I have an opportunity to grab a local banks IPO

[thefed]

I have only scattered details as my fiance is relaying this to me from the in laws...but here it is

IN LAW has 10,000 shares, accumulated last year originally valued at $1 each (they arent public, so i dunno where this 'value' comes from). They cannot sell these for 5 years from this april

Fiance can buy up to xxx dollars worth since she was an account holder between x and x dates. (its a big #, like $150k limit)

IPO is $10, supposedly...this is for emloyees and customers only.employees have the chance to cash in 401k for stock

Then April 1 or so, they go on sale to the public public

Company has about 9bil in assets, and is offering 97.7 million shares

SO, whithout any other info, whaddaya think? The only other # i remember seeing is they have an interest cost of 280 mil/yr..

The bank is THIRD FEDERAL SAVINGS of Cleveland OHIO

I am leary because :Why the hell would they give EVERY VESTED EMPLOYEE 10,000 shares last year, 'valued' at a buck, if they will be worth 100,000 in a few weeks?

MY GUESS is that the company will go public, MAYBE the price goes up a touch if there's public interest (i doubt it)..then over 5 years, it declines down to a miserable level and then tanks at year 5 when all employees sell!



Any input or pointers as to what i can do to further investigate the situation? (other than look at the paperwork sent to the inlaws)

i feel bad for my mom in law as she is convinced she is now 'out of debt'. arggg

 

[brewer12345]

Tomorrow I will take a look at the bank and give you my opinion.

 

[haha]

Historically these have been unusually good opportunities. Was the bank a mutual? Sometimes due to their charters they have to give the peons an even break in order for the management to come out holding big stakes.

If Brewer likes it, it would definitely be worth checking out.

 

[thefed]

Tomorrow I will take a look at the bank and give you my opinion.

thanks man, i appreciate it. dont confuse them with 3rd federal bank who is in nj, pa, etc.

this is the one:

http://www.crainscleveland.com/apps/pbcs.dll/article?AID=/20061214/FREE/61214012/1006&Profile=1006

"The association’s earnings for fiscal 2006, which ended Sept. 30, dropped 32.5% to $43.5 million from $64.5 million in fiscal 2005. The association did not identify in the filing reasons for the decrease, but its financial statements did show that interest expenses rose by 27%, to $289.1 million in fiscal 2006 from $227.6 million the year before"

that doesnt sound good

 

[haha]

The main good thing about these bank conversions is that if there are no selling insiders, then the money you pay for a share goes into the bank rather than to a seller. So if you pay $10 for a share in a bank that has a $10 per share net asset value, you suddenly own a share with an NAV of $20, less a little friction.

Try that with a BS.com ipo.

Ha

 

[thefed]

The main good thing about these bank conversions is that if there are no selling insiders, then the money you pay for a share goes into the bank rather than to a seller. So if you pay $10 for a share in a bank that has a $10 per share net asset value, you suddenly own a share with an NAV of $20, less a little friction.

Try that with a BS.com ipo.

Ha

interesting...

never thought of it this way

 

[Texas Proud]

The main good thing about these bank conversions is that if there are no selling insiders, then the money you pay for a share goes into the bank rather than to a seller. So if you pay $10 for a share in a bank that has a $10 per share net asset value, you suddenly own a share with an NAV of $20, less a little friction.

Try that with a BS.com ipo.

Ha

Bad math... if there are 100 shares outstanding at $10 per share... and they offer another 100 shares at $10 per share... then there are 200 shares at.... $10 per share!!!

 

[Texas Proud]

The question is the market they are located... are they any of the big boys trying to corner the market Or are they located in a place that has little competition

USUALLY, new banks are a good investment... and if they grow a bit, a larger bank will buy them out... and then the people who started it goes starts another and does the same thing again...

 

[youbet]

thefed,

The single biggest reason I am RE today is that I bought stock in a local bank 32 years ago.

DW, infant son and I had moved from our inner city apartment to a modest house west of Chicago. Looking for a bank to open a checking account, I pulled our Chevy pickup into a gravel parking lot with a house trailer identified as the ******* Bank. Long story short, several months later, I purchased roughly $10K of their stock, making me the laughing stock of my parents and friends. Over time, this grew to where we owned almost 0.2% of the bank with no further investment on our part. The parking lot got paved, the house trailer morphed into a large brick building, and the stock split and split and split and paid nice dividends. It was not publicly traded. The price was set by the board of directors.

In 1996, the *******Bank was purchased by a major Chicago area bank and became one of their branches. This was a very, very happy event for me and the family and gave our portfolio a real boost. Quite a thrill for a guy making his living working nights in a factory!

But...... you better find out a few things about the "opportunity" you're looking at! That was then, this is now.



edit: At the time, $10K represented a year's salary for me and about 90% of our net worth. No wonder my folks rolled their eyes!

 

[lswswein]

if this is a mutual savings bank going public, they tend to be highly profitable, but do read

http://www.sec.gov/investor/pubs/mutualconversion.htm

-h

 

[haha]

Bad math... if there are 100 shares outstanding at $10 per share... and they offer another 100 shares at $10 per share... then there are 200 shares at.... $10 per share!!!

OK amigo, have it your way.

But remind me not to ask your opinion if I am ever offered one of these again.

Ha

 

[Texas Proud]

OK amigo, have it your way.

But remind me not to ask your opinion if I am ever offered one of these again.

Ha

I guess you flunked math then.... if you think I am wrong..

 

[brewer12345]

thefed, the bank looks attractive to me. I would participate at the $10 level if I were offered the chance, and I would probably do so in size. If you want to see what typically happens with banks that demutualize, take a look at HCBK, for example, which is in a more desireable market area, but generally followed the typical trend of a demutualized bank. Usually these banks partially demutualize, then fully demutualize some years later, and within 3 years after that tehy have either executed very successfuly on their plans or they get bought o ut.

You should, however, be aware that this is something to plan on holding for at least 5 years and the ride may be bumpy at times.

 

[haha]

I guess you flunked math then.... if you think I am wrong..

Part of my life plan is to lose all arguments with people who don't understand what they are arguing about.

So, you win!!

Ha

 

[Texas Proud]

Part of my life plan is to lose all arguments with people who don't understand what they are arguing about.

So, you win!!

Ha

Hmmm... futile attempt here... I guess trying to show you would not do any good either... and I know exactly what I am talking about... maybe you don't...

BUT.... for fun...

Shares NAV NAV per share

Existing shares 1,000 10,000 10

New shares 1,000 10,000 10

Total 2,000 20,000 10


And what if they only offered 100,000 shares but there were 10,000,000 outstanding How does your math get you to $20 per share??

 

[uncledrz]

TP
The mutual savings bank was owned by its depositors, not shareholders. So if it had income over expenses, over the years, that money went into the mutals capital account. So the mutal would have, say, an asset of $100 but no shareholders. The conversion idea came about to get at that value. The mutual would convert, and the depositors (and employees, officers and directors too) would buy, for say $10 a share, 10 shares. There would then be $200 of capital, but still only 10 shares, and the share would then be presumably worth more than the $10 purchase price, but of course based on the market. That was a very good deal for investors in the 90's.
Its not such a good deal now because the conversions are now two staged, rather than immediate. So while the original capital may still be there at the time of conversion, you'll have to wait to the second stage before the full value is unlocked. Puts a bit more risk in the deal, but of course only the future will tell.

Tio z

 

[Texas Proud]

TP
The mutual savings bank was owned by its depositors, not shareholders. So if it had income over expenses, over the years, that money went into the mutals capital account. So the mutal would have, say, an asset of $100 but no shareholders. The conversion idea came about to get at that value. The mutual would convert, and the depositors (and employees, officers and directors too) would buy, for say $10 a share, 10 shares. There would then be $200 of capital, but still only 10 shares, and the share would then be presumably worth more than the $10 purchase price, but of course based on the market. That was a very good deal for investors in the 90's.
Its not such a good deal now because the conversions are now two staged, rather than immediate. So while the original capital may still be there at the time of conversion, you'll have to wait to the second stage before the full value is unlocked. Puts a bit more risk in the deal, but of course only the future will tell.

Tio z

Thanks for the info.... but I still think my calculation is correct even with this... they already issued shares to people.. so the NBV has been distributed to the current shareholders.. anyone buying new shares today is just like a new issue... but I am sure someone else can disagree with this...

And BTW, wasn't the mutual supposed to send back to the 'owners' any funds that was no longer needed? Not sure on this, but I remember being in a mutual insurance for awhile and would get a distribution check whenever they did not have to pay out a lot for the year.. sometimes it was 30% of premium... so in a way, you have already paid for the 'shares'...

 

[thefed]

thefed, the bank looks attractive to me. I would participate at the $10 level if I were offered the chance, and I would probably do so in size. If you want to see what typically happens with banks that demutualize, take a look at HCBK, for example, which is in a more desireable market area, but generally followed the typical trend of a demutualized bank. Usually these banks partially demutualize, then fully demutualize some years later, and within 3 years after that tehy have either executed very successfuly on their plans or they get bought o ut.

You should, however, be aware that this is something to plan on holding for at least 5 years and the ride may be bumpy at times.

thanks for the input brewer

the only thing that makes me leary is that quite a few (read hundreds) of employees got 10,000 shares last year. So youre telling me they didnt know they'd be worth $10 each this coming April? $100,000 to over 100 employees? Seems a bit generous.

And I beleive they are going onto NASDAQ. But thedn again, arent the OTC boards NASDAQ? I'll try to get the paperwork soon and read it over.

 

[brewer12345]

thanks for the input brewer

the only thing that makes me leary is that quite a few (read hundreds) of employees got 10,000 shares last year. So youre telling me they didnt know they'd be worth $10 each this coming April? $100,000 to over 100 employees? Seems a bit generous.

And I beleive they are going onto NASDAQ. But thedn again, arent the OTC boards NASDAQ? I'll try to get the paperwork soon and read it over.

Here are the SEC documents that have been filed: http://www.sec.gov/cgi-bin/browse-e...=&State=&SIC=&owner=include&action=getcompany

Who cares what the employees got? What you care about is what price you can buy it at and what it will be worth as a public company. This looks like a sleepy mutual bank that will do pretty well as a public entity. I would guess that it will pop 5 to 10% on the day of the offering, start paying dividends, buy back stock, grow the business and eventually do a second step conversion where it could pop 25%. You won't get rich quickly with this sort of thing, but the downside is very, very limited and the upside is pretty good. If the Fed starts cutting rates, it will really fly.