Ratings agency Standard & Poor’s messed up big time last week. They accidentally leaked an upcoming share issue from PNC Financial (PNC), before PNC could make its official announcement, according to Breaking Views. The result was a trading opportunity.PNC is raising new capital in order to pay back the Troubled Asset Relief Program (TARP), but such new share issues generally push down stock prices since they dilute current shareholders’ ownership. Thus astute short traders made money:
NYT: S.& P., which is owned by McGraw-Hill, wasn’t in a position to benefit from its own scoop. But hawk-eyed traders who read beyond the headline of what should have been little more than a footnote were. Because new stock dilutes owners, share prices often fall once a sale is announced. S.& P.’s slip-up probably allowed some to make an unexpected quick profit: within two hours of the note, PNC’s stock dropped 3.5 per cent before recovering somewhat.
Here’s last week’s price action, with PNC’s drop. On Wednesday, PNC sold 55.6 million new shares at $54 each, totaling $3 billion. This is a pretty large increase in shares given that the stock’s current market cap is now just $24 billion.
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Read more about this at the New York Times >