Nasdaq is giving a number of struggling companies a little more breathing room, making it easier for stocks to stay on the exchange even after falling short of listing requirements.
A Nasdaq rule change quietly unveiled in October is giving many banks a chance to get an extra six months to comply. That change is good news for the dozens of small banks that have received delisting notices this year.
A listing on a public market often provides the visibility and liquidity needed to lure investors, making the added time critical, industry observers said.
"There is a perception that you get more coverage, you get better market treatment, and you may have more liquidity on a Nasdaq listing," said Ralph "Chip" MacDonald, a partner at the Jones Day law firm in Atlanta.
Some small banks are questioning whether such benefits outweigh the burdens of listing, and securities lawyers see the rule change as the latest example of Nasdaq trying to appeal to its customers by being more flexible.
In 2008, the exchange placed a moratorium on delistings and suspended its $1 minimum bid price requirement.
The latest change, which took effect Oct. 14, reduces the market value — to $1 million from up to $15 million — that a company must meet to qualify for an extension. Each delinquent company has an initial 180 days to comply, and they are eligible for a second 180-day grace period.
The new change only applies to Nasdaq's Capital Market, which has less-stringent listing requirements and is often reserved for smaller companies. The rule would make it easier for companies to move to Capital Market from Nasdaq's Global or Global Select Markets.
"It's very helpful to companies to have the option of being able to transfer down," said Jason Frankl, a managing director at FTI Consulting in Washington. "If they do that, they may pick up an extra six-month grace period."
Delistings often push a stock down as investors who may not understand the concept sell. The impact can be worse for a bank.
"Depositors can become nervous, and capital ratios can become more difficult to maintain," Frankl said. "That can be a significant concern for senior management."
First Mariner Bancorp in Baltimore, which is listed on the Nasdaq Global Market, said in a Nov. 15 filing with the Securities and Exchange Commission that it could move to the Capital Market if it does not regain compliance by Feb. 22. First Mariner is trying to raise capital, according to a company spokesman, who would not comment further.
Though Nasdaq did not say how many companies could benefit, the exchange said in its application that "many companies" fail to qualify for a second grace period.
"Eligibility for the second grace period is quite important as it allows more time to regain compliance," Nasdaq said. An extension "frees management to focus on running the company rather than remaining listed or addressing related investor concerns."
Sterling Financial Corp. in Spokane, Wash., and Cascade Bancorp in Bend, Ore., both of which faced delisting, recently announced plans for reverse stock splits after raising capital. A reverse stock split allows companies to raise the stock price by reducing shares outstanding.
Others have voluntarily delisted, including Liberty Bancorp in Liberty, Mo., Citizens First Bancorp in Port Huron, Mich., and 1st Pacific Bancorp in San Diego. One upside is lower fees, said Philip Smith, the president of Gerrish McCreary Smith, a financial consultancy in Memphis, Tenn.
"A lot of companies are simply looking at the listing requirements and weighing those against what the benefit of that is, and choosing to go the cost-savings route," Smith said. Companies can still list on the OTC Bulletin Board, or Pink Sheets, and some believe the perceived liquidity provided by Nasdaq is just that: perception.
It is still extremely difficult to attract capital, even for listed companies, and smaller banks would do just as well to look to shareholders and local investors for capital, said James Wheeler, a partner in the Morris, Manning & Martin law firm in Atlanta.
"I think if we look at the practical benefits to be had from being listed, many of those benefits have evaporated during the current economic crisis," Wheeler said.
