Old National Bank and the Brown Swan

Old National Bank (ONB) is a regional bank, headquartered in Evansville, IN, with assets totaling over $8B. As you may remember, ONB gained media attention in May, when it repurchased its TARP warrants from the Treasury for $0.21 on the dollar, giving the taxpayers a $4.6M haircut.

Monday, ONB reported 2009 Q2 non-GAAP earnings of $9.6M or $0.15/share, which was nearly double analyst expectations. $0.15/share for Q2 2009 is about half of what it earned in Q2 2008 and $4.6M of these profits were a one-time occurrence. Nevertheless, Wall Street didn't let such a triviality get in the way:

ONB closed at $11.47, which constituted a one-day gain of over 17%.That seemed like an unlikely return considering the quality of the news, or lack thereof. I converted the daily closing price differences for the prior year to their continuously compounded equivalents and tabulated the results below.

As you can see, the July 27th close was an extreme outlier (>3σ from the mean). Perhaps, the intrinsic value of ONB increased 17% in the course of minutes, but I'd wager that rampant speculation is a more reasonable explanation. Recently, there has been some discussion on the internet as to how a bubble can be spotted before it deflates. It would appear that periodically screening asset prices for this type of situation might be useful and merits further investigation.


  1. Given the degree of leverage in the system, big moves (both ways) seem more likely.

  2. Agreed. Also, I've noticed that issues with small floats are prone to large moves.