Start With as Little as $50

As mentioned previously, depositors at mutual banks ‘own ‘ the bank and receive concern rights to get stock in the IPO if the bank changes to public ownership. At most mutual banks it only takes $50 to open a high-interest account. A $50 high-interest account gives you priority rights to purchase stock at the IPO price if the bank switches to public possession.

The right way to obtain concern rights to purchase mutual bank stock at the IPO price in a conversion is to open a saving account at a mutual bank in your neighborhood. I have a home in New Jersey and have opened up tons of savings accounts in New Jersey, Long Island, Pennsylvania, Connecticut, Massachusetts, New Hampshire, Vermont, Virginia, Maryland and Delaware. I like to open accounts when I travel or go on vacation. My kids are so used to me running into banks and opening accounts when we go skiing or go on vacation that they think opening bank accounts is a normal part of everyone's vacation!

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.

If you open an account at a mutual bank, bank rules require that you be informed by mail if the bank decides to convert to stock possession and you must also receive a prospectus and stock order form. Stock is purchased right from the bank in a conversion and purchasers receive a stock certificate in the mail. There's no brokerage commission involved with the purchase of the stock.

For those individuals who don't have any mutual banks in your neighborhood, it is possible to open accounts by mail at some banks. I have opened 142 high-interest accounts in 26 different states through the post.

It is true that opening countless bank accounts can use up a part of your available capital but I think about this my ‘safe ‘ money that is immediately available in case I need it. In the meantime I'm making interest on my savings accounts.

A Fascinating 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 almost 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 greenbacks of net worth or equity now belongs to the investors who own the stock. If you divide the net worth of the bank by the total number of shares notable, in this case 7.443 million, you get a number called ‘Book Value ‘ per share. Book value is the money 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 is a book value per share of $20.55 ($153,008,000/7,443,000 = 20.55). So basically you are buying stock at $10.00 share that has got a book price of $20.55 on the IPO date.

Peter Lynch described this bank conversion phenomenon in a talk with Worth . Magazine: “So when the thrifts commenced to come clean, there were not any previous owners to repay, as occurs in most public offerings. Instead of a enormous piece of the proceeds ending up in the pockets of the company's founders, all the money was returned to the company till.”

“For the lucky purchasers of the shares, the result was the same as buying a new auto for cash, then discovering the dealer has left the cash in the glove box as a car-warming present. Let’s say the local S&L (mutual bank) had a book price of $20 million, the result of decades of earnings built up within the company. Then it went public and sold $20 million worth of stocks in the offering. That $20 million invested by the shareholders became their thrift-warming present to themselves; to all intents and purposes they were purchasing the business for nothing. And because their $20 million was injected into the S&L, the book value doubled overnite, from $20 million to $40 million. In theory, each share was now worth 2x as much as the investors had paid for it.“

Purchasing mutual bank stock in a conversion IPO at of its book value must be one of the lowest risk stock investments currently available. As well as low-risk, buying stock at of its money split worth also gives you amazing potential profit. We may next look at some examples of mutual bank stock conversion IPOs in which I purchased stock.

Chuck Hughes Gettting started in the stock market

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