By Liz Hoffman and Tom McGinty
Executives at some of the biggest Wall Street banks have sold
nearly $100 million worth of stock since the presidential election,
more than in that same period in any year over the past decade,
according to a Wall Street Journal review of securities
filings.
The share sales occurred as financial stocks soared since Nov. 9
on expectations of lighter regulation, lower taxes and pro-growth
economic policies. The KBW Nasdaq Bank index is up nearly 20% since
Donald Trump's victory, about triple the gains notched by the
broader market.
In addition to the share sales, bank executives have sold
another $350 million worth of stock to cover the cost of exercising
options, filings show. That is twice the amount sold for that
purpose at big banks in the year leading up to the election.
An added bonus: The postelection run-up in share prices gave
value to some options that were likely to expire worthless. At
Goldman Sachs Group Inc., for instance, the postelection bounce
turned half a billion dollars worth of stock options into winners
-- some just days before they were set to expire.
At Morgan Stanley, Chief Executive James Gorman sold shares
three days after the presidential election, the first time he has
done so in six years.
Mr. Gorman exercised options on 200,000 Morgan Stanley shares
and sold them all at an average price of $37.70 each, filings show.
He sold another 100,000 shares later the same month as the stock
surged on the back of Mr. Trump's victory, and disposed of a
further 285,000 late last week. Altogether, the Morgan Stanley boss
realized a profit of at least $8.4 million after taking into
account the cost of exercising underlying options.
Further selling may be in store, and not all big banks have
filed reports on selling by all their top executives.
What's more, bank employees typically can't sell shares or
exercise options in the run-up to earnings reports. The big banks
finished posting their latest round of earnings last week, meaning
employees will now in most cases be free to sell.
Those sales won't be as apparent, though. Banks only have to
disclose trades for a handful of top executives, although some
rank-and-file employees are paid largely in stock and options.
Share sales by corporate executives are often viewed by
investors as a sign that insiders could be growing wary of
valuations or be less confident in an increase in share prices.
While that may be the case among some bank executives, the sales
also follow a multiyear period in which they largely held on to
moribund stock.
Some executives even doubled down during the depths of the
postcrisis trough. Chief Executive James Dimon bought 500,000 J.P.
Morgan Chase shares in 2012 in the wake of the so-called London
Whale trading blowup. Mr. Dimon bought another 500,000 shares in
early 2016 as bank stocks were sliding. Mr. Gorman bought $2
million in Morgan Stanley shares in 2011, when the stock was at
less than half its current price.
Now, with share prices and valuations rising, executives are
acting. At Morgan Stanley, whose shares have risen 23% since the
election, executives who have to report transactions sold more than
$50 million of stock between Nov. 9 and Nov. 30, filings show. Many
were the fruit of options granted to executives years ago when
shares were trading at half their current value.
Those options allowed their holders to buy shares at big
discounts to current prices. Last week, Mr. Gorman exercised
options, granted in 2013, on 285,000 shares that allowed him to buy
them at $23 apiece, according to filings. He sold the shares for
$42.30 each, the filings show.
For options to be worth exercising, the stock must be trading
above the so-called strike price, the level at which an
option-holder has the right to buy it.
Before the election, Mr. Gorman had only sold shares to cover
the cost of exercising his options, holding on to much of his stock
in the process. After the latest sales, Mr. Gorman still owns 1.3
million shares, worth about $56 million. He is required by the bank
to continue holding 75% of all share awards as long as he is
CEO.
When he bought 100,000 shares in 2011 at about $20.62 apiece,
Mr. Gorman planned to sell them if and when the share price doubled
from that price, which it did just after the election, according to
a person familiar with his thinking.
Morgan Stanley shares ended Monday's trading at $41.96, slightly
below their postelection peak.
J.P. Morgan executives who have to report the transactions
collectively sold $20.5 million worth of shares since the election,
filings show. At Goldman Sachs, executives of a similar level let
go of nearly $25 million worth oftheir firm's stock.
Some of the selling at these banks has been from executives who
have announced their retirements, including Morgan Stanley Chief
Operating Officer Jim Rosenthal and Goldman Europe head Michael
Sherwood. Other trades are pursuant to prearranged plans that
schedule trades for certain times or price triggers. And some have
occurred as once-worthless options gained value. In late 2006,
Goldman CEO Lloyd Blankfein and other top executives were granted
options with a strike price of $199.84 that would expire 10 years
later.
By November 2016, with the expiration date approaching, Goldman
shares were nowhere near $199.84. The week after the election,
though, Goldman shares jumped above $210. The bank's shares ended
Monday's trading at $232.67.
Six current Goldman Sachs executives, as well as board member
and ex-finance chief David Viniar, exercised 983,000 options,
filings show. That represented about $200 million worth of
shares.
Without the Trump boost, those options likely would have expired
worthless.
Another chunk of options set to expire later this year also have
been pushed "into the money." All told, since the election, Goldman
executives became eligible to buy at least $500 million worth of
stock at below-market prices after a 33% rise in the share
price.
There is one potential downside to the bank-stock rally: Firms
recently awarded 2016 compensation based on stock that is suddenly
higher in value, meaning employees received fewer shares or options
that have higher exercise prices.
Write to Liz Hoffman at liz.hoffman@wsj.com and Tom McGinty at
tom.mcginty@wsj.com
(END) Dow Jones Newswires
January 24, 2017 02:47 ET (07:47 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
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