In the United States there are 2 kinds of banks. There are commercial banks that alter in size from the giant money-center banks like Bank of America and Wells Fargo to the regional banks like Wachovia and Sun Trust. The second sort of bank are the private mutual savings banks.
Most commercial banks are owned by stockholders with their stock being in public traded on one of the stock exchanges. Mutual savings banks, on the other hand, have traditionally been owned by their depositors in a co-operative arrangement like farm or dairy co-ops. While a commercial bank distributes its profits to its owners in the form of dividends, mutual savings banks do not disburse their profits to anyone!
There is Not any provision in the charter of a mutual savings bank for any distribution of profits at all! That money simply appears on the books of the bank as ‘net worth ‘ or ‘equity ‘ and amasses year after year after year. After 25 years, 50 years, 100 years, the net worth of a mutual savings bank can be $10 million, $50 million, $100 million, $300 million or more!
‘On paper ‘ the cash belongs to the account holders or depositors, but there simply is no legal mechanism for the account owners to ever extract any of it. As a depositor (member) of a mutual savings bank, the only return you will ever see is the interest paid on your savings or checking account or CD. As a practical matter, the amassed revenues or net worth, actually doesn't belong to any person! Reports filed with the Office of Thrift Supervision (OTS) show that the mutual savings banks in the U. S. have a mixed net worth in excess of $20,000,000,000 (20 bln bucks) that does not belong to anybody!
Mentioned below are examples of the more than 700 mutual savings banks in the U.S. And the amount of net worth or equity they have amassed over the years (rounded off to the nearest one million greenbacks) :
“The Nearest Thing to Printing Money”
Peter Lynch (Worth Mag)
During the last twenty years, more than 400 mutual savings banks have completed Stock Conversions in which their net worth was distributed to investors in the form of stock which was bought in the conversion. Depositors who've accounts (checking, savings, money market, Certificate of Deposit) at the converting bank have priority rights during a conversion and get to purchase the stock at the First Public Offering (IPO) price (usually $10 per share) before non-account holders.
A high share of these 400 mutual bank conversions resulted in serious profits for investors who bought stock at the IPO price. Peter Lynch personally took part in mutual savings bank conversions and announced “Investing in the local savings bank when it went public was the nearest thing to printing cash that ever came a stock picker’s way” in a chat with Worth Mag.
Example of a Mutual Bank Stock Conversion
To illustrate this idea, let us take a look at the stock conversion of Cambridgeport Bank in Cambridge Massachusetts. Cambridgeport Bank was set up in 1853. Since that point the accumulated revenues or net worth of the bank has grown to $78,578,000. This net worth was basically distributed to shareholders in the shape of stock when the bank converted from private possession to public possession during the IPO. Shares of stock were sold to the depositors of the bank at the IPO cost of $10 per share.
The market answered favorably to the Cambridgeport Bank stock conversion. The price graph below shows the daily price movement for Cambridgeport Bank stock. Depositors of the bank who purchased the stock at the IPO cost of $10 realized an 80% profit during the 6 month period following the IPO. After one or two years Cambridgeport Bank stock produced more than a 400% return to stockholders. As well as the price appreciation of its stock, Cambridgeport Bank also pays an 8% yearly dividend on stock bought during the IPO.
Chuck Hughes Investment plan
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