-share buyback has been authorized for completion this year. To accelerate the program, said Mr. Mandia, CoreStates pays a fee to an investment bank, which borrows blocks of stock from investors and sells them to CoreStates. The investment bank then buys shares in the market to return to the original investors. If the shares have increased in value, CoreStates makes up the difference, thereby eliminating risk in the venture. This puts the bank's buyback program on a faster track, but the shares borrowed in the process show up as short sales. This method "has a more immediate impact on the earnings per share and limits the administrative aspect of the buyback program," said Mr. Mandia. But Gerard Cassidy, banking analyst at Tucker Anthony, said CoreStates may also be a target of short-sellers because it has disappointed shareholders since its merger last year with Meridian Bancorp. Classic short-sellers borrow shares and sell them-counting on replacing them at a profit with cheaper ones when the stock price falls. Of course, if the price goes up instead, squeezed short-sellers can face severe losses. In another variation of short-selling, arbitrageurs make money while mergers are pending by shorting shares of the buyer and going long on the seller. By doing so, they capitalize on the spread between the two stocks as they trade. Probably for this reason, Washington Mutual Inc., in the process of buying Great Western Financial Corp., had a 9.2 million short-interest position on July 15. Banc One has carried a large position in the wake of its acquisition of First USA Inc. Mr. Cassidy said CoreStates could be attractive to short-players because additional merger-related earnings disappointments could hurt its share price. However, the company is big enough to be unlikely as an acquisition target, so it cannot count on much "takeover premium" to help its stock price. Other analysts think CoreStates could be targeted by a large acquirer. Some candidates mentioned are Banc One Corp., National City Corp., Fleet Financial Group Inc., and NationsBank Corp. However, Mr. Mandia contended, "If you look at our market capitalization, there are not many banks out there that could afford us." And no merger is on the radar screen, he added. He said the company "lost some momentum through the merger with Meridian." But he said it is now ready to focus on shareholder value by "generating more revenue and becoming more profitable."

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