WILMINGTON, DEL. (
) -- Investors sold off shares of
( WL) early Monday, one day after the stock spiked as much as 19% on rumors that the trust bank was looking for a buyer.
Wilmington Trust shares rose sharply on Friday on strong trading volume of 12 million shares vs. the typical three-month daily average of more than 1 million shares. Shares were halted twice during the day due to the excessive activity. Wilmington Trust's stock ended the day up 8.6% to $8.76.
Investors were in a buying frenzy on Friday after speculation was reported that the trust bank was getting ready to sell.
reported on Friday that the bank's executive management has held discussions with several potential buyers, including
Bank of Montreal
, to gauge interest in an acquisition of the bank, according to people familiar with the situation.
However, a merger with one of its domestic rivals including
Bank of New York Mellon
But the buying spree was short lived. After the market opened Monday, Wilmington Trust shares plunged 8.2% to $8.05 once the market opened.
Janney Montgomery Scott analyst Stephen Moss on Monday reiterated his sell rating and a $7 share price target for Wilmington Trust, in a research note to clients.
"Wilmington Trust has an established banking presence in Delaware with attractive wealth management and corporate client businesses, but we fail to see how a TARP bank with serious asset quality issues seeking to sell itself after a regulatory exam can command a market premium," Moss writes in the note.
In addition, the fact that the bank is reportedly for sale after its annual regulatory exam "suggests that regulators are pushing the company to raise capital or sell," Moss adds.
Moss speculates that Wilmington Trust's third-quarter results are likely to be worse than expected. Analysts on average, according to
, expect Wilmington Trust to record a loss of 43 cents a share when it reports earnings on November 1.
The financial crisis has put a damper on Wilmington Trust. The bank has reported five consecutive quarterly losses fueled by soured commercial real estate loans and investments of pools of trust-preferred securities,
Wilmington Trust has also been working on a plan to raise capital from private equity players, the article noted.
Moss suggested that Wilmington Trust could command a deal price of $8 per share, however "we would not be surprised if the company received substantially less," he writes. The $8 per share deal price means that Wilmington Trust would be valued at roughly $1.2 billion (less $330 million in taxpayer funds and an assumed "capital hole" of $150 million).
"There is a possibility that the company could receive a higher price if a bid situation develops, but considering the company's distressed position, we view that as remote," Moss writes.
Wilmington Trust put out a statement on Friday in which it declined to comment on the rumors, despite the unusual market activity.
--Written by Laurie Kulikowski in New York.
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