- Posted February 13, 2012
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Wall Street Bank of America gets wild ride from turbo-traders Its stock has risen or fallen 1 percent or more on 20 days already this year
By Pallavi Gogol
AP Business Writer
NEW YORK (AP) -- On a normal day, 4 billion shares of stock change hands on the New York Stock Exchange. One in 10 belongs to a single company. It's not McDonald's or IBM, both of which have been on a tear.
It's Bank of America -- bailed out by the government three years ago, reviled for being part of the mortgage frenzy that helped wreck the economy and selling for not much more than an ATM fee.
When the market goes up because of positive news about the economy, Bank of America stock shoots up past the stocks of other big banks. When traders get worried about Greek debt, Bank of America takes the biggest plunge.
The big swings are not driven by a fundamental bet that the bank will be more profitable because the economy is getting better or a real concern that it will lose more money than others if there is a default in Greece.
Instead, Bank of America is the stock of the moment for high-frequency trading, the supercomputer-driven buying and selling that barely existed a few years ago and now accounts for as much as two-thirds of U.S. trading.
The bank's single-digit stock price and flood of shares on the market -- three times as many as its nearest big-bank competitor -- make it an attractive target for hedge funds and banks that employ high-powered, computerized trading.
"The movement of Bank of America stock on most days has nothing to do with Bank of America," says Joseph Saluzzi, of brokerage firm Themis Trading.
In other words, the stock moves because it moves. Bank of America stock has risen or fallen 1 percent or more on 20 days this year. The Standard & Poor's 500 index has only done it three times.
For the year, Bank of America is up 46 percent, best of the 30 stocks that make up the Dow Jones industrial average.
In high-frequency trading, investors use computer algorithms to exploit small changes in a stock's price. If a computer can seize on a stock like Bank of America a fraction of a second faster than the rest of the market, it can book a tiny profit.
Those pennies add up over tens of millions of shares a day to produce big gains. And when computers rush to buy or sell a stock like Bank of America, it can result in accelerated moves in the stock price. Buying leads to more buying, selling to more selling.
Bank of America is part of the Standard & Poor's 500, and therefore held in mutual funds in the retirement accounts of millions of Americans. And mutual fund managers hate high-frequency trading.
Not only does it make the stocks in their portfolios more volatile, but fund managers fume that high-frequency computers can detect their stock orders, step in to change the price of a stock slightly and even pocket a small profit.
"It has nothing to do with the fundamentals," says Leon Cooperman, a billionaire investor, chairman of hedge fund Omega Advisors and former CEO of Goldman Sachs Asset Management.
For computers to move in and out quickly, there must be enough shares available to trade. Bank of America has a truckload -- 10.5 billion shares outstanding, compared with 3.8 billion for JPMorgan Chase and 2.9 billion for Citigroup.
The stock traded as high as $15.31 last year. Then investors, worried about how deep the bank's mortgage problems might be, drove it below $10 in July. High-frequency traders pounced, and Bank of America's volume exploded. It was 147 million shares last summer. On Thursday, 477 million shares changed hands.
Today, some investors -- the human ones -- are buying Bank of America because they like CEO Brian Moynihan's efforts to shore up the company's finances. But none of those groups is driving the stock. Some days, it moves with little or no tangible reason.
Sometimes high-frequency traders don't even profit from the trade itself. They buy and sell shares at the same price and make money by sending large orders through the exchanges.
Bank of America's chief financial officer, Bruce Thompson, told reporters in January that the bank isn't likely to buy back stock this year. So for now, those human investors will have to buckle up for the ride.
Published: Mon, Feb 13, 2012
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