In a sign that the moribund market for initial public offerings may be reviving, Prosperity Bancshares made one Thursday-the first by a bank in nearly two months.
The 1.7-million share offering for Prosperity, a $400 million-asset bank based in Houston, was managed by Keefe, Bruyette & Woods Inc. and priced at $12 per share. The stock closed at $12.4375.
"The market has come back for solid stories," said Craig McMahon, the Keefe Bruyette investment banker who arranged the Prosperity deal. "But still, investors got burned in the small and micro-cap sector. We were very fortunate to get this one done."
Industry watchers noted that it was first bank IPO since that of Admiralty Bancorp of Palm Beach Gardens, Fla., on Sept. 25. Between came a seven-week drought in the previously fertile sector.
But investor appetite so far is largely limited to IPOs from bigger companies offering easily tradable stocks, investment bankers said. They noted Merrill Lynch & Co.'s successfully leading an IPO this week for Fox Entertainment Group Inc., and Goldman, Sachs & Co.'s leading one for MONY Group Inc.
But any sort of IPO revival is good news for securities firms. Earnings at most firms plunged in August and September, because the IPO market evaporated amid market turmoil that forced many firms to report big trading losses.
Since the Federal Reserve cut interest rates a second time on Oct. 15, confidence has gradually returned to the capital markets, economists and analysts say. Stock prices for Merrill Lynch, Morgan Stanley Dean Witter & Co., and other major underwriters have risen accordingly.
"The thrust of their profits comes from investment banking, and after all the talk about layoffs and cuts at these firms, the psychology now appears to be 'We're back in business,'" said Arthur Hogan, chief market analyst at Jefferies & Co.
The fledgling IPO revival goes hand in hand with growing confidence that banks will continue to make loans available.
"Bank credit is rising strongly, and liquidity has returned to most sectors," said Ian C. Shepherdson, chief U.S. economist at High Frequency Economics in Valhalla, N.Y.
Still, small companies are continuing to find the IPO market tough going. Innes Street Financial Corp. of Salisbury, N.C., and Lincoln Bancorp of Plainfield, Ind., both mutually held thrifts that filed Sept. 14 to convert themselves to publicly traded companies, both disclosed this week that they plan to issue smaller offerings than anticipated.
Innes Street Financial disclosed Wednesday that it plans to issue 1.95 million shares at $10 per share and raise up to $18.6 million in net proceeds, down from its original plan to issue 805,000 shares at $30 per share and raise $23.1 million.
Lincoln Bancorp disclosed Monday that it plans to raise up to $57.6 million, down from the $73.6 million sought in its original Sept. 14 filing.