In this article, I will feature one bank that has seen intensive insider selling during the last 30 days. Intensive insider selling can be defined by the following three criteria:
- The stock was sold by three or more insiders within one month.
- The stock was not purchased by any insiders in the month of intensive selling.
- At least two sellers decreased their holdings by more than 10%.
JPMorgan Chase & Co. (NYSE:JPM) provides various financial services worldwide.
Insider selling during the last 30 days
Here is a table of JPMorgan's insider-trading activity during the last 30 days by insider.
|Name||Title||Trade Date||Shares Sold||Rule 10b5-1||Current Ownership||Decrease In Ownership|
|Matthew Zames||COO||Jan 27||76,000||Yes||271,161 shares||21.9%|
|Gordon Smith||EVP||Jan 27||71,953||Yes||215,857 shares||25.0%|
|Douglas Petno||Managing Director||Jan 27||21,110||Yes|
|Marianne Lake||CFO||Jan 27||4,880||Yes||34,153 shares||12.5%|
|Mary Erdoes||Managing Director||Jan 27||63,802||Yes||261,536 shares||19.6%|
|John Donnelly||Director HR||Jan 27||9,851||Yes||94,851 shares||9.4%|
|Ashley Bacon||CRO||Jan 27||3,051||Yes||21,351 shares||12.5%|
|Daniel Pinto||Managing Director||Jan 29||63,718||Yes||386,120 shares||14.2%|
|Mark O'Donovan||Controller||Jan 23||7,121||Yes||19,713 shares||26.5%|
There have been 321,486 shares sold by insiders during the last 30 days. All these shares were sold pursuant to a Rule 10b5-1 plan.
SEC Rule 10b5-1 is a regulation enacted by the United States Securities and Exchange Commission (SEC) in 2000. The SEC states that Rule 10b5-1 was enacted in order to resolve an unsettled issue over the definition of insider trading, which is prohibited by SEC Rule 10b-5. After Rule 10b5-1 was enacted, the SEC staff publicly took the position that canceling a planned trade made under the safe harbor does not constitute insider trading, even if the person was aware of the inside information when canceling the trade. This staff interpretation raises the possibility that executives can exploit this safe harbor by entering into 10b5-1 trading plans before they have inside information while retaining the option to later cancel those plans based on inside information.
For example, a CEO of a company could call a broker on January 1 and enter into a plan to sell a particular quantity of shares of his company's stock on March 1, find out terrible news about his company on February 1 that will not become public until April 1, and then go forward with the March 1 sale anyway, saving himself from losing money when the bad news becomes public. Under the terms of Rule 10b5-1(b) this is insider trading because the CEO "was aware" of the inside information when he made the trade. But he can assert an affirmative defense under Rule 10b5-1, because he planned the trade before he learned the inside information.
In general, it is a safer way for an insider to sell shares pursuant to a Rule 10b5-1 trading plan than without it.
Insider selling by calendar month
Here is a table of JPMorgan's insider-trading activity by calendar month.
|Month||Insider selling / shares||Insider buying / shares|
There have been 829,399 shares sold, and there have been 745,086 shares purchased by insiders since January 2013. The month of January 2014 has seen the most insider selling.
JPMorgan reported the full-year 2013 financial results on January 14 with the following highlights:
|Net income||$17.9 billion|
|Book value||$53.25 per share|
|Tangible book value||$40.81 per share|
(Source: Earnings presentation)
JPMorgan has had declining revenue growth since 2010.
JPMorgan expects firmwide adjusted expense to be below $60 billion for 2014.
(Source: Earnings presentation)
|Company||JPM||BAC||BCS||C||Industry Average (Money Center Banks)|
|Qtrly Rev Growth (yoy):||0.00||0.28||0.21||0.04||0.33|
|PEG (5 yr expected):||1.60||0.61||16.06||0.51||1.26|
JPMorgan has the second-highest P/S ratio among these four companies.
Here is a table of these competitors' insider-trading activities during the last 12 months.
|Company||Insider buying / shares||Insider selling / shares|
Only JPMorgan has seen intensive insider selling during the last 30 days.
There have been nine insiders selling JPMorgan, and there have not been any insiders buying JPMorgan during the last 30 days. Eight of these nine insiders decreased their holdings by more than 10%. JPMorgan has an insider ownership of 0.10%.
Before going short JPMorgan, I would like to get a bearish confirmation from the Point and Figure chart. The two main reasons for the proposed short entry are weak revenue growth, and the intensive insider-selling activity.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.