Wall Street's noose around IGA Federal Savings Bank appeared to tighten last week as a fourth investor in the former credit union known as IGA FCU joined others agitating for major changes or a possible sale of the $201-million thrift.
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The new investor, who holds a 4.9% stake in IGA's parent, Jade Financial, joins three others seeking to maximize shareholder values for stockholders, which likely means the sale of the former credit union. Those stockholders own a total of 25% of Jade Financial, almost four times as much as senior management, which is slowly losing control of the institution they converted from a credit union just 20 months ago.
"These boys don't have the votes to stay public. This thing is history, it's a fait accompli," said John Spence, a Nashville-based publisher of The Vulture's Roost, a newsletter about banks and thrifts. Spence, who holds 20,000 Jade Financial shares, said he has been talking in recent weeks with other investors in the former credit union, including an unidentified holder of 4.9% of the shares, just under the 5% threshold at which they must identify their holdings to the Securities and Exchange Commission (SEC).
Jade Financial officials would not return telephone calls from The Credit Union Journal.
Spence predicted the sale of the former credit union will reap huge financial benefits for management and directors, most of whom own stock.
"If they play ball they'll come out smelling like roses," he said. "Sometimes the best deals in life are the ones you don't want to make. We'll make them some money and they'll come out kickin' and screamin'."
Top management and directors of the former credit union have already reaped more than $750,000 from the 65% valuation in the company stock since its initial offering last fall. Many others of the former credit union members, all of whom were allotted stock at the initial price, are also believed to have profited, but there is no way to know to what extent.
Management and directors stand to gain even more if a stock option plan they are preparing is approved by shareholders, but that is doubtful now.
Spence's and the other Jade Financial investors were set off when they learned from non-company sources that the former credit union had invested $2.5 million, a tenth of its equity, in an Internet start-up called BankZip.com. The company plans to offer on-line transactional services and create an Internet portal for small community banks, starting in the Philadelphia area and eventually going national.
"You invest in an old thrift company, you don't expect to be in the dot.com business," said Spence.
Warren Mackey, a Wall Street investment manager who holds 10% of Jade Financial, also learned of the BankZip.com investment from sources outside the company, prompting him to change his stance from passive investor to one agitating for a public accounting by Jade officials.
"When they converted to a public company they sold themselves as a community bank, taking deposits and making loans locally. In December they took 10% of their equity and invested it in an Internet start-up company," said Mackey. "Now I know how to make money in community banking, but banks have screwed up historically investing in Internet companies. If I wanted to invest in an Internet company I wouldn't do it through a community bank."
Mackey, who heads two investment partnerships, Arles Partners and Homestead Partners, said the company should appoint one of the public shareholders to its board.
Interest On Capitol Hill
That's what another major Jade Financial investor, Lawrence Seidman, wants. Seidman, who holds 8.3% of Jade Financial shares, has a reputation as a raider of small financial corporations and has prompted several other thrifts to sell themselves by forcing himself or a representative onto their boards.
Jade Financial (IGA FCU) was only the fourth credit union, and second since the imposition of a federal ban on multiple group expansions, to convert to a thrift when it did so in July 1998. Last October it became the first former credit union to go public, with an initial public offering that raised about $15 million.
The issue has raised interest on Capitol Hill, where Congress stripped out of the CU Membership Access Act, HR 1151, provisions that would have made it more difficult for insiders to profit from the conversion of a credit union. Since then lawmakers have proposed a separate prohibition on insider enrichment for five years after conversion, but that measure is part of a regulatory relief bill for banks that is doomed this year.
