Merger Rumors Stir Up Shawmut, Bank of Boston
Shares of Bank of Boston Corp. and Shawmut National Corp. edged up Friday in extremely heavy trading amid renewed speculation that the two banks would merge or find other solutions to their onerous loan problems.
Bank of Boston shares closed up 12.5 cents, to $10.125, on volume of 2.7 million shares. Shawmut's stock was up 50 cents, to $7.75, with 1.7 million shares changing hands. Both stocks ended the week sharply higher, partly because of better-than-expected earnings reports from New England banks.
Analysts said that CNBC business news might have sparked some of the activity on Friday morning by reporting on speculation about a merger between the two Boston-area banks.
The station also reported rumors that Bank of New York Corp. was going to buy a stake in Shawmut, according to an analyst who watched the newscast.
Both banks refused to comment on the speculation. However, that didn't stop the rumor mill, which churned out everything from a Bank of Boston-Shawmut merger to a Bank-America takeover of both banks. There were also rumors about Shawmut raising money for a capital infusion.
In addition, word had it that senior Shawmut executives had rushed back from vacation and would work through the weekend. The bank flatly denied that vacationing executives were summoned, and insisted that if any were working through the weekend it was not unusual.
Meanwhile, improved fundamental have also drawn investors' attention. On Thursday, Bank of Boston reported strong second-quarter results. Shawmut announced encouraging results two weeks ago.
The purchase of stock to cover short positions was another factor, analysts said. Fueling that was a C.J. Lawrence Inc. facsimile report to customers Friday morning telling them to cover short positions in the two banks.
"The theory behind it," said Michael Plodwick, an analyst for C.J. Lawrence, "was that with both banks' nonperformers appearing to be peaking, the likelihood that they would engage in merger talks has increased."
The latest figures from the New York Stock Exchange show that short positions in Bank of Boston amounted to 6.969 million shares, while short positions in Shawmut were at 2.1 million.
None of the rumors could be confirmed. The prospect of a merger between Bank of Boston and Shawmut has been the source of market discussion for months since it was reported that the two banks had held preliminary talks. The prospect of Bank of New York buying a stake in Shawmut is new, however.
Bank of New York has said it is becoming interested again in acquisitions and has shown interest in New England banking. It had a merger agreement with Northeast Bancorp in New Haven, Conn., but backed out of it last year.