Share prices of bank stocks going down hardly raises eyebrows these days. But the price action of Wells Fargo and JP Morgan earlier this week has some traders wondering if some of those selling or shorting the stock may have had inside information about credit rating warnings from Moody’s.
On Wednesday, shares of JP Morgan declined from 21.74 at the market open to 19.30 at the close, while shares of Wells Fargo declined form 11.32 to 9.66. At their lows of the day, JPM traded at 18.80 and Wells Fargo traded at 8.94.
Trading in both stocks was particularly heavy. 145 million shares of JP Morgan traded hands, twice the average volume and more than twice the volume of Tuesday. 237 million shares of Well Fargo traded, well-above the average volume of 149 million shares and well above the volume from the day prior.
All of this downward pressure came just one day before Moody’s made major announcements about both banks, warning that their ratings were being re-evaluated and may be cut.
It wasn’t a down day for the broader markets. The Dow rallied strongly on Wednesday, rising as high as 250 points before a sell-off at the end that left it up just 150 points. Financial stocks, Bank of America, also rose on Wednesday. Citi, however, also dropped.
Was this just fortunate timing? Perhaps traders were just especially prescient about the downgrade warnings on Wednesday. But it certainly seems suspicious. While traders are hesitant to publicly say it was insider trading, a few who spoke off the record are convinced that some investors had advanced knowledge of the Moody’s warnings.