Michael Godby on The Value of Thrift Conversions

We are pleased to present an exclusive interview with thrift conversion expert Michael Godby, principal at Atlanta, Georgia-based FIG Partners.

Michael Godby has close to fifteen years of extensive mutual-to-stock conversion experience. He served as a vice president in an eight-year career at Capital Resources, managing over two dozen mutual thrift conversions and participating in at least 25 more conversions. Mike served as a vice president of investments for Legg Mason for three years prior to joining ASG Securities. His background includes extensive experience serving high net-worth and institutional clients who primarily invest in banks and thrifts. He is a graduate of the University of Pittsburgh.

MOI Global: For those of us who may not be experienced with thrift conversions, could you give us a primer on the types of conversions and why you think they are generally fertile ground for finding value investment opportunities?

Michael Godby: First, let’s just make sure that your reader understands what a thrift conversion is. It is when a mutual thrift sells some or all of their mutual interest to the public in a stock offering. These shares are offered first to the depositors of the thrift, and then to the community or through a syndicate offering. Subscription rights are given to the depositors of the thrift and those rights are governed by federal regulations that were written to protect those depositors. These priority rights are non-transferable, and violators of that have been prosecuted in the past.

Depositors who have carved a niche in investing in these conversions have been seeding accounts over the course of the last 25+ years. Their deposit balances influence the amount of stock they receive when a conversion oversubscribes. Professional depositors in the early days could simply mail a check to the thrift, and the thrift was happy to open an account for them. However, since the mid-1990s most thrifts have placed local restrictions to keep professional depositors out. As of this past quarter there were roughly 700 mutual thrifts in 45 states.

There are multiple types of conversions: the standard or full conversion where 100% of the thrift converts to a public company, a mutual holding company (MHC) conversion where a minority stake converts to a public company, a partial MHC where additional minority shares are sold in the public company, and a second-step MHC where the remaining majority of an MHC converts and is sold in the public company

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