Many stocks of smaller banks, beset with lower trading volume, are at the mercy of market demand for liquid stocks.
Take Chittenden Corp., a $4.1 billion-asset bank holding company in Burlington, Vt. Its stock was trading at $27.6875 on Aug. 10, and surged more than 9.3%, to $30.375, by Aug 20. The rise outpaced the Nasdaq bank index, which rose only 2.1% over the same period.
For better or worse, none of the rise was a result of any change of course in the company's fundamentals, according to Gerard Cassidy, an analyst who covers the bank for Tucker Cleary Anthony Gull in Portland, Maine. Behind the surge was an institutional buyer that bought the stock.
But only 10 days later Chittenden's stock began falling, and by Aug. 30 it had dropped 10%, while the index fell only 3.2%.
The upshot: Chittenden, with a market capital of $763 million, like many other small-cap bank stocks, suffers from lack of liquidity. Compared with supertanker-like $690 billion-asset Citigroup Inc. and $357 billion-asset Chase Manhattan Corp., banks like Chittenden are mere rubber dinghies prone to get tossed around when the seas swell.
Chittenden's has 28 million shares outstanding with an average daily trading volume of 46,179 over the last six months. That compares with Citigroup's 3.4 billion shares and average daily volume of 10.8 million shares, and Chase's 832 million shares and volume of 3.2 million. The end result is that selling a few thousand shares of Citigroup or Chase has little influence on the price, while a similar sale of Chittenden could cause the stock to plunge.
Except for the August interlude, Chittenden's stock has languished since it announced in December it would buy Vermont Financial Services. Then, the stock was trading in the $32 range.
Mr. Cassidy said the stock's future will depend on how well Chittenden swallows Vermont Financial. To Mr. Cassidy, that means 2000 earnings of $2.65, well above 1999's $1.90.
On Tuesday, Chittenden performed slightly below the bank stock indexes. It closed down 6.25 cents, or 0.2%, at $27.125. The Standard & Poor's bank stock index rose 2.78 points, to 622.59, with much of the gain coming in late-day trading. The Dow Jones industrial average finished down 84.85 points, or 0.8%, at 10,829.28.
Among the large-capitalization stocks, Bank of America Corp. rose 43.75 cents, or 0.7%, to $60.50, and Chase Manhattan Bank rose $2.25, or 2.7%, to $83.6875. Shares of Bank One Corp., still smarting from last week's earnings estimate revision, fell 87.5 cents, or 2.1%, to $40.125. Stock of Greenpoint Financial Corp. fell $1.75, or 6.3%, to $25.875.