Start With as Little as 50 and An Interesting Phenomenon
Start With as Little as $50
As discussed formerly, depositors at mutual banks ‘own ‘ the bank and receive priority rights to purchase stock in the IPO if the bank switches to public possession. At most mutual banks it'll only take $50 to open a savings account. A $50 saving account gives you concern rights to get stock at the IPO price if the bank converts to public ownership.
The best way to get priority rights to get mutual bank stock at the IPO price in a conversion is to open up a savings account at a mutual bank in your area. I have got a home in New Jersey and have opened up loads of deposit accounts in New Jersey, New York, Pennsylvania, Connecticut, Massachusetts, New Hampshire, Vermont, Virginia, Maryland and Delaware. I really like to open accounts when I travel or go on holiday. My youngsters are so accustomed to me running into banks and opening accounts when we are going skiing or go on holiday that they suspect opening bank accounts is a standard part of everybody's holiday!
There's never any advance notice on when a mutual bank might convert. I try and open accounts at as many banks as feasible in order to have priority rights to buy stock at the IPO price in the event a bank makes a decision to convert to stock possession. I've had bank tellers tell me when I was opening an account that their bank has no plan to convert to stock ownership only to receive a conversion package in the post from that very same bank 4 weeks later.
When you create an account at a mutual bank, bank laws prescribe that you be alerted by mail if the bank comes to a decision to convert to stock ownership and you need to also receive a prospectus and stock order form. Stock is bought directly from the bank in a conversion and buyers receive a stock certificate in the post. There is no brokerage commission concerned with the purchase of the stock.
For those people who do not have any mutual banks in your area, it's feasible to open accounts by mail at some banks. I have opened 142 saving accounts in 26 different states thru the mail.
It's correct that opening many bank accounts can use up some of your available capital but I consider this my ‘safe ‘ money that is instantly available in case I need it. Meanwhile I am earning interest on my high-interest accounts.
An Engaging Phenomenon
Since 1853 Cambridgeport Bank accumulated $78,578,000 in takings which is a. K. A net worth or equity. Because Cambridgeport Bank was a mutual bank this $78,578,000 in revenues was never distributed and takings just accumulated year by year.
In the IPO the bank sold 7,443,000 shares of stock at $10 per share and as a result the bank received $74,430,000 in readies from the stock sale (7,443,000 shares x $10.00 per share = $74,430,000). The cash proceeds of the stock conversion added $74,430,000 to the net worth of the bank. As discussed formerly, since 1853 the accumulated net worth of the bank has grown to $78,578,000 so that the $74,430,000 received in the stock sale about doubled the first net worth of the bank on the day the stock IPO was completed.
The stock conversion nearly doubled the net worth of the bank as the total net worth increased to $153,008,000 ($74,430,000 + $78,578,000 = $153,008,000). This 153 million dollars of net worth or equity now belongs to the stockholders who are the owners of the stock. If you divide the net worth of the bank by the total number of shares outstanding, in this situation 7.443 million, you get a number called ‘Book Worth ‘ per share. Book value's the cash value per share if the bank was liquidated. If you divide the $153,008,000 of net worth by the 7,443,000 number of shares the result's a book price per share of $20.55 ($153,008,000/7,443,000 = 20.55). So essentially you are purchasing stock at $10.00 share that has a book cost of $20.55 on the IPO date.
Peter Lynch described this bank conversion phenomenon in a chat with Worth . Magazine: “So when the thrifts started to go public, there weren't any prior owners to pay down, as happens in most public offerings. Rather than a gigantic chunk of the receipts ending up in the pockets of the organization's founders, all of the cash was returned to the company till.”
“For the fortunate buyers of the shares, the result was the same as purchasing a new car for money, then discovering that the dealer has left the cash in the glove compartment as a car-warming present. Let's say the local S&L (mutual bank) had a book value of $20 million, the results of decades of takings built up inside the company. Then it went public and sold $20 million worth of shares in the offering. That $20 million invested by the stockholders became their thrift-warming present to themselves; in reality they were buying the business for nothing. And because their $20 million was injected into the S&L, the book price doubled overnight, from $20 million to $40 million. Theoretically, each share was now worth two times as much as the stockholders had paid for it.“
Purchasing mutual bank stock in a conversion IPO at of its book worth has to be one of the least significant risk stock investments available today. As well as lowrisk, buying stock at of its money break value also gives you tremendous profitability. We intend to next look at some examples of mutual bank stock conversion IPOs in which I bought stock.
