William C. McGarry has been told that his Ridgewood Savings Bank in Queens, N.Y., could raise as much as $2 billion if it went public.
But despite what would be an obvious windfall for him and other top executives, Ridgewood’s president and chief executive officer is not interested in going public. He will not even consider the mutual holding company structure, which would let Ridgewood sell a minority stake but keep control in the management team’s hands.
“There might be some very good reasons” to convert, “but not in our minds,” Mr. McGarry said in a recent interview.
The way he sees it, converting to a mutual holding company would inevitably lead to becoming 100% stock-owned, which would threaten the 84-year-old Ridgewood’s independence.
He has a point. Investment bankers estimate that about 65% of the mutuals that go public are ultimately sold, often within five years of converting.
Not all mutual savings banks share Mr. McGarry’s apocalyptic view of public ownership. In fact, there has been something of a conversion boom in the past year and a half — 19 mutual thrifts have become either mutual holding companies or fully stock-traded institutions. In the same period eight mutual holding companies completed “second-step” conversions, in which they disposed of the blocs of stock that were not sold in their initial public offerings.
In some cases the money was staggering. Provident Financial Services Inc. of Jersey City raked in $596 million in its January 2003 conversion to full stock ownership, according to Ryan Beck & Co. Inc. of Livingston, N.J. New Haven Savings Bank attracted a record $1.02 billion in a similar conversion in April. (It renamed itself NewAlliance Bancshares Inc.)
Analysts say Ridgewood, which is larger than both of those companies were at the time of their conversions, and which does business in one of the nation’s most desirable markets, would attract far more cash if it converted.
Mr. McGarry said he received a wave of calls from investment bankers in the weeks after New Haven’s conversion. “They were saying, ‘Did you see this? Do you know how much money you could make?’ ”
It is more than just concern for its independence that keeps Ridgewood mutual, he said. Its entire “steady-as-she-goes” way of doing business is based on remaining free from the pressures that publicly traded companies face.
Ridgewood “does a very good job providing basic financial services” — savings and checking accounts, certificates of deposit, and mortgages — and executing such a plain-vanilla strategy well would not be good enough for most investors, he said.
“Now that you have trillion-dollar companies, the ones in the middle feel a compelling need to grow and grow,” Mr. McGarry said.
With the exception of some fill-in branches, he wants no part of the expansion frenzy gripping the metropolitan market. “We’re reaching a saturation point,” he said. “Everybody wants to open on every corner in New York City and Long Island. It’s not prudent.”
He is also not about to overpay for deposits. “We’ve seen some almost unbelievable specials” from competitors, Mr. McGarry said. “We’re not going to entice people with come-on rates.”
Though it seems passive, Ridgewood’s strategy has its strengths. Asset quality is pristine, and earnings rose 4.4% last year, to $27.3 million.
Since 1992 Ridgewood has made more than $315 million. Those profits have contributed to a capital pool of nearly $500 million, which makes a competitive return on equity difficult to achieve. Its ROE was a mediocre 5.87% last year, well below the 10% average for thrifts its size, according to the Federal Deposit Insurance Corp.
Without question, investors at a publicly traded company would demand that the money be used to fund growth initiatives or be doled out to investors in the form of dividends. But Mr. McGarry views the cash hoard as one of the twin pillars of its stability — along with its mutual status.
He said he has listened to pitches from investment bankers, who suggest that he and other insiders would receive a big share of the capital in the form of stock grants and options if Ridgewood were to go public, but he dismissed that possibility as unfair.
“We don’t have any more right to that capital than anyone else does,” he said.
James Abbot, an analyst at Friedman, Billings, Ramsey & Co. Inc. in Arlington, Va., said few mutual management teams have been able to resist the incentives involved in stock conversions.
“Most management teams have been persuaded to look at the economics. There’s been a lot of discussion” among investors “as to when or if Ridgewood is going to go public,” Mr. Abbot said. “All I can say is it would be real exciting if they did.”
Other observers say that, despite public comments to the contrary, Ridgewood will eventually convert. The reason: There is just too much money on the table.
But Mr. McGarry leaves no doubt about where he stands. “I keep telling people, ‘When you hear that the pope got married, give us a call. We may have changed our minds.’ ”
