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Small Buy Note — Mutual Conversion

By Travis Johnson, Stock Gumshoe, April 21, 2017

I’m on vacation this week so won’t be penning my regular Friday File, but I did want to note that I just did get an order filled for a small position in PCSB Financial (PCSB), the bank that did a mutual conversion offering to its account holders last month and went public on the Nasdaq today.

I’ve kept this position small because the pop in shares was so large — a pop was certainly expected, since pretty much all mutual conversions pop on the first trade because of the nature of conversions (even the mutual insurance company conversion that I bought earlier this year, NI Holdings (NODK), popped by more than 40% on the first public trade), but I’m hesitant to overpay by too much even for a high-value bank in a wealthy New York suburb like PCSB.

This conversion has been hotly anticipated for a while, and not just by Chris Mayer, who led us to it with his heavily promoted teaser pitches earlier in the year — mutual conversions are a popular niche in the markets, and those that are close to NY and familiar to Wall Street folks (many of whom live in Westchester, and may have PCSB as their local bank) get even more attention than most. ¬†They do generally tend to produce solid returns with relatively low risk, though they certainly don’t always beat the S&P 500, but in the case of prime urban or suburban banks the real promise is that there’s a good chance they’ll be bought out at a nice premium once their three-year moratorium ends (mutual conversions can’t be acquired until at least three years after they convert).

So I’m likely to hold and ignore this one for a while, and may add to it if the price dips — I picked up these initial shares between $16 and $16.25, but would rather build a position at $14-15 if the folks who participated in the conversion at $10 take their profits over the next week or two, as sometimes happens, so we’ll see.

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