Overall, during the past week, corporate insiders traded a number of finance sector stocks, including institutional insider buying in Jeffries Group Inc. (JEF), corporate insider buying in Huntington Bancshares Inc. (HBAN), and insider selling in JP Morgan Chase & Co. (JPM). This report, part of our weekly coverage of insider trades by sector (based on last week’s SEC Forms 3, 4, and 5 filings), summarizes last week’s major insider filings in the finance sector (for a general discussion on how to interpret insider trades, please look at the end of this article):
Jeffries Group Inc. (JEF): JEF provides capital raising, mergers and acquisitions, restructuring and trade execution for small and mid-sized companies. Insiders currently hold 52.7 million shares or 23.6% of outstanding shares (not including institutional insiders). During the last week, institutional insider Leucadia National Corp. (LUK) bought 4.5 million shares, increasing its stake in the company to 58.0 million shares. LUK, often referred to as a mini Berkshire Hathaway (BRK.A), is a holding company that, through its subsidiaries, engages in mining & drilling services, telecommunications, healthcare services, manufacturing, banking and lending, real estate, and winery businesses. Over the last three months, insiders have bought 9.5 million shares, and they have sold 2.0 million shares during that period; and over the past year, insiders have bought 25.0 million shares and sold 2.0 million shares.
US Bancorp (USB): USB is a super-regional financial services holding company, providing various banking and financial services via 3,482 branches in 24 mid-western and western states. Insiders currently hold 2.32 million shares or 0.12% of outstanding shares. During the past week, two insiders exercised their options and sold (regular sell) the resulting total of 39,339 shares. The selling insiders included Director Jerry Levin (20,437 shares) and Director Patrick Stokes (18,902 shares). This is significant in that the 39,339 shares sold last week followed another strong week of insider selling as reported last week in our review of insider trading by sector, when we reported that four insiders sold 55,191 shares for the week ending October 28. As a comparison, insiders sold a total of only 12,140 in the prior eleven weeks of the past three months.
JP Morgan Chase & Co. (JPM): JPM is a global financial company providing private, commercial, and investment banking and treasury services in over 60 countries. Insiders currently hold 19.5 million shares or 0.52% of outstanding shares. During the past week, Director Raymond Lee sold (regular sale) 80,000 shares at $27.37 for $2.19 million. This is significant in that this is the only sale in the last three months, and insiders bought 195,893 shares during that period. During the last twelve months, insiders bought 334,193 shares and sold 285,098 shares.
Huntington Bancshares Inc. (HBAN): HBAN operates as the holding company for the Huntington National Bank that provides commercial and consumer banking services via 611 offices in OH, MI, PA, IN, WV, KY and FL. Insiders currently hold 6.9 million shares or 0.8% of outstanding shares, and during the last week, Chairman and CEO Stephen Steinour bought 11,918 shares, bringing his holdings of company shares to 2.26 million shares. During the past six months, Mr. Steinour has added 354,798 shares. This is significant in that the 11,918 shares bought by insiders last week followed another strong week of insider buying as reported last week in our review of insider trading by sector, when we reported that insiders bought 16,000 shares for the week ending October 28. Overall, insiders bought 116,779 shares in the last three months (selling 7,000 shares), and they bought a total of 404,904 shares during the last year (selling 7,000 shares).
Popular Inc. (BPOP): BPOP is a holding company for Popular de Puerto Rico, that operates 194 branches in Puerto Rico, the Caribbean and the U.S. Insiders currently hold 13.7 million shares or 1.34% of outstanding shares. During the last week, Chairman & CEO Richard Carrion bought 14,647 shares. This is significant in that the 14,647 shares bought by insiders last week followed another strong week of insider buying as reported last week in our review of insider trading by sector, when we reported that two insiders bought 340,343 shares for the week ending October 28. Overall, insiders bought 375,000 shares in the last three months (selling none), and they bought a total of 395,000 shares during the last year (selling none).
Synovus Financial Corp. (SNV): SNV is a holding company with 30 first and second tier banking subsidiaries operating via 323 offices in GA, AL, FL, SC and TN. Insiders currently hold 8.7 million shares or 1.11% of outstanding shares. During the last week, Director James Blanchard bought 70,000 shares. As a comparison, insiders bought 230,800 shares in the last three months (selling none), and they bought a total of 421,300 shares during the last year (selling 4,052 shares).
HCP Inc. (HCP): HCP is a REIT that owns, acquires and leases 573 healthcare-related facilities. Insiders currently hold 3.9 million shares or 1.0% of outstanding shares. During the last week, two insiders sold (automatic sell) a total of 386,474 shares, all but 10,000 of which result from the exercising of options. The selling insiders included EVP Paul Gallagher (376,474 shares) and EVP Thomas Klaritch (10,000 shares). As a comparison, insiders sold only an additional 79,046 in the preceding 12 weeks of the last three months, and bought 3,300 shares during the same period.
General Discussion on Insider Trading
The reports in this series identify last week’s insider trades of noteworthy significance by sector or industry group, either by virtue of their timing, their size, the number of insiders buying or selling, based on who is buying or selling, or by the trend of their buys and sales over the long-term.
What is Insider Trading?: Insider trading as defined here (and by the SEC) includes not just corporate insiders such as company executives and key employees, but also directors and large shareholders that have access to non-public information. Large shareholders are defined by the SEC for this purpose are those that having beneficial ownership of ten percent of more of the firm’s equity securities (including institutional investors). Also, in the U.S., “insiders” are not just limited to corporate officials and major shareholders, but also when a corporate insider “tips” a friend about material non-public information, the duty the corporate insider owes the company is now imputed to the friend who is now in violation of a duty to the company if he or she trades on the basis of that information. The U.S. is generally viewed as having the strictest laws against illegal insider trading, and makes the most serious efforts to enforce them.
While most insider trading is legal, the term is commonly used to refer to the illegal kind when a corporate insider trades based on material non-public information that can have an effect on the company’s share price. By law, insiders are prohibited from trading based on nonpublic information, but most believe that such trading does occur around the edges. The thinking goes that corporate insiders, because of their access, have the most up-to-date information on the health of their companies and the industries they operate in. Investors, as a result, can benefit from the timely knowledge of insider transactions. In fact, one University of Michigan study found that when executives bought shares in their own companies, the stocks tended to outperform the total market by 8.9% over the next 12 months. Conversely, when they sold shares, the stock underperformed by 5.4%.
Timeliness of Information: Like in the 13-D and 13-G filings for Institutions, the SEC Forms 3 and 4 on insider filings are extremely timely, and hence of greater significance, as they must be reported within two business days of the trade.
Insider Buying More Informative than Selling: As a rule, insider buys are more informative than sells. This is because insiders sell often, and they sell for a variety of reasons that may be completely unrelated to the health of the company, including, for example, to diversity their holdings or to pay for an upcoming personal expense. In contrast, insider buying is relatively uncommon, and since they have an exclusive window into their own company’s performance, it is reasonable to presume that they probably have good reasons based on information at their disposal when they are risking their own assets to buy company stock.
Regular and Automatic Trades: Insider trades maybe regular trades, or they may be automatic trades made under SEC Rule 10b5-1. It is generally believed that regular insider share purchases and sales carry more predictive value as they are made voluntarily by the insiders. Conversely, trades made under SEC Rule 10b5-1, called “Automatic Buys” and “Automatic Sells”, are part of a pre-determined plan or contract, and it is assumed that the plan was created before the insider had any privileged non-public information. Generally, almost all automatic trades are sells, not buys.
Furthermore, even automated trades made under 10b5-1 have some informative or predictive value due to loopholes in the rule that, for example, allow the insider to cancel the trading plan without any penalty or legal liability. So, the insider could set up a 10b5-1 trading plan before having inside information (for example, from a quarterly report and guidance) while retaining the option to later cancel the plan based on the inside information. So, in effect, the execution of an automated trade also carries some predictive value as insiders retain the option under the existing rules to cancel their trades without penalty or legal liability.
Disclaimer: Material presented here is for informational purposes only. Nothing in this article should be taken as a solicitation to purchase or sell securities. Before buying or selling any stock you should do your own research and reach your own conclusion. Further, these are our ‘opinions’ and we may be wrong. We may have positions in securities mentioned in this article. You should take this into consideration before acting on any advice given in this article. If this makes you uncomfortable, then do not listen to our thoughts and opinions. The contents of this article do not take into consideration your individual investment objectives so consult with your own financial adviser before making an investment decision. Investing includes certain risks including loss of principal.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.