Showdown at Sovereign

Investors are betting that Jay Sidhu, chairman and CEO of Sovereign Bancorp(SOV Quote), is on his way out at the Philadelphia lender.

Shares of Sovereign received a heaping boost Friday, after the Wall Street Journal reported that Sidhu could be fighting for his job when the bank's board meets on Tuesday. Shares were up $2.42, more than 11%, to $24.

Of the 12 directors, seven independent board members are unhappy with the performance of the bank's stock, say market sources. The unhappy directors want the bank's controversial chief ousted because Sidhu has failed to make good on promises to boost the valuation of the lender, which has $89 billion in assets.

"The potential removal of Jay Sidhu is being viewed positively by the Street," says Matt Kelley, an analyst at Sterne Agee & Leach. The dissension among board members "could lead to the opportunity for a third party to become involved and take advantage. The market is viewing Sovereign as potentially in play."

Sovereign has been in the limelight for more than a year, after one of its largest shareholders, Relational Investors, called attention to the bank's lagging stock. Last October, the San Diego asset-management firm increased its stake and vowed to add more independent directors on Sovereign's board by nominating two of its own principals.