Meritor Savings Bank's Stock Takes A Leap Of Faith Shares Went From A Nickel To As Much As 27 Cents. Investors Believe Its Liquidation Could Yield A Surplus.

Posted: May 13, 1994

Who says Wall Street doesn't perform miracles? Not stockholders in Meritor Savings Bank, who this week have seen their shares rise virtually from the dead.

After more than a year with hardly a sign of life, Meritor stock took off dramatically this week in over-the-counter trading. More than 1.3 million shares changed hands in the last three days, as investors bid as much as 27 cents for shares that had cost a nickel each as recently as late last month.

The stock traded late yesterday at 24 cents a share, on volume of just under 500,000 shares.

Why the Lazarus-like rise? Faith, primarily - faith that the federal government's liquidation of Meritor ultimately will produce a surplus that will trickle down to shareholders.

Meritor, the late parent company of the former Philadelphia Savings Fund Society, went to its grave 17 months ago, after state and federal regulators

closed the faltering bank and sold its remaining branches to Mellon Bank Corp.

Trading in Meritor's 54 million shares of common stock all but disappeared afterward, as the Nasdaq stock exchange removed the company from its lists. Shareholders were told they might receive something after the Federal Deposit Insurance Corp. finished disposing of Meritor's assets, but only if the agency ended the process with a surplus, an uncertain prospect at best.

Earlier this year, the FDIC threw cold water on that idea, forecasting that the Meritor liquidation would end with a deficit of about $24 million. That would leave Meritor stock certificates good for little besides wrapping gifts.

However, a group of shareholders, including Philadelphia landlord Sam Rappaport and financier Raymond Perelman, last month challenged the FDIC's projections in a federal lawsuit that says the agency's original takeover of the bank was illegal. Gary Hindes, a Delaware securities dealer and another plaintiff in the suit, said that the FDIC's numbers were faulty and that shareholders should end up with $50 million or more.

That would mean up to $1 a share for Meritor stockholders, enough to entice buyers for the stock, which now is about 25 cents a share.

"I think people are starting to figure it out," he said. "All of a sudden, people who thought their stock was worthless now see they can get a quarter for it."

Some cited rumors among stockbrokers that the FDIC was offering to settle the lawsuit with a payment to Meritor stockholders. But Hindes said there was no truth to that.

Brian Higgins, a trader at the Philadelphia brokerage firm Janney Montgomery Scott, which makes a market in Meritor stock, said technical reasons also may have been a factor in the stock's new popularity.

The National Association of Securities Dealers earlier this year placed a number of thinly traded stocks, including Meritor, on its Over-The-Counter Bulletin Board system, which records each trade immediately for brokers and investors around the country.

The new listing created a more liquid market for the stock and helped boost the price, Higgins said.

"There was nowhere for it to go but up," he said.

The price rise, in turn, apparently fueled additional volume as investors who picked up Meritor shares during or just after the bank's last days rushed to unload them.

Charles Clayman, a Philadelphia investor and money manager, was among them. Clayman held a sizeable position in Meritor before the takeover, and added to his holdings afterward, buying shares for from 1 to 3 cents each.

"I had written it off as a total loss, so anything I get out of it now is a bonanza," he said.

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