Nasdaq Ills Lead Some Converted Thrifts to Amex

Criticism of the spreads imposed by Nasdaq's market makers is pushing some conversion-minded mutual thrifts into the arms of the equity market's "also-ran," the American Stock Exchange.

Since the beginning of 1995, seven small mutual thrifts that have converted to stock form have opted to list their stock on the Amex, eschewing the embattled Nasdaq, which has become so popular among newly public companies. And an eighth mutual, $592 million-asset Bostonfed Bancorp, is now preparing to follow their lead.

Though the eight represent just 14% of the thrift initial public offerings this year, they are the first financial institutions in six years to convert and list directly on the Amex without going to Nasdaq.

But some equity analysts aren't giving their Amex decision rave reviews.

"I think they're ill-advised, pure and simple," said James Moynihan, senior vice president of Advest Group in Boston. "The American is not the place to be. If you go onto the American, which appears to be losing market share to both Nasdaq and the New York Stock Exchange, I think it's a mistake."

Historically, it's been rare for banks and thrifts to choose the Amex over either Nasdaq or the New York Stock Exchange. The NYSE has stricter requirements, so most banks have selected Nasdaq, including larger institutions such as Green Point Savings Bank, which had $7.4 billion in assets when it converted in January 1994.

In fact, of the 851 publicly traded banks and thrifts on the three exchanges, only 38 are now listed on the Amex, according to SNL Securities Inc., Charlottesville, Va.

But Nasdaq, which is run by the National Association of Securities Dealers, has been under public scrutiny and federal investigation this year because of many complaints that the spreads between bid and ask prices we too high, providing financial bonanzas to the system's market makers and discouraging some investors.

At the Amex, on the other hand, spreads have usually been much lower and trading less volatile, improving fairness and protecting stockholders, some observers said. That's been among the reasons cited by the eight banks.

"The Amex will provide for one firm to act as the specialist for Kentucky First Bancorp in a true auction market," said Betty J. Long, president and chief executive of the Cynthiana, Ky.-based institution. "We think that this type of market can create a narrower spread between the bid and ask, and we feel that this is advantageous for interested buyers and sellers."

"There have been some concerns about Nasdaq spreads, especially by medium-sized thrifts," said Doug Faucette, partner at Muldoon, Murphy & Faucette in Washington. "Bankers are very conservative people and a lot of this negative publicity is making them focus on alternatives."

Also, the Amex has been more aggressively marketing itself lately to new companies.

The banks' decisions may also have been based on advice from their adviser, Raleigh, N.C.-based Trident Financial Corp., a 13-year-old investment banking firm specializing in mutual conversions. In fact, before this year, Trident handled the last case of a conversion going onto the Amex, in April 1989, with North Bay Financial Corp., Petaluma, Calif., now $391 million in assets.

Trident officials could not be reached for comment.

But the bankers' decision to settle on the Amex is raising the eyebrows of analysts and other observers, who say their stock won't be as actively traded on the Amex and who downplay the negative publicity that's been hammering Nasdaq.

With Amex, the stocks would be assigned to only one specialist, who would be responsible for creating a market for the stock, handling all trades and guaranteeing some stability, Mr. Moynihan said. Though other brokers can still deal in the stock, they must go through the specialist.

On the other hand, Mr. Moynihan speculated that more than a half-dozen market makers would probably have picked up the stocks on Nasdaq.

But Arnold Danielson, president of Rockville, Md.-based Danielson & Associates, said there really wasn't much difference between the two exchanges. Being on the Amex could even prove to be an advantage because there are far fewer companies on that exchange, he said.

"It really doesn't make much difference which one you're on," he said. "Neither one is the New York Stock Exchange."

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