New caution on the part of regulators about share buybacks could complicate the future for eight small thrifts making initial public offerings this week.

GS Financial Corp., Metairie, La.; NewSouth Bancorp., Washington, N.C.; and Hemlock Federal Financial Corp., Oak Forest, Ill., are among the thrifts that will begin trading this week after offerings that range in size from $2.9 million to $161,000.

In earlier deals, thrifts that raised excess capital in IPOs have been able to get waivers from the Office of Thrift Supervision's buyback rules. These rules forbid share buybacks within six months after a charter conversion and limit repurchases to 5% of shares outstanding each six months for the first three years.

The OTS has granted waivers in light of "extraordinary circumstances." The regulator reasoned that it was fair to allow buybacks by companies whose franchises had been overvalued in the appraisal process. This would help keep shares trading at close to the initial offering price, according to John Downey, executive director of supervision at the Office of Thrift Supervision.

Stock buybacks increase the value of shares by reducing the number available to satisfy buyers' demand. These programs are an increasingly popular capital management tool as banks and thrifts seek ways to return value to shareholders without taking undue risks.

Some thrifts have been granted waivers allowing them to buy back 10% of their shares right away. But as requests for additional stock repurchases flooded regulators' desks, they have become more cautious.

"'Extraordinary circumstances' were being too broadly defined," Mr. Downey said.

Thrifts filing to convert to stock form must submit business plans to explain how the proceeds will be invested. "Some will argue that the conversion process brought in too much capital and (they) have to get it back out. But that was a given going into this," Mr. Downey said.

Converting thrifts must "attempt to execute their business plans," Mr. Downey said. He rejected the idea of construing a buyback within six months of an IPO as part of a business plan.

"These thrifts are deviating from their business plans, shortly after executing" them, he said. Although Mr. Downey did not rule out exceptions, he noted that "the regulation is clear for everyone going into it."

"Capital is being moved out of the communities, and leaving the mutual in which it was accumulated," Mr. Downey said. "If we're going to capitalize the institution to better service the communities, the business plans need to be given time to work."

Furthermore, with the market carrying stocks to such high prices, it is expensive to buy back shares, Mr. Downey said. He emphasized that limits on buybacks merely enforce rules that were already in place and do not represent a regulatory crackdown.

In connection with its IPO, NewSouth is converting to a commercial bank in order to exploit commercial lending opportunities that aren't open to thrifts.

"This is a good transition for S&Ls looking to use new capital to expand," said William Wagner, a senior vice president at Trident Securities Inc., Raleigh, N.C. "They feel that there is demand in their market and that they have the lending staff to handle it."

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