A move by the federal government temporarily banning short selling on hundreds of financial stocks has paid immediate dividends for several local banks.

Shares of FirstFed Financial Corp. nearly doubled in the week after the announcement. City National Corp., Nara Bancorp Inc. and Wilshire Bancorp Inc. each received a boost as well.

Short sellers target stocks they think will decline, borrowing shares to sell them before buying them back later at a lower price. Shorts help maintain liquidity in normal markets, but as financial stocks collapsed this month the Securities and Exchange Commission decided they were doing more harm than good. The SEC halted short selling of nearly 1,000 commercial bank stocks on Sept. 19 as the government prepared its bail out of the nation’s financial markets.

FirstFed, a Santa Monica-based institution that has billions of dollars tied up in risky option adjustable rate mortgages, has been a prime target of short sellers. According to the New York Stock Exchange, 93 percent of the company’s outstanding shares were being sold short in mid-August. As of Sept. 15, that figure had decreased to 71 percent, but FirstFed was still the most shorted stock on Wall Street.

In a recent interview, FirstFed CFO Douglas Goddard cited “a very active short seller community” as a factor suppressing the stock price.

The ban on short sales has resulted in a “short squeeze” in which the sellers who borrowed shares are forced to buy shares to close out their positions. This increase in demand drives up the price of the stock.

Still, in an interview last week, Goddard declined to speculate as to the reasons behind FirstFed’s recent surge. Shares closed Sept. 24 at $20.50, a 73 percent jump from its closing price the day before the ban was announced.

That is also a major improvement from mid-July, when the collapse of IndyMac Bancorp sparked panic among investors and pushed FirstFed’s stock price under $3 a share.

Like FirstFed, other local banks appear to be benefiting from the SEC’s move. Shares of City National surged 34 percent in the days after the announcement. Nara and Wilshire Bancorp each jumped more than 20 percent.

The rapid increases, however, led a group of analysts with Friedman Billings Ramsey & Co. last week to downgrade a number of regional banks, including City National and Nara, as the shares became overpriced. However, the highs may be short-lived as the ban expires Oct. 2.

Philip Gvinter, a former mortgage broker who held a short position in FirstFed, believes the temporary prohibition will leave many of these institutions ripe for the picking when the ban is lifted.

“The squeezing out of existing shorts on companies which are fundamentally insolvent and mispriced such as First(Fed) can lead to a terrific shorting opportunity,” he wrote last week on financial Web site Seeking Alpha.

Southwest Expansion

Los Angeles-based Wedbush Morgan Securities Inc. announced last week that it will acquire Peacock Hislop Staley & Given Inc., a Phoenix-based investment bank and securities brokerage firm.

Terms of the deal were not announced.

Edward Wedbush, president and founder of his eponymous investment bank, said the firm is expanding rapidly and expects to open several additional offices in coming months.

This deal, he said, will help the company take advantage of growth potential in Arizona and beyond.

“The excellent synergy between both firms will allow us to expand our services to our growing client base in the Southwest in this positive acquisition by Wedbush,” he said in a statement.

Founded in 1989, Peacock Hislop focuses on public and corporate finance, and investment services.

Comings and Goings

Also, Wedbush Bank, the new commercial bank opened by Wedbush in March, announced the hiring of four new executives. Arthur Luciani, Anthony DeLuca and Matthew Roberson will each serve as vice presidents of sales, and Matt Olsen has been appointed chief deposit officer. Beverly Hills-based City National has hired Rachel Kanter-Savage as vice president and portfolio manager for its Nevada real estate division. Los Angeles-based Center Financial Corp. has announced the appointment of Kevin Sung Kim to its board.

Staff reporter Richard Clough can be reached at [email protected] or at (323) 549-5225, ext. 251.