Bank IPOs: Mutual to stock conversions

Posted by Madison on November 1, 2007

For today’s Dollar-a-day challenge I closed a savings account that was originally opened at a mutual bank. Since that bank has converted I can move the money elsewhere where it will earn interest at a more competitive rate.

Getting in on stock initial public offerings (IPOs) is rather difficult. Mutual bank conversions, however, provide a unique opportunity. Because the mutual banks are owned by the depositors, when the banks convert to a stock company, the depositors are eligible for purchase of shares in the IPO.

Often oversubscribed, tiers are established based on eligible record dates. If you had an account before the conversion was announced, there is a much better chance of getting shares. So the key is to establish deposit accounts at banks while they are still mutual companies.

So how do you know which banks are converting before they are announced?

A great place to start is at SNL Financial. They publish a newsletter that covers conversion activity. However, the newsletter costs $495. The good news is that they have a sample on their website that you can download. In each issue they select a list of about 100 mutual banks to highlight. This provides a great place to start. The sample will keep you going with a long list. I’ve also noticed that the sample is updated every so often.

Once I had a list to work with, I selected my local banks. I opened up a savings account at each with $100-$300, depending on the amount needed to avoid any fees. After I secured the local ones, I began branching out into others that accept account applications online or by mail.

Once a conversion is announced, the bank will send a prospectus and IPO application. It’s proven to be a successful strategy so far.





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Comments to Bank IPOs: Mutual to stock conversions

  1. I found your website today – good stuff.

    When it came time to invest in the actual conversions, did you normally just invest the deposited funds at that bank? I’m assuming there is some risk like investing in a stock IPO?

    Did you immediately sell after the conversion?

    Todd

  2. @ Todd:

    I invested much more than the deposited funds. For example, I probably had a few hundred dollars on deposit at each bank, but when the conversion papers were sent, I usually sent back between 20k-40k. Of course, you never get that much, as they allocated it across all the eligible depositors.

    And there is definitely risk. I like to watch for those sample papers at SNL. They rotate them out occasionally. If you look at all the “pops” as they call them, some do go down, so it’s not risk-free. I usually tried to sell as soon as possible after the conversion, but it usually took a week or two to get the certificate and drop it off at my brokers office.

    Madison

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