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People's United Financial Inc. Message Board

  • w1991 w1991 Oct 23, 1998 8:27 AM Flag

    MHC Question

    How come banks structured as MHC's have done so
    well when there is little chance of a buyout (or so I
    think). Is it strictly on earnings, or there advantages
    of being structured this way? Please help me out on
    some basic questions. Thanks.

    SortNewest  |  Oldest  |  Most Replied Expand all replies
    • pbct has LOTS and lots and lots of room for
      dividend growth...i would expect that to continue to
      improve by more than 10%, but less than 20%, per year,
      indefinitely. also would not be surprised to see company
      repurchase shares too. a very interesting long term
      investment. when and if they do complete the conversion this
      will be a very valuable property to a large buyer.

    • Thanks for the info. I always wondered why People's was never gobbled up by a larger bank. It seems to have done well over the years with this structure. Good stock appreciation and a dividend.

    • JJR, which of the mhc's have gotten divs. waived and what kind of justification can there be for investing in the other ones? especially in a weak market for mhcs.

      • 1 Reply to sirius4vega
      • Sirius, all new MHC's that waive dividends create
        dilution for public shareholders in a second stage
        conversion. The dilution isn't a big deal in most cases. The
        formula the OTS uses minimizes dilution especially if
        dividend is small and the MHC doesn't keep this
        organizational structure for many years. The OTS now allows
        MHC's to create a mid-tier holding company with the
        intent of buying back shares. A couple of years ago they
        weren't allowed to buy back shares, now they can. I've
        noticed that a lot of recent MHC conversions don't stay
        that way for long. Many experts feel the structure is
        inherently unstable and just a prelude to full conversion.
        PBCT is one bank, however, that feels the MHC
        structure suits it just fine.

        A lot of banks like
        the structure for different reasons. Good ROE numbers
        are easier to attain without all that excess capital
        and the bank can maintain its independence. There are
        also selfish reasons. Just a few years ago there was a
        lot of greedy managements that abused their
        positions. For example, I owned a New Jersey MHC (FSLA)
        where the management took an unbelievable amount of the
        initial offering. Depositors got less. Management did
        very well. Then they had a secondary offering where
        once again they bought heavily. They waited a couple
        of years then had a second stage conversion and were
        in the front of the line again. They were able to
        buy a lot of stock because they had three separate
        offerings for the same bank. The OTS doesn't allow these
        games any longer.

        MHC's are certainly once again
        appealing to bank managements. There are at least 10
        scheduled to go in OCT-NOV. I doubt that many will remain
        MHC's. An interesting point is in the second stage
        conversion the shareholders usually do well in the exchange
        ratio. That hasn't been the case recently but 95% of the
        time when an MHC announces full conversion there is a
        nice pop in the stock.

        SNLSecurities adjusts
        the P/B and P/E for MHC's. For example, this is how
        they do it for PBCT. They assume the MHC will sell
        their shares for 93% of the current share price, 90% of
        the proceeds are retained as capital and then they
        assume that money will return 4% after tax. They add
        those numbers to book and earnings. This is a very
        conservative way of adjusting book and earnings. The price of
        PBCT is currently low and because market price is low
        adjustments will also be low. But even if we follow through
        with these very conservative adjustments these are the
        numbers we get; book value-$24.44 a
        share----earnings-$2.13 a share. What do you think PBCT's market price
        would be with these admittedly very conservative
        numbers? The case is much stronger for 2X book than 1X
        book value. They would leverage the new capital and do
        much better than 4%. The stock could easily achieve a
        market price of $50 a share in short order. Recently,
        Carson has once again stated he has no intention of
        fully converting but isn't it nice to know what the
        company is really worth?

14.90-0.08(-0.53%)Sep 19 4:00 PMEDT

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