CHICAGO -- Struggling Lincoln Financial Corp. has put itself up for sale, but analysts say that finding an acquirer hinges on the outcome of an ongoing federal examination.

Meanwhile, investors have bid the price of the stock up by 40% in one week, to $24 a share on Friday, when volume was so strong that trading on Nasdaq was halted briefly. On Thursday, the closing price was $21.

Based in Fort Wayne, Ind., the $2.4 billion-asset company has hired investment banking giant Goldman Sachs & Co. to "explore strategic options," which may include a sale to another bank, according to Lincoln.

Considered Affordable

Because its stock price lags behind the market, Lincoln remains the most affordable takeover candidate in northeastern Indiana, a region that has not yet been tapped by any big midwest banking company.

Despite the sharp run-up, Lincoln's stock is trading only about 5% above book value. The stock of rival Fort Wayne National Corp., meanwhile, is trading at a 40% premium and the stock of rival Summcorp is trading at a 35% premium.

The office of the Comptroller of the Currency began a regularly scheduled audit of Lincoln two weeks ago.

Spokeswoman JoAnn Irving said the company would have no comment at least until after a Dec. 17 board meeting. The board also is expected to decide at that meeting whether to pay a fourth-quarter dividend.

$9 Million in Losses

The decision to seek a buyer follows a tough nine months in which Lincoln Lost $9 million and saw problem assets leap by 160%, to $48.7 million, or 3.04% of gross loans.

The bank deferred declaring a dividend in late November, pending the results of the OCC exam.

The OCC is expected to complete its audit by yearend, and analysts say Lincoln needs a clean report card to convince potential buyers that its asset quality problems are over.

"I'm interested to see whether Lincoln is going to have to add to the reserves as a result of this exam," said Joseph Duwan, an analyst who follows the company for Keefe, Bruyette & Woods Inc. in New York.

Worst May Be Over

Some stock watchers are already persuaded that Lincoln has its problems under control. Though severe, the company's $17 million provision during the third qurter left it with a credible $41 million of loss reserves, equaling 95% of problem loans.

"I think we've seen the worst," said John Snow, a Chicago Corp. analyst. "The second and third quarters were the bottom of the trough."

Should that prove the case, Lincoln apparently would provide a good entry vehicle into Indiana, said Keefe Bruyette's Mr. Duwan.

The Interested Parties

Asked which acquirers are interested in Lincoln, analysts ticked off most banks in the area, including Banc One Corp., Columbus, Ohio; National City Corp., Cleveland; NBD Ban-corp, Detroit; and Fifth Third Bank, Cincinnati.

Some analysts believe it is just a matter of time: "Ultimately, I think Lincoln will be acquired," said analyst Fred Cummings of McDonald & Co. "I don't view the institution as a longer-term player."

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.