It was quite an August for Bank of America.
Bank of America shares hit a new 52-week low in Aug 23 at $6.01 on fears that the bank would have to raise capital. The bank continued to deny the rumors, but investors were selling shares anyway.
Just a day later, Warren Buffett made an unsolicited call to the bank saying he wanted to make an investment.
The next day, on Aug 25, both parties announced that Berkshire Hathaway would be investing $5 billion in the bank with Berkshire receiving preferred shares and receiving warrants to buy 700 million shares.
Bank of America shares soared 26% on the news before giving up some of that gain. But they are still trading around $8.00, or 25% higher than the 52-week low.
No Insiders Are Buying BAC Shares
Yet, as low as the stock got in August, and even with Mr. Buffett buying in, not a single Bank of America insider bought shares in August.
Not a one.
Analysts asked CEO Moynihan on a conference call in early August why he and other insiders weren’t buying the stock, which had also, at that time, seen a serious decline.
He said it was because the insiders were restricted due to the earnings announcement, which was on July 19, and also that most of his compensation was already tied up in BAC’s shares.
He indicated that when management was free and clear to start buying again, they would be buying.
But that was weeks ago. And still there has been no insider buying.
Moynihan actually HAS bought shares before. But his last open market purchase was a year ago, on Aug 23, 2010, when he bought 30,000 shares. Shares closed at $12.87 on that day.
Other Insiders Don’t Buy Either
How long will the buying restriction last at Bank of America?
A bunch of the insiders haven’t bought in the open market in years.
- The CFO has never bought on the open market. This goes back to 2010.
- The President of Global Wealth and Investment Management last bought in August of 2009.
- The President of Global Commercial Banking, going back to 2009, also has never bought on the open market.
These are just a few examples.
But shares were at $6. Even Mr. Buffett, apparently sitting in his bathtub when he thought up the deal, believed BAC’s shares were juicy.
You know what they say: you should be buying when there is blood in the streets. Bank of America shares have been “bleeding” for some time.
Insiders Are Buying at Other Banks
Financial stocks were the worst performing sector during the recent sell off. Maybe Bank of America insiders believe the shares will go cheaper still so they’re waiting on the sidelines?
That doesn’t seem to be an issue with insiders at other banks however. They’ve been gobbling up shares for the past few weeks despite the market volatility.
National Penn Bancshares
Insiders at National Penn Bancshares, Inc. (NPBC), for instance, have been buying up shares all throughout the recent stock market sell off. National Penn operates 122 community banks in Pennsylvania and 1 in Maryland.
Who’s buying?
The General Counsel and Corporate Secretary bought 1000 shares on Aug 8, as the stock made a new 52 week low, and then bought another 400 shares a week later, on Aug 18, after the stock went lower still. Two Directors also bought shares on Aug 9.
National Penn is a Zacks #2 Rank (buy) stock. It has a forward P/E of 14.
Earnings are expected to climb 172% in 2011 to 52 cents from 19 cents per share in 2010. It pays a dividend yielding 1.7%.
Community Bank Systems
At Community Bank Systems (CBU), a regional bank with operations in Upstate New York and Northeastern Pennsylvania, insiders continued buying throughout August.
Who’s buying?
The CEO bought 3717 shares on Aug 19, after the shares had been whipped around. That was his first open market purchase since he bought 5000 shares at the market low on March 9, 2009.
A bunch of Directors also bought on Aug 18, including one who double dipped after buying shares the week before.
Community Bank Systems is a Zacks #2 Rank (buy) stock. It has a forward P/E of 11.8.
Earnings are expected to rise 10.7% in 2011. Shareholders are also rewarded with a juicy dividend, currently yielding 4.2%.
Other banks with heavy insider buying in August included Glacier Bancorp (GBCI), which operates community banks in Montana, and Brookline Bancorp Inc. (BRKL), which operates 2 banks in the Greater Boston area.
Glacier pays a dividend currently yielding 4.5%. Brookline’s dividend yields 4.1%.
Insider Buying Sends a Powerful Signal
What’s the difference between all of these other banks and Bank of America? All saw their shares sell off hard in August, with most of them hitting new 52-week lows.
Yet the insiders at these other banks went in, en mass, to buy shares on the low. Bank of America insiders didn’t bother to buy even one share. Again, maybe the restrictions against buying that Mr. Moynihan mentioned to analysts in early August, are still in place and prevented any buying.
But the track record of insider buying at Bank of America hasn’t been strong, even well before August of this year.
Insiders are the first to recognize value in their companies. The small bank insiders appear to be quite bullish. However, the lack of insider buying at Bank of America (BAC) sends a strong signal in the opposite direction.
Tracey Ryniec is the Value Stock Strategist for Zacks.com. She is also the Editor of the Turnaround Trader and Insider Trader services. You can follow her at twitter.com/traceyryniec.
