Security Pacific officials bought shares just prior to merger talks.

Security Pacific officials bought shares just prior to merger talks

Analysts reckon they saw bargain in low-price stock

Security Pacific Corp. officers and directors were heavy buyers of the bank holding company's stock shortly before and while secret merger negotiations were under way with rival bank Wells Fargo, an analysis of insider stock transactions reveals.

The heavy buying can only mean one of two things: Either senior bank officers and directors were not clued into the early December merger powwow, or they bought stock knowing the talks were pending.

For example, Security Pacific Vice Chairman and Director John Singleton bought 15,000 shares of Security Pacific on Oct. 26 at $19.00 a share, a $285,000 purchase, according to Invest/Net Group Inc. of Fort Lauderdale, Fla.

On Oct. 29, Director James Boswell bought 10,600 shares at $18.75 a share, a $198,750 open market purchase, while Director Henry Segerstrom bought 10,000 shares on Oct. 30 at $17.25 a share, a $170,259 purchase.

On Nov. 20, Security Pacific Director Theodore Gildred bought 5,000 shares at $21.75 each, a $108,750 purchase, and on Dec. 19, Stephen Carpenter, vice chairman of Security Pacific National Bank, bought 10,000 shares for an undetermined price. All purchases were made on the open market, with the exception of Carpenter's, which were made through a plan.

According to the Wall Street Journal, the banks presented sketchy merger terms to each other in early December meetings, which were suspended Dec. 10.

In all, from Aug. 24 through Dec. 19 Security Pacific insiders bought $2.3 million of stock, primarily on the open market.

Over the same period, no insiders sold stock.

Last week, Los Angeles-based Security Pacific refused to comment on the large stock buys by insiders.

The merger talks with San Francisco-based Wells Fargo were revealed in the Wall Street Journal's Jan. 21 edition, and acknowledged by Security Pacific a day later.

The talks between Security Pacific and Wells Fargo top dogs seemed to have gone beyond the casual level. Under terms discussed, each companies' shareholders would own about 50 percent of the consolidated company and 59-year-old Wells Fargo Chairman and Chief Executive Carl Reichardt would manage the new bank for several years before passing the baton to Robert Smith, 55, Security Pacific's chief executive.

The merger talks are expected to resume, according to investment advisers close to the deal cited by the Wall Street Journal.

The insider buying at Security Pacific was relatively large. By comparison, at Wells Fargo, for example, over the same period insiders bought only 5,805 shares of stock and sold 260 shares of stock, about one-seventh as much buying.

Noting the buying at Security Pacific, New York-based Vickers Stock Research Report has several times in recent months rated the bank as the most actively purchased stock by insiders.

Some analysts last week said that they believed that insiders were simply taking advantage of the depressed stock prices for Security Pacific's stock.

"The directors were seeing the stock price depreciate and they know the company will survive and see it as a good opportunity," said Campbell Chaney, at the San Francisco-based Sutro & Co. brokerage house.

Another agreed. "I don't think there's a lot of credit to it (the stock buying)," said Tony Howard, an analyst at Los Angeles-based securities brokerage Crowell, Weedon & Co. "People have been buying since the stock was selling at $25 and $26 (in September) and they've been buying since then."

Saying he would expect insiders to abide by prohibitions to act on their knowledge, Chaney said he would suspect a merger was near if insider transactions were to dry up in the coming months.

One securities lawyer last week said he would be surprised if Security Pacific board members were in the dark about merger talks. "To the extent they are engaged in serious discussion, they should be authorized to do so by the board," said R. Bruce McNew, Greenfield & Chimicles in Haverford, Pa., which often represents shareholders.

Investment bankers last week speculated why the story of the Wells Fargo-Security Pacific merger talks was leaked to the nation's premier financial publication, the Wall Street Journal.

"There is the possibility this story was leaked to hammer the shorts," said David Barrett, managing director of investment banker Salomon Bros.' financial institutions group.

(Short traders borrow and sell stock on the hopes they can replace it for less in the future.)

Barrett continued, "The shorts have had a field day with bank stocks such as Wells Fargo. This story may have been leaked to discourage the shorts, to add some counterweight to all the stories about the real estate problems in the Wells Fargo portfolio."

Security Pacific is the fifth-largest bank in the country, with $84.7 billion in assets, and Wells Fargo is the 12th-largest, with $56.2 billion. Together they would make the largest bank in the state.

In comparison, San Francisco-based Bank America, holding company of the largest California bank, has $110.7 billion in assets.