Magazine article American Banker

Thrifts with Excess IPO Capital Turning to Special Dividends

Magazine article American Banker

Thrifts with Excess IPO Capital Turning to Special Dividends

Article excerpt

After Texarkana First Financial Corp. went public in 1995, the thrift's equity-to-asset ratio shot up to 16%, seriously dampening returns to its new investors.

"Once we sold the stock, we couldn't expand fast enough for our capital," explained executive vice president John Harrison.

And although the institution repurchased 5% of its shares last May, Texarkana First still could not show its shareholders enough return on equity quickly enough.

Making more loans was not the best course of action. "We needed a more immediate way," Mr. Harrison said. The answer was a special dividend - a one-time payout distinct from the regular quarterly dividend.

Such return-of-capital transactions are quickly becoming the preferred tactic for thrift managers eager to please their shareholders. Since July 1995, 28 institutions have declared special dividends, according to Trident Financial Corp., an investment and advisory firm.

"Investors are realizing that special dividends can put a company in a stronger position, with lower capital and higher return on equity," said William J. Wagner, a vice president at Trident.

These one-time payouts, which must be declared within the first year after a conversion, can range from 5 cents to $10 a share. They can be an even more significant tool for capital management than stock buybacks.

Thrift managers can pay a special dividend in only 15 days. But stock buybacks can take up to a year or even two. And share repurchases may not even be an option for some if shares are not available, or their prices are too high, Mr. …

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