Lodge discussed three possible options to solve these issues. First, they could do nothing and hope that Banc One’s stock price would recover over time as investors realized that derivatives were actually helping the bank manage interest rate and basis risk. Second, they could abandon or severely limit their derivatives portfolio. Third, they could attempt to educate investors about how they used derivatives. None of the alternatives was riskless. Doing nothing might give the impression that the bank was hiding something, thereby confirming investors’ worst suspicions.
If it caused Banc One’s stock price to stay low or fall even further, the bank’s ability to continue its stock acquisitions would be jeopardized. Eliminating its derivatives portfolio would leave the bank with greater interest rate exposure and few tools to manage it. Disclosing even more information was not a guaranteed solution. In drawing even greater attention to its derivatives portfolio, the bank might raise investors’ concerns or increase their confusion.
