Members of the syndicate hired to distribute the stock for Signet Banking Corp.'s new credit card spinoff are complaining that lead underwriter and co-manager J.P. Morgan Securities Inc. has unfairly monopolized the 7.125 million shares and funneled most of them to its institutional clients. And because clients are being spooked by rising interest rates, these syndicate members say, the investors have been trading the stock in heavy volume, keeping a lid on the $16 initial public offering price introduced Wednesday.
Signet closed down $1.625 at $30.125, a year low, after falling $1.75 Wednesday. Capital One in two days has traded as low as $15.875, and as high as $16.25, where it closed.
A trader at one of the brokerage firms estimated that Morgan had funneled 5 million shares to institutional investors, or 70% of the shares. Most of these are clients only interested in flipping the shares for short-term profit, he added.
And the heavy volume of trading -- 2.8 million shares on the IPO date and 1.62 million yesterday -- indicates the institutional investors are nervous about Capital One shares, he said.
In a fair deal, at least half the shares would flow through the syndicate, he added, who would sell them to reliable, local investors.
Another source said that the Wall Street contingent of the 20-member syndicate, which includes CS First Boston and Donaldson, Lufkin & Jenrette, may be trying to embarrass Morgan in an attempt to discredit the bank's continuing efforts to become an underwriter.
Sources said Morgan had predicted an immediate $1 boost from the $16 IPO price, and that Capital One stock would be worth more than $20 in 12 months. Because 88.5% is still held by Signet shareholders, whose shares will convert to Capital One shares in 90 days, investors are also dumping Signet stock, the trader said.
J.P. Morgan said it could not legally respond.
Some of the syndicate members include Scott & Stringfellow, Wheat First Butcher Singer Inc., Davenport & Co. of Va. Inc. and Keefe, Bruyette & Woods Inc.