The number of mutual thrift institutions planning to go public has dropped sharply this year despite strong investor demand and market conditions that are driving valuations skyward.

Only 15 thrift initial public offerings-known as mutual conversions-have been completed so far this year compared to 40 in the first and second quarters of last year, according to Ryan, Beck & Co., West Orange, N.J.

The decline comes as interest rates are favorable and investors are generally hungry for financial stocks. Stock prices of mutual thrifts that have gone public have appreciated as much as 30% in a year.

"This is the most healthy environment to consider converting-the market is strong and investors are still buying-many deals are still being oversubscribed," said Martin Friedman of Friedman, Billings, Ramsey & Co., Arlington, Va.

He blamed the decline in conversions chiefly on the dwindling number of mutual savings and loans.

But another serious obstacle is the reluctance of mutuals to convert while industry regulators are still trying to reconcile the bank and thrift charters.

"Thrifts do not want to be faced with a new regulator and a new set of rules mid-stream of a conversion," said Mr. Friedman. "It could potentially derail it."

And yet other mutual savings and loans are committed to staying mutuals, regardless of the regulatory environment.

"The mutual conversions that are left by process of elimination are among the most conservative bankers around," said Ben A. Plotkin, president of Ryan Beck. "They are focused on preserving control, and it is difficult to reconcile a full conversion with preservation of control."

Mr. Plotkin pointed out that another significant downside element of conversions, from thrifts' point of view, is overcapitalization, which dampens return on equity.

"Without exception, most recent conversions have a low return on equity, and it takes several years to grow into capital," said Mr. Plotkin. "And if they do not, shareholders may get impatient, and impatient shareholders can lead to pressure to sell the company."

Even if they do want to be acquired, it won't be so easy, said associate analyst Marguerite E. Sons of Interstate Johnson Lane, Atlanta.

"Overcapitalization puts a kink in the company's valuation, meaning it makes it hard to figure out," said Ms. Sons. "It is difficult to put a premium or price to be paid on excess capital. This could keep potential acquirers at bay."

Nevertheless, business will be brisk in the upcoming week, with nine thrifts (see graphic) expecting to go public next week. Many such deals occur near the end of a quarter.

"There is a realization about competing and growing through acquisition and rewarding a management team," said Mr. Friedman. "One of the only ways that you can do that is to be a stock company."

Thrift experts expect the latter part of the year to produce more action. R. Lee Burrows Jr., president of Trident Financial Corp., which specializes in mutual conversions, estimated that about 40 mutual conversions are set to go public in the year's second half.

Mr. Burrows noted that some major thrifts, such as Independence Savings Bank, Brooklyn, N.Y., are expected to convert.

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