More than ever, mutual thrifts are being targeted by depositors who try to force their conversions to publicly traded companies, industry insiders said.
Now one is fighting back.
Spencer Savings Bank in Elmwood Park, N.J., has filed a lawsuit accusing one of its depositors, the well-known activist investor Lawrence B. Seidman, of trying to seize control of the $1.8 billion-asset thrift illegally, so he could then force it to go public.
"Mr. Seidman views Spencer as a commodity to be bought and sold in the marketplace," Jose Guerrero, Spencer's chairman, president, and chief executive officer, said in a statement announcing the lawsuit last week. "We reject such a view, as Spencer exists to serve a larger community purpose than individual investor gain."
The thrift argues that Mr. Seidman's tactics are a violation of a federal law that prohibits outsiders from gaining control of a mutual savings institution.
The suit is believed to be the first in which a mutual thrift had sued a depositor on such grounds - and Robert R. Davis, the managing director for government relations at America's Community Bankers, which counts more than 90% of the nation's mutual thrifts as members, said the case is likely to be watched closely by executives at other mutuals.
More and more of the trade group's members are under pressure from "activist depositors" to convert to stock-owned companies, Mr. Davis said.
It is easy to see why.
Mutual thrifts that go public are required to give depositors first dibs on stock offerings, and those offerings can be lucrative. Chicopee Bancorp Inc. in Massachusetts went public at $10 a share on July 20, and its stock price rose nearly 45% in its first day of trading. ViewPoint Financial Group in Plano, Tex., went public in October, also at $10 a share, and the stock shot up 50% on its first day of trading. Late Monday it was trading at $17.25 a share, or 72% above the initial offering price.
Investors also can make handsome profits if a converted mutual eventually sells itself - as the majority of them do.
Spencer's complaint, filed in the U.S. District Court for New Jersey, accuses Mr. Seidman of scheming with colleagues to seize control of the thrift by influencing its directors and by trying to obtain board seats.
It argues that, under the Savings and Loan Holding Company Act, a mutual savings institution is a special legal entity that exists to benefit the community and therefore cannot be taken over by outside interests.
Mr. Seidman conceded that he has worked toward getting board nominations for other people by trying to collect signatures from Spencer depositors on a petition. However, he also said he does not believe he did anything illegal.
"I thought that's what democracy was," he said.
Mr. Seidman had not heard about the suit until called for a comment about it, and he took the news in stride. "No big deal," he said.
Mr. Seidman is familiar with court battles, having brought numerous lawsuits against banking companies where he is a shareholder. He also has sued Spencer, claiming in a 2004 suit that it breached its fiduciary duty when it changed its bylaws to increase the percentage of members needed to nominate a candidate for the board after he decided to run for a board seat.
The suit also accuses Spencer of corporate waste for paying for Mr. Guerrero to attend a board retreat in Spain. A judge has yet to issue a ruling in the case.
Mr. Seidman also is involved in proxy fights with two other New Jersey companies: Yardville National Bancorp in Hamilton and Center Bancorp Inc. in Union.
Spencer's complaint cites his long history of shareholder activism, saying 16 of the 17 thrifts in which he has invested since 1989 decided to sell themselves within two years of his initial involvement. (The most recent example on the list is First Federal Bancshares Inc. of Colchester, Ill. It agreed in November to sell itself to Heartland Bancorp Inc. in Bloomington for about $28.6 million in cash.)
The complaint accuses Mr. Seidman of orchestrating "wolfpack tactics" with other investors to antagonize companies until he gets his way.
"Mr. Seidman may have been successful in the past in the use of his confederates to acquire control of public stock companies, but these are not tactics which the law permits to be used against mutual institutions like Spencer," Mr. Guerrero said in the press release.
A spokesman said Mr. Guerrero would not comment beyond the press release and referred questions to Spencer's attorneys.
