Eye-popping IPO pops may be the first image that comes to mind when investors think of large New York mutual conversions from the mid-1990s, but the enduring legacy of those deals might be their market outperformance following their first trading day.
S&P Global Market Intelligence analyzed the cumulative total returns through Jan. 3, 2017, (except for companies acquired for cash), for the 10 New York-based mutual banks that completed a standard conversion between June 30, 1993, and June 30, 1998, and that raised more than $100 million in gross proceeds. Three of those converted mutuals continue to operate, while the other seven were acquired more than a decade ago.
The returns were separated into three different buckets: IPO pop, after IPO pop (broken down by each acquisition stage, and compared to the S&P 500) and with IPO pop. Further, the compound annual growth rate for the return after IPO pop was compared to the S&P 500. For acquisitions with a stock component, the target's stock was assumed to roll over into the acquirer's stock. If there was stock and cash consideration, the cash was assumed to have been invested in the S&P 500. If the deal was all cash, the company's return analysis ended on its last day of trading.
New York Community Bancorp Inc.'s returns have been otherworldly since its mutual-to-stock conversion in November 1993. The stock debuted up 28%. Since then, the company has been active on the M&A front, including three announced deals with fellow large New York mutual conversions from the mid-90s. It completed a merger-of-equals transaction with Richmond County Financial Corp. in July 2001, acquired Roslyn Bancorp Inc. in October 2003 and terminated a proposed acquisition of Astoria Financial Corp. in January 2017. New York Community's return after IPO pop through Jan. 3, 2017, is 3,725%, far outdistancing the S&P 500's 670%. Measured by CAGR, New York Community's advantage over the S&P 500 is 17.1% to 9.2%. Including the IPO pop, the company's total shareholder return rises to nearly 4,800%.
The bad news for New York Community shareholders, as well as former shareholders of Richmond County and Roslyn, is that the stock has severely lagged the market for several years. Since 2004, New York Community is up 26% while the S&P 500 has returned 166%.
Dime Community Bancshares Inc. has a similar return arc. Its return after IPO pop by CAGR handily outpaces the S&P 500: 12.6% to 8.1%. But during the last 13 years, Dime Community's return is more than 100 percentage points below the broader market.
Astoria, on the other hand, has underperformed the S&P 500 dating back to its first-day close in November 1993. On a CAGR basis, Astoria's return is 8.8% versus the S&P 500's 9.2%. That underperformance has negatively affected Long Island Bancorp Inc.'s cumulative return. It merged with Astoria in October 1998.
Banks for the memories
GreenPoint Financial Corp. is the second-largest standard conversion by gross proceeds during the last 23 years. During the 10-plus years until its merger with North Fork Bancorp. Inc., GreenPoint compiled a return of 878% after the 27% IPO pop, compared to the S&P 500's 182%. Starting at that point, North Fork was up 2% (below the S&P 500's 31%) until it was acquired by Capital One Financial Corp. for stock and cash in November 2006. Since then, the blended return for the Capital One position is 57% (S&P 500 is at 100%). The cumulative return for GreenPoint after IPO pop is 1,467%, more than doubling the S&P 500.
Reliance Bancorp Inc. also was acquired by North Fork Bancorp. Reliance is the only one of the 10 companies with a negative IPO pop. The company made up for its lackluster beginning, returning 4.5 percentage points more than the broader market on a CAGR basis after the first trading day.
Independence Community Bank Corp. timed the market well. The stock soared 73% on its first day of trading in March 1998. It moved up another 184% for the next eight-plus years until it was acquired for cash by Santander Holdings USA Inc., formerly known as Sovereign Bancorp Inc. The compound annual return after pop for Independence is 13.6%, compared to the S&P 500's 3.6%.
Staten Island Bancorp Inc. also enjoyed immediate and lasting success. It converted close to a sector peak and was subsequently acquired by Independence in April 2004.
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