By Eric Ryan
Frontier Financial (NASDAQ: FTBK) spiked 97% Monday to close at $5.88 on heavy volume of 11.23 million shares. Given the percentage move and volume that dwarfs its 50-day moving average of 227,000 shares, the news must be very good, indeed.
After searching the Net for some cheery news to report, nothing but dumbfounded posts and quotes could be found instead. Immediately, the smell of pump-and-dump or rumored takeover chatter on the message boards would be evident. Nope. No one had a reasonable idea.
After reading a quote from Sara Hasan, analyst with McAdam Wright Ragan of Seattle, that she noticed other regional and small banks moving higher on Monday, a look at the most advanced on Nasdaq on Monday revealed nearly all the big movers listed for the day were bank stocks, regional and small-cap ones. Frontier was by far the biggest mover. Hasan hasn’t a clue why the stock is so coveted all of a sudden.
�Frontier? I have no idea,� Hasan said. �I can�t figure out any reason that it has moved like this. I�ve noticed it in other community banks that are in trouble, but this one is the largest and the most dramatic.�
A call in to the chief executive officer, Pat Fahey, yielded nothing. Fahey is as perplexed as everyone else and said the NASDAQ called too.
Hasan figures the pop in the stock price might have been caused by a large entity scooping up regional stocks through a �program trade.� Program trades typically steamroll other smaller traders out of their positions, sometimes done legitimately from bad bets taken that need to be covered, and fast, or through a scheme to shake the tree for weak speculative hands.
In the case of Frontier, a lot of short sellers may have just been squeezed badly out of their trades by someone who really wants the shares, maybe squeezed worse than other community bank short sellers.
Don’t know. But a legitimate buyer of the stock is not likely considering the bank recently received notice by regulators that it must raise additional capital by April 15, which the bank has failed to do. To make matters more grim, the bank is the defendant in six lawsuits for allegedly �issuing materially false and misleading statements,� in violation of SEC rules.
Bank analyst Kevin Reynolds of Wunderlich Securities proposes the idea that sentiment on the Street has turned sharply positive on the outlook of the economy, and therefore, the banking crisis is mostly over and only a few banks will actually fail from here. If this rosy outcome comes to pass, lots of banks on the brink look dirt cheap, priced just above zero from the lottery-ticket crowd.
“When you are priced as if you could go to zero on any Friday, it’s a pretty eye-popping percentage gain off of such a low base,” Reynolds says. “When you fail, you are a zero. With hundreds of bank failures coming, survivability is a real question for some of these companies with severe credit issues. I would simply say that people are pricing in a higher probability of survival.”
Reynolds may be correct. But he may also be breading in captivity and can’t be trusted for a candid assessment.
But this skeptic, unencumbered by tradition nor mouths to feed,
would like to offer another possibility. We know that Citigroup and the group of banking and broker-dealer fraudsters have survived through the kindness of an unwilling American public. Why should this massive scandalous bailout of the likes never seen before be limited to the big money-center banks?
There’s a Working Group on Financial Markets in operation ready for action, or more accurately, ready for a rest. Days when bad news turned the Dow up 50 or 100 points in any given day were plenty since March 2009, and commentary from writers stupefied by the market’s upbeat reaction to bad news soon followed.
Robert Heller, former member of the Federal Reserve Board, said in a piece in the Wall Street Journal, “Instead of flooding the entire economy with liquidity, and thereby increasing the danger of inflation, the Fed could support the stock market directly by buying market averages in the futures market, thereby stabilizing the market as a whole.”
The Fed could buy stock directly, too. These con artists have broken every law in the book. Why would the Fed fight Congressional legislation to open its books to the public? If Bernanke can get away with unlawful currency swaps worth more than a half a trillion dollars to foreign central banks in one shot and claim to a U.S. Congressman under oath that these banks needed this crazy amount of dollars all at once, then buying a regional bank or two is mere pocket change.
Of course if you work for a mainstream firm, intervention by the invisible hand of Uncle Sam is only a preposterous conspiracy theory forwarded by bi-polar patients. But we’re told to believe, instead, that in today’s command-control economy Mr. Market is guided solely by the Invisible Hand, as Adam Smith theorized, and that the market must be �telling us something.� Econ 101 was interesting, but the real world is the real thing, with real bandits in both the private and public sectors playing �one for you and ten for me� in the backroom, then testifying before Congress that leading up to the collapse they were only �doing God’s work� and were sorry ’bout that trillion or two lost in the holy exercise.
This conspiracy theory may indeed be conspiracy fact. Don’t know
yet, but it is as good a theory as the others.
�It may be a program trade just taking a position in a lot of community banks,� said Hasan. �We�ve seen funny moves like this in other bank stocks. I really can�t figure out who�s making money.
People get excited, and it�s just kind of weird.�
Yeah, it’s kinda weird.
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