On Monday, Quindell (LSE: QPP) shares moved higher, after the firm disclosed that giant US bank Morgan Stanley had taken a 5% stake in the troubled firm.
Smaller investors appeared to see the bank’s purchase as endorsement of Quindell’s business, and added to their holdings, pushing Quindell’s share price to a closing price of around 72p — a 6% gain on the day.
Even the Daily Mail published an article highlighting Morgan Stanley’s stake in the firm.
Too late
What investors may not have noticed is that the Quindell update notifying the market of Morgan Stanley’s purchase showed that the US bank had crossed the 3%, 4% and 5% thresholds on February 12, when Quindell’s share price was lower.
Unfortunately a second update from Quindell on the 18th showed that as investors were buying on the 16th, Morgan Stanley was selling, taking its stake below the 3% disclosure threshold and locking in a quick profit.
The US bank appears to have taken advantage of the four-day delay that’s allowed before investors must report a disclosable holding to the company concerned.
How much did Morgan Stanley make?
There’s no way of knowing the exact average price at which Morgan Stanley bought and sold, but my estimates suggest that the average purchase price could have been around 66p, while the average sale price might have been around 70p.
That being so, Morgan Stanley may have sold at an average of around 70p per share, suggesting that the bank may have netted a profit of around £900,000, in just four days — but it may have been much more.
What’s going on?
There’s no way of knowing what Morgan Stanley’s original intentions were, but it certainly looks to me as if the trade was designed to take advantage of a quick pop in Quindell’s share price, following the disclosure of the bank’s stake.
Toscafund carried out a similar short-term trade in Quindell shares recently. In my view, both trades highlight the reality that institutional investors are not buying into Quindell ahead of the publication of the PwC report into the firm’s accounting practices, which is due at the end of February.
Until then, I believe Quindell is far too speculative to invest in and remains a sell: even if the firm’s business does turn out to be healthy, I believe there are too many questions about the value of its assets and its funding situation for it to be a safe investment.
