By Kate Kelly | 1 September 2010
In a move that may reflect a growing unwillingness to tie their personal fortunes to those of their companies, insiders at the country's seven biggest banks this year have undertaken more than five times the number of stock sales of their corporate shares as they have purchases. Officers and directors of Goldman Sachs, J.P. Morgan, Citigroup, and Wells Fargo have sold about $100 million worth of stock so far this year, amid relatively small buying activity, according to public stock filings with the U.S. Securities and Exchange Commission that have been analyzed by the research firm InsiderScore. Year to date, Goldman [GS 147.48] insiders— a list including CEO Lloyd Blankfein, President Gary Cohn, and Chief Financial Officer David Viniar— have sold a combined $64 million worth of shares.
J.P. Morgan [JPM 38.9925] insiders, including treasury and securities services head Michael Cavanagh and vice chairman Steven Black, have sold about $16 million.? Citi [C 3.855] executives, including institutional client group head John Havens and Asia Pacific region head Stephen Bird, have sold about $5 million. At Wells Fargo [WFC 25.1999], CEO John Stumpf recently sold nearly $6 million worth of shares, following wealth-management head David Carroll, who sold roughly $5 million in stock this past March.
Ben Silverman, research director at InsiderScore, said the recent swath of insider sales at banks signifies that "business is back to normal". After wild swings in valuation at the major Wall Street firms, "we've got a degree of stabilization at the banks," he said. Insiders may simply be looking for attractive prices at which to sell.
Another factor: the increasing degree to which annual bonuses are made up of stock or options rather than cash. Last year, about 70 percent of companies used stock options for compensation, up from 63 percent for the prior year, according to the management consulting firm the Hay Group. Banks say that a larger proportion of pay is now doled out in options as well— making recipients want to cash out at an earlier date than in past years.
For many on Wall Street, the pre-crisis buy-and-hold mentality may be changing, say bank employees and compensation trackers. Holding company stock was once a chance for great wealth creation, as well as a source of pride for bank employees. But after the bankruptcy of Lehman Brothers rendered its shares worthless and the fire sale of Bear Stearns dropped its stock to rock-bottom levels, more and more bank workers are reluctant to keep the company shares longer than they have to.
"There's an understanding of the risk that these companies entail now," said Silverman. Bank spokespeople noted that much of the activity was governed by strict timing parameters placed on insiders as well as personal financial decisions, rather than a lack of confidence in the company's stocks. The largest stock sales at Goldman were undertaken by Blankfein, Cohn, and Viniar, who sold about $14 million, $11 million, and $10 million worth of stock respectively. Under an agreement struck two years ago, none of those executives may sell more than 10 percent of their common-stock holdings until October 2011.
But senior executives in the firm's compliance area, including general counsel Esta Stecher, who sold about $9 million in stock, head of compliance Alan Cohen, who sold $1.5 million in stock, and chief accountant Sarah Smith, who sold a little more than $500,000 in stock, were also active sellers. Those officials are not bound by the October 2011 lockup. The activity was nothing unusual, said a firm spokesman.
Insiders at Goldman "are restricted by very narrow windows in which they can sell," he said. It "shouldn't be surprising" if they take advantage of them. Much of the activity, he added, "was exercising ten-year options" that expired late last year.
At JP Morgan, by far the largest seller was Black, who sold about $7 million in company stock in March, not long after he was named vice chairman. (Black had previously been co-head of the investment bank.) Cavanagh sold $1.5 million of stock and chief administrative officer Frank Bisignano sold a little more than $1 million of stock the following month.
A JP Morgan spokeswoman said that the stock sales by Black, Cavanaugh, and others this past spring marked what officials saw as "a first good window" in which to sell, and noted that there had been no further sales after April 15. At Citi this past April, Havens sold about $3 million worth of stock; about a month ago, Bird sold a little more than $1 million. CFO John Gerspach also sold about $300,000 worth of stock recently. All told, Citi insiders have offloaded about 1.2 million shares in the last four months— and bought none.
A company spokesman said that the rash of sales was motivated largely by "pent-up" selling activity that resulted from restrictions placed on the bank by the U.S. government as part of the TARP aid program, in which the bank was a major participant. Citi repaid its TARP loans late last year, but the government continues to hold a significant stake in the company. At Wells Fargo, Stumpf unloaded his $6 million in stock in late July and mid August. Those sales followed a $5 million sale in March by Carroll.
A Wells spokeswoman noted that Stumpf made his sales "for personal reasons related to a real estate transaction" and that he remains a "large Wells Fargo shareholder" whose "net worth remains primarily invested in the company." A spokeswoman for Carroll declined comment on his stock sale. In late July, U.S. Bancorp [USB 22.4381] CEO Richard Davis sold company stock valued at $8.4 million. The transaction was a sale of converted stock options set to expire at the end of this year, according to a filing.
The News Isn't All Bad
Corporate Insiders Are Betting This Is Just A Correction
By Mark Hulbert, Marketwatch | 1 September 2010
CHAPEL HILL, NC. (MarketWatch)— Cheer up, beleaguered stock market investors! Corporate insiders have cut back on the pace of their selling of shares of their companies' stock— and increased the pace of their buying. They, therefore, are betting the market will soon rally.
In fact, insiders' behavior at the end of August was more bullish than at any time since late March and early April of 2009, when the bull market was just three weeks old. Corporate insiders, of course, are a firm's officers, directors and largest shareholders. We are able to closely follow their behavior because the law requires them to more or less immediately report to the Securities and Exchange Commission whenever they buy or sell their companies' shares.
One company that gathers and analyzes the SEC data is Argus Research, whose findings are published in the Vickers Weekly Insider Report. Each week, Vickers calculates a ratio of the number of shares that insiders have sold over the previous week to the number that they have purchased. According to the last August issue of this service, published Monday afternoon, 31 August, insiders for the previous week sold 1.02 shares of their companies' stock for every one than they bought. The resultant sell-to-buy ratio of 1.02-to-1 is well below the long-term average of between 2 and 2.5-to-1— and solidly bullish.
In fact, Vickers notes, this latest week represents the third in a row in which the ratio has fallen. To put the reading into context, consider that the insiders' sell-to-buy ratio at the market's low in early July stood at 1.58-to-1. At the early June low, the ratio only got as low as 1.26-to-1. To find a sell-to-buy ratio that was any lower than 1.02-to-1, in fact, you have to go back to the week that ended April 3, 2009.
To be sure, you may object, even though the readings in early June and early July weren't as low as the most recent one, they nevertheless were bullish. And yet, the stock market since then hasn't exactly been very impressive on the upside. But don't be too quick to dismiss the message of the insiders.
After all, it's worth remembering that, though the stock market's performance has been disappointing recently, it nevertheless is higher now than it was at the market's lows in early June and early July. Furthermore, for a variety of reasons, including the desire to avoid regulatory or legal scrutiny for buying or selling immediately prior to good or bad news, insiders tend to act early. So, to at least that extent, the jury may still be out on their bullishness from earlier this summer.
Of course, the insiders aren't always right. They were spectacularly wrong during much of the bear market that began in 2007, for example. Still, over the last several decades, they have been right more often than they've been wrong.
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