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Pair of cheap thrift conversions

www.valuedontlie.com

Pair of cheap thrift conversions

Feb 28
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Share this post

Pair of cheap thrift conversions

www.valuedontlie.com

Thrift (or mutual) conversions are perhaps widely known in the value investing community as popularized by Seth Klarman’s Margin of Safety, though I still don’t see much discussion on them. These are as exciting as watching paint dry, maybe that has something to do with it.

Here’s a very good post outlining the basics of a thrift conversion. Essentially, it’s a small bank IPO without the selling shareholders, proceeds from the capital raise are tacked on to existing equity and all shareholders benefit; this leaves the post-conversion bank with significant excess capital to deploy. We’ll refer to these as both thrift conversions and mutual conversions.

These 2 thrifts are at very different phases of their post-conversion lifecycle —

  • The first stock completed their conversion many years ago and spent nearly their entire pool of excess capital, now becoming “just a bank.”

  • The second stock is a recent conversion and sitting on quite possibly the most overcapitalized balance sheet in the small cap financial space.

Both investments are General positions with a 2-3 year time horizon. They are cheap, have excellent balance sheets, and should trade independent of the overall market.

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