In 1998, Kiplinger's wrote an article describing the process entitled "How to Rob a Bank." http://findarticles.com/p/articles/mi_m1318/is_1998_Dec/ai_53263534/
Unlike typical IPOs where the investor gets shares at a small fraction of a company's tangible book value, investors in mutual thrifts get to share in all the equity (the cash raised in the IPO as well as the existing equity in the thrift). Since the IPO contains no selling shareholders (all sales are conducted on the open market following the IPO) and the thrift generally holds a substantial amount of tangible equity prior to the capital-raising, a substantial amount of value can be unleashed for the participants.
Bear in mind when an investor participates in a normal offering, they are buying in on the hope that the capital raised will result in substantial growth and future profits. In a typical IPO, the company selling shares generally contributes little in the way of tangible equity and/or current profitability. Many times the IPO is merely a formula which allows the founders to cash out profits on a highly overvalued concept (think internet IPOs). That is generally not the case in thrift mutual offerings, although many of the shareholders are willing to flip their shares on the first day of public trading.
Here is how the situation generally works: Let's say Emy's S&L decides to go public at $10 a share. Ten million shares are brought public at that price and the funds are anted up by the participants who are all depositors in the small S&L. The cash raised is $100 million; that amount is added to the existing tangible equity of the thrift. If the thrift has $50 million in tangible equity then every new shareholder has just reaped 50% of additional tangible equity for every share which they have purchased. Additionally, they will soon earn the right to sell any or all of their position through a stock exchange.
Many of the depositors are merely interested in flipping their shares to accrue a quick profit; further, many of the investors need to sell their shares quickly since they have leveraged up to buy the maximum amount of shares possible in anticipation of a quick profit once the stock is publicly-listed.
It also appears that some "hanky panky" has been involved in these offerings; large investors were stuffing these tiny thrifts with the names of colluding individuals, and then supplying these individuals with the capital to buy the maximum amount of shares, for a percentage of the profits.http://groups.google.com/group/misc.invest.stocks/browse_thread/thread/ea5070bc29ce2f4b/d112d64783c6617e
In many cases, an investor who was unable to purchase shares in the IPO is still able to purchase the thrifts at a significant discount to their current tangible book value as a result of the current state of the loan market in the U.S. It should be noted that not all of these former mutual thrifts are values despite their low price to tangible book values. It would appear that the current calendar year has supplied a greater than normal amount of these conversions. It is likely that a substantial amount of these tiny institutions needed the additional capital to cover questionable loan portfolios. With that disclaimer in place I will proceed with the article.
GuruFocus tracks the purchases of legendary value investor Michael Price (MFP Investors LLC). In his recent 13F filing, Price reported a new position of 600,000 shares of recently IPO'ed mutual thrift conversion, Franklin Financial (FRNK). Price purchased the stock at an amount slightly above its current selling price. http://www.gurufocus.com/StockBuy.php?GuruName=Michael+Price&rec=2
A quick review of FRNK indicates that the company which became public a few months ago has a tangible book value of around $18 per share. That reflects a figure of about .64 times its current tangible book value.
Disclosure: small long position in FRNK