Short interest in U.S. Bancorp soared again in the past month, as the company's pending merger with West One Bancorp continued to worry investors that the deal may be dilutive.

Since a few weeks prior to the May 8 merger announcement, short interest in the Portland, Ore.-based bank has rocketed a whopping 965%, from 664,000 shorted shares to 7.1 million.

Its short interest is currently more than twice that of any other bank on Nasdaq, and the eighth-largest short position of any company on that exchange.

While much of the short activity can certainly be laid to technical arbitrage, the sharp rise in short interest suggests that many investors feel U.S. Bancorp's rosy assessment of its merger with West One may not hold water.

"Clearly there is some uncertainty in investors minds that the West One acquisition will be accretive to the bottom line in the amount of time that the bank has dictated," said Scott Edgar of Sife Trust Fund.

"Basically there is some worry it will be more dilutive than people had anticipated," he said. "The short-sellers are trying to get ahead of that curve."

U.S. Bancorp agreed in May to pay $1.6 billion, or 2.01 times book value, for West One, which is based in Boise, Idaho.

While some Wall Street banking analysts applauded the deal for extending the Oregon bank's geographic reach, others were keenly disappointed with the high price, and the fact that U.S. Bancorp itself was not being sold.

Thomas K. Brown, a banking analyst with Donaldson, Lufkin & Jenrette Securities Corp., has been particularly vehement in objecting to the deal, saying it is too costly and risky. As a result, he gives the stock an "underperformer" rating.

Short interest in Nasdaq banks for the month ended Aug. 15 rose 3.4%, compared to a 1.9% rise for all Nasdaq companies, according to data from the National Association of Securities Dealers.

Besides having the largest short position among Nasdaq banks, U.S. Bancorp also had the largest unit increase of any bank traded on that exchange with 1.14 million new shares shorted, or a 19.1% month-to-month increase.

In short selling, investors borrow shares, sell them, and then buy them back for return to the lender. If the share price falls in the intervening time, the short player can pocket the profit between the sale and purchase price of the shares.

A large increase in short interest, which is the aggregate shares of a stock sold short, is customarily viewed as evidence that investors believe a company's stock price is set to decline.

In the wake of buyouts, acquirers are commonly shorted, while short interest in companies that are purchased, or are thought of as takeover candidates, usually decrease.

Thus, the banks with the largest declines in short interest were those rumored to be eyeing sales. They included: Bank South Corp., BayBanks Inc., CNB Bancshares, Marshall & Ilsley Corp., and Trust Company of New Jersey.

Also Friday, CS First Boston Corp. added three banks to its takeover list - Standard Federal Bank, Troy, Mich.; First of America Corp., Kalamazoo, Mich.; and Amcore Financial Inc., Rockford, Ill.

Standard Federal shares rose $1.625 to $37.75, a new 52-week high. First of America rose 87.5 cents to $42 and Amcore rose 62.5 cents to $20.125.

There were rumors in the market last week of a large merger brewing in Michigan, which might include Standard Federal. While CS First Boston did not cite those rumors, the firm said midwestern banking mergers should increase as pressure mounts on midsize institutions.

In that vein, Rodman & Renshaw Inc. upgraded MAF Bancorp, Clarendon Hills, Ill., to "buy" from "neutral." Shares of the company fell 25 cents to $23.25.

Rodman said that MAF is selling below its potential takeout price, and therefore offers an attractive risk/reward proposition.

Bank stocks in general performed well Friday, as bonds rallied modestly. The Standard & Poor's index of major banks rose 1.30%, while the overall S&P rose 0.23%.

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