Ex-Members (But Not All) Cut Out From IPO

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Two more former credit unions began the process of going public through initial public offerings last week, but with a new twist-the former member/owners of the credit union are no longer being given preference in the stock offerings.

Up until now, credit unions-turned-mutual savings banks have gone out of their way to invite former credit union owner/members in on the almost-sure profits that thrift IPOs are reaping these days. Rainier Pacific Savings Bank, which went public last November, even went back three years to when it converted from Rainier Pacific FCU, to give former credit union members the ability to buy the maximum allowable shares. Those shares were sold to the former credit unions members at $10 each, then immediately shot up to $16 the day of the IPO, reaping millions of dollars in windfall profits for former members, managers and directors of the credit union-turned-savings and loan.

But the two credit union-converts that began the process last week have cut out the former member/owners from the riches sure to come. One of them, Citizens Community Federal Savings Bank, the Eau Claire, Wis., thrift formerly known as Citizens Community FCU, will allow the purchase of up to 25,000 shares for depositors going back to Dec. 31, 2001-that's just three weeks after the institution converted.

But management and the seven directors, all of whom served on the credit union board, are expected to make out handsomely and have subscribed to 120,000 shares at $10 each. Industry insiders expect those shares to appreciate significantly when the stock officially goes public and starts trading on the Nasdaq later this month, earning insiders tens of thousands of dollars in easy profits.

And documents filed with the Securities and Exchange Commission indicate those insiders are expected to profit further with plans for free stock grants to top managers through the bank's employee stock ownership plan (ESOP), restricted stock plan, and stock options providing executives with the chance to buy the stock at steep discounts.

Similar Situation In California

Kaiser Federal Bank, known until November 1999 as Kaiser Permanente FCU, will also cut out former credit union members from its ongoing public sale. The Covina, Calif.-based thrift will allow depositors as of Oct. 31, 2001, two years after the conversion, to buy up to 30,000 shares at $10 each, according to Jim Gesing, a representative of Keefe, Bruyette Woods, the underwriter of the offering. "Former credit union members will not be given any preference," he said.

The shares will be offered to tier-one investors for a 20-day period, until March 15, before they begin public trading on the Nasdaq, Gesing said.

But insiders will be allowed in under tier one of the offering. Kay Hoveland, the president and CEO who guided the conversion from credit union, has subscribed to the maximum 30,000 shares, as have two other members of senior management, Daniel Cano and Jeanne Thompson, and four directors: Gerald Murbach, Robert Steinbach, James Breeden, and Marilyn Owsley, according to an SEC filing. Three directors who helped convert the credit union to MSB, Rita Zwern, Breeden, and Frank Nicewicz, have subscribed to 60,000 shares.

Those directors were also paid more than $10,000 to serve on the ex-CU's board last year, SEC documents show. In all, senior managers and directors have subscribed to a total of 255,000 shares (almost 9%) of the total being offered.

As in the case of Citizens Community, Kaiser Federal senior managers also stand to earn free stock grants under the bank's ESOP, and restricted stock plan, as well as discounted stock options.

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