Why a surge of insider stock buying may not be so bullish

Used to be, when a company’s chief executive was buying the stock for his own account, investors considered that a sign that the shares were really cheap and were poised to rise.

But in this bear market, buying by CEOs and other insiders has become a contrarian indicator, according to some analysts who track insider activity.

From Bloomberg News:

General Electric Co. CEO Jeffrey Immelt and Citigroup Inc.’s Vikram Pandit are back to buying their own companies’ shares. That means there may be more stock declines to come.

Insider buying, a bullish signal for two decades, lost its prescience this year and now may be a harbinger of a retreat in shares because it signals overconfidence, according to Ben Silverman, director of research at InsiderScore.com, a stock tracking firm in Princeton, N.J.

"Everyone's drinking the Kool-Aid," said Michael Levine, a money manager at New York-based OppenheimerFunds Inc., which oversees $160 billion. "These guys know their companies better than the market, so they think they'll be right. But the economic slowdown has happened much more quickly and has been much deeper than people expected."

Insiders normally acquire much or most of their shares via options rather than open-market purchases, so insider stock sales in any given month (including sales of shares purchased by exercising options) normally swamp open-market purchases. When the latter begins to climb, it shows insiders believe they're getting a bargain at the market price.

The Bloomberg story notes that insiders boosted their share purchases in the last four months, buying $57 worth of stock for every $100 sold in October, from $21 bought for every $100 sold in June. The last time the amount of buying increased as much was in March, when executives bought $62 of shares for every $100 they sold.

The upshot is that insider buyers were too early in March, and they were too early again in recent months, as stocks have fallen off a cliff.

The story also notes that insiders at some financial companies, including Washington Mutual Inc. and Wachovia Corp., were big buyers in August 2007, during the first market swoon tied to the then-developing credit crisis.

Washington Mutual shares now are virtually worthless. Wachovia, which has agreed to sell itself to Wells Fargo & Co., is down 89% since August 2007.

From Bloomberg:

"Recent history isn’t on their [insiders’] side," said Silverman, whose firm tracks insider transactions for more than 325 institutional investors. "We saw in financials last year people fooled by their own imagination. Whether it was hubris or being too close, not being able to see the forest for the trees."

Photo: Citigroup Inc. CEO Vikram Pandit, who bought 750,000 shares of the company last week, paying an average of $9.25 each. Credit: Associated Press

Comments

[jospatrick]

"Washington Mutual shares now are virtually worthless...". Perhaps you've not looked at WaMu's preferred shares of late, most are above that of GM's and though the Co is in Chapter 11 ( just like the airlines), they could return and fly again, no?

[Michael Rozenfeld]

Washington Mutual Investors Have Initiated Actions for the Formation of Equity Committee

15.11.2008 21:57:55 WamuCoup has initiated the process for the formation of an equity committee with the US Court Trustee in regards to the Washington Mutual Bankruptcy

(live-PR.com) - For Immediate Release:

Houston,Tx- WamuCoup.com and WamuRape.org have initiated the process for the formation of an equity committee through the US Court Trustee's office regarding the Washington Mutual bankruptcy. An equity committee can be appointed by the court to preserve shareholder's rights. It is up to the trustee's office whether they recommend the formation of this committee. The timeframe involved is
several weeks. Below is a copy of the documentation that our organization has provided regarding the worth of Washington Mutual inc.

Here is a detailed explanation why the group of shareholders I am working with believe there is enough value left in the company for an equity committee to be formed. Before I begin my financial analysis, I would like to state a few facts about this voluntary Chapter 11 reorganization bankruptcy.

First, it is highly unusual as the
FDIC seizure of WAMU Bank is what caused this whole event to occur. Even the FDIC admits that the bank was solvent and well-capitalized up to the date of seizure. The second item I would like to mention is that there is legal precedent for successful legal recourse against the FDIC, specifically the lawsuit filed by First City Bancorpation of Texas in 1992, which contended the FDIC seizure to be hasty and unwarranted. In 1993 the court ruled in the banks favor, and returned the assets to the bank. Additionally, there are many indicators, widely discussed in the media, that indicate the seizure may not have been justified, and also indicate there may have been actions on the part of JPMorgan to actually cause the failure of the bank. We are hopeful the legal representative of WMI will pursue this. Finally, we feel our shares should not be canceled due to the reorganization of the holding company whose financial worth exceeds its current debt obligations.

For the sake of this analysis we must separate the holding company from the bank. However, it was worth noting that JPM paid 1.9 Billion dollars for the bank to the FDIC. Although it is not clear to me who that money belongs to, I believe it should belong to WMI. The bank was at least 90% of the holding company's business, but what is left of the holding company is what concerns the stockholders presently.

The first place to look is the SEC form WMI filed in its Chapter 11 bankruptcy. It claimed 32 Billion dollars in assets and 8 Billion dollars in liabilities. This is extremely unusual as most companies do not declare bankruptcy with four times as many declared assets as liabilities. That would make the company very well funded and make it have significant equity value. Now it is clear from the court filings where the 8 Billion dollars in liabilities come from, but what are these 32 billion dollars in assets?

We know, by reading the court filings, there is 4.4 billion dollars in cash that is owned by WMI held at JPM bank and Bank of America. The source of this money can be found in the WMI June 10Q filing. WMI injected 6 billion dollars into the bank in 2008 after raising 10 billion dollars with the 3 billion dollar series R preferred stock offering and 7 billion dollars TPG investment into WMI. Most of this money was spent on supporting the bank. However, out of all of the money that was raised, 2.2 billion was left from the TPG deal and 1.9 billion from the series R offering.

Supporting the bank was a money losing venture for the company as the bank was posting large net losses due to mortgage defaults. This is where the NOLs (net operating losses) come into play and why they belong to WMI. The money that caused the net operating losses was spent in support of the bank to the detriment of the holding company so there is no reason why the 'tax write down' should belong to anyone other than the holding company. We are confident the court will rule in favor of WMI on this issue. There are approximately 20 Billion dollars of Net Operating losses which will allow for writing down 20 Billion dollars of future profit for the company. If you assume a 35% tax rate (the generalized business rate tax), that is 7 billion dollars in value. Just those two items combined is greater than the 8 Billion dollars that is owed to the bond and unsecured debt holders.

However, there is even more value left in the WAMU holding company. I have included a list at the bottom of this letter that shows the subsidiaries of WMI. This list is quite extensive. Many of these subsidiaries have hundreds of millions of dollars (potentially billions of dollars when considered in total) in value associated with them. Some of them may be now owned by the bank, but the majority of them are still owned by the holding company. These are documented in SEC filings and I have included a list at the bottom of this letter.

Once WMI creates its list of assets, it will become clear how much all of these subsidiary companies are worth. Let me also note there has been a recent claim by WMI that they have an insurance company worth nearly $400 Million and this is just the tip of the iceberg. Additionally, there is also real estate that the holding company owns but I was unable to find a list of which buildings it holds title to (including the WAMU Center).

Finally, there are two more potential sources of value. In the June 10Q, it was noted that WMI held 4 billion dollars worth of Providian Financial preferred shares. WAMU Bank bought out Providian in 2006 and Providian remains a subsidiary of WMI. Although WAMU bank was seized, those shares still belong to the holding company as Providian is a subsidiary of WAMU Bank.

Additionally, there is potential of a reversal of the seizure and the return of the bank, which would be optimal for WMI and its shareholders. There is language in HR 1424 that Wells Fargo cited to purchase Wachovia bank instead of Wachovia being sold to Citi. I have included it below the letter for reference. We feel these statutes could also be used on behalf of WMI, to recoup what the FDIC seized, in whole or in part.

Even WMI is not fully aware of what the value of WMI is at present, due to the fact that JPMorgan has their books, and they currently do not have sufficient staff to evaluate all these issues, per their most recent court filing. I hope you now see the value in the company that we do, and see why we would like to protect our interests in what is left of the company, WMI.

I would be happy to provide any documentation or information you need regarding this information or anything else. Please contact me if you have any questions or need any further information.

(c) UNENFORCEABILITY OF CERTAIN AGREE MENTS.-Section 13(c) of the Federal Deposit Insurance
Act (12 U.S.C. 1823(c)) is amended by adding at the end the following new paragraph:
(11) UNENFORCEABILITY OF CERTAIN AGREE
MENTS.-No provision contained in any existing or future standstill, confidentiality, or other agreement that, directly or indirectly-
(A) affects, restricts, or limits the ability of any person to offer to acquire or acquire,
(B) prohibits any person from offering to acquire or acquiring, or
(C) prohibits any person from using any previously disclosed information in connection with any such offer to acquire or acquisition of, all or part of any insured depository institution, in cluding any liabilities, assets, or interest therein, in connection with any transaction in which the Cor poration exercises its authority under section 11 or , shall be enforceable against or impose any liability on such person, as such enforcement or liability shall be contrary to public policy'.

EX-21 14 a2182890zex-21.htm EXHIBIT 21
EXHIBIT 21

WASHINGTON MUTUAL, INC. DIRECT AND INDIRECT SUBSIDIARIES

110 East 42nd Operating Company, Inc.
620-622 Pellhamdale Avenue Owners Corporation
Accord Realty Management Corporation
ACD2
ACD3
ACD4
Ahmanson Developments, Inc.
Ahmanson GGC LLC
Ahmanson Insurance, Inc.
Ahmanson Land Company
Ahmanson Marketing, Inc.
Ahmanson Obligation Company
Ahmanson Residential 2
Ahmanson Residential Development
Bryant Financial Corporation
California Reconveyance Company
CCB Capital Trust IV
CCB Capital Trust IX
CCB Capital Trust V
CCB Capital Trust VI
CCB Capital Trust VII
CCB Capital Trust VIII
Clayton Blackbear, Inc.
Commercial Loan Partners L.P.
CRP Properties, Inc.
Dime Capital Partners, Inc.
Dime Commercial Corp.
Dime CRE, Inc.
Dime Mortgage of New Jersey, Inc.
ECP Properties, Inc.
The E-F Battery Accord Corporation
F.C. LTD.
FA California Aircraft Holding Corporation
FA Out-of-State Holdings, Inc.
Flower Street Corporation
Great Western FS Corporation
Great Western Service Corporation Two
H.F. Ahmanson & Company
H.S. Loan Corporation
Harmony Agency, Inc.
HCP Properties Holdings, Inc.
HCP Properties, Inc.
HFC Capital Trust I
HHP Investment, LLC
HMP Properties, Inc.
Home Crest Insurance Services, Inc.
HS Loan Partners LLC
Irvine Corporate Center, Inc.
Ladue Service Corporation
Long Beach Securities Corp.
Marion Insurance Company, Inc.
Marion Street, Inc.
Mid Country Inc.
Murphy Favre Housing Managers, Inc.
Murphy Favre Properties, Inc.
NAMCO Securities Corp.
Nickel Purchasing Company, Inc.
Norstar Mortgage Corp.
North Properties, Inc.
Pacific Centre Associates LLC
Pacoima Investment Fund LLC
PCA Asset Holdings LLC
Pike Street Holdings, Inc.
Plainview Inn, Inc.
Providian Bancorp Services
Providian Leasing Corporation
Providian Mauritius Investments LTD
Providian Services Corporation
Providian Services LLC
Providian Technology Services Private Limited
Reverse Exchange Corporation
Rivergrade Investment Corp.
Riverpoint Associates
Robena Feedstock LLC
Robena LLC
Savings of America, Inc.
Seafair Securities Holdings Corp.
Second and Union LLC
Seneca Funding (UK) Limited
Seneca Funding LLC
Seneca Funding Management LLC
Seneca Funding Trust
Seneca Holdings, Inc.
Seneca Newco LLC
Seneca Street, Inc.
Sivage Financial Services LLC
Snohomish Asset Holdings LLC
SoundBay Leasing LLC
Stockton Plaza, Incorporated
Strand Capital LLC
Sutter Bay Associates LLC
Sutter Bay Corporation
Thackeray Funding Corp.
Thackeray Funding Partners
Thackeray Holdings Corp.
University Street, Inc.
WaMu 1031 Exchange
WaMu Asset Acceptance Corp.
WaMu Capital Corp.
WaMu Insurance Services, Inc.
WaMu Investments, Inc.
Washington Mutual Asset Securities Corp.
Washington Mutual Bank
Washington Mutual Bank fsb
Washington Mutual Brokerage Holdings, Inc.
Washington Mutual Capital Trust 2001
Washington Mutual Community Development, Inc.
Washington Mutual Finance Group LLC
Washington Mutual Life Insurance Company of California, a Stock
Insurer
Washington Mutual Mortgage Securities Corp.
Washington Mutual Preferred Funding LLC
Washington Mutual Trade Service Limited
Washington Mutual-Seattle Art Museum Project Owners Association
Western Service Co.
WM Aircraft Holdings LLC
WM Asset Holdings Corp.
WM Citation Holdings, LLC
WM Enterprises & Holdings, Inc.
WM Funds Disbursements, Inc.
WM Marion Holdings LLC
WM Mortgage Reinsurance Company, Inc.
WM Specialty Mortgage LLC
WM Winslow Funding LLC
WMB St. Helens LLC
WMBFA Insurance Agency, Inc.
WMFS Insurance Services, Inc.
WMGW Delaware Holdings LLC
WMHFA Delaware Holdings LLC
WMI Investment Corp.
WMI Rainier LLC
WMICC Delaware Holdings LLC
WMRP Delaware Holdings LLC
Yellowstone Venture, Inc.

[zardiw]

Washington Mutual Inc could have a tremendous comeback. Although they are in Ch11, there are many that feel they are solvent, and have a posititive balance sheet.

There is also speculation that due to the huge outcry about the unwarranted, and colluded (with JPM/Goldman Sachs) takeover by the FDIC.

There are quite a few websites that have sprung up focused on this issue: http://www.wamu411.com

z

[Steve]

imelt bought 1million shares when the price hit 32...he said the market had overreacted and the shares were undervalued...GE is now at 15$...this is a bear market.The number of ceo's who have gotten burned buying their shares is great.Insider buying in a bear market is z meaningless indicator.

[traderdon]

Washington Mutual is not worthless??? Anyone with any sense can see that this company's seizure was unwarranted!!! I am hoping justice will prevail, and I hope and pray for all those who lost just about everything and had their company stolen from underneath them that those responsible will pay a high price for their theivery!!!

- traderdon

[stephen song]

Wamu's B.k is unusual and very unique.

Wamu has 5 times assets more than its liabilities. There are no secured creditors, all are unsecured crditors with long term debts,no immediate debts and pressure to pay the bill,furthermore it has $4.4B in cash, cash is vital important for B.K companies. unlike most of B.K company files B.K for the reason of cash flow problem.

If creditors are confident that Wamu has sufficient capital to run business again without having pressure paying its debts, they likely willing to keep their safer role as lenders,instead of becoming investors. In B.K, debtor might be able to negotiate them to get even better term on debts. Therefor, Wamu's chapter 11 might come out a very few change that shareholders are still keep their shares and preferred stock resumes its dividend payment( that is $77.5/share dividend, if you owned 1000 share of" WAMPQ", you will get pay $77500/yr, you can retired), My opinion is that after Wamu completes and emerges from B.k, it could soon be bought out or merge with other financial institutions. Buyout will not ocurr during B.k processing period.

Unlike most of B.K companies,WaMu wasn’t insolvent to file B.K. It just like i said on last post:
"Because:
Wamu needs B.K court to obtain its NOL benifit.
WaMu needs B.K court to recapture its $4.4B cash in JPM banks
Wamu needs B.K court to against any claim rised from the result of seizure of WMB.

filed chapter 11 is necessary step to consolidate its business and protects company assets being further taken away after the seizure of its banking units by FDIC. "

Mark Northrup, a partner with law firm Graham & Dunn in Seattle, who specializes in creditor-debtor relationships, says there’s no legal requirement that a company has to be insolvent to file a bankruptcy petition.

“I think they’re doing it because filing a bankruptcy is just the formal way to wind up your affairs,” Northrup says. “If they don’t file, there will be loose ends.”

http://www.bizjournals.com/austin/stories/2008/09/29/daily12.html

http://findarticles.com/p/articles/mi_kmafp/is_/ai_n13272782

[WaMu Truth]

Search WaMu truth on youtube to see whats really going on with WaMu. They've be kicked around long enough. Lets see someone in the so called media actually do a little research for a change. I work a full time job. I don't need to spend my nights playing reporter.

With all of the poor people that lost retirement and/or lifesavings on this travesty, you'd think some hungry reporter somewhere might want to break an actual news story for once... one based on fact and not dictate from Henry Paulson.

[Kyle J. Krol]

Please help get the word out about this unjust take over...