Magazine article American Banker

OTS Reads Riot Act over Low IPO Appraisals

Magazine article American Banker

OTS Reads Riot Act over Low IPO Appraisals

Article excerpt

WASHINGTON -- The Office of Thrift Supervision last week put appraisers on notice that they will be penalized if stock prices of savings and loans rise too high after initial public offerings, sources said.

The agency summoned about a dozen of the leading appraisers to an 11 a.m. meeting last Thursday with a handful of its officials. For more than an hour, the OTS officials "read the riot act" to appraisers, according to one source who attended.

The meeting was "brutal," said Trent R. Feldman, managing director of Kaplan Associates Inc., an appraisal firm.

Other appraisers "were surprised at the very strong reaction that was expressed by the OTS," he said. They "were told that if their stock continued to exhibit very strong market performance, they would likely not be able to submit appraisals to the OTS in the future."

The OTS acted out of concern that unrealistically low valuations are responsible for the steep rise in stock prices that often occur after mutual thrifts convert to stock ownership.

On average, the price of thrift conversion stock has increased 28% in the first week of trading in the 130 deals since 1991, according to SNL Securities, a Charlottesville, Va.-based bank research and publishing firm. Non-thrift IPOs typically have a 15% price run-up.

Regulatory Effort, Too

Earlier this month, new OTS rules aimed at curbing insider abuse in mutual conversions took effect. The rules also tightened appraisal requirements.

Since then, both the OTS and the Federal Deposit Insurance Corp. have increased pressure on institutions to tighten appraisals by rejecting some deals over concerns that their appraisals were too low.

The OTS told appraisers last week that they will no longer negotiate on what the value of institutions should be, sources familiar with the meeting said.

In the past, if the OTS thought an appraisal was too low, it would require a higher one. …

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