BCSB OK'd to offer stock

Sale would provide bank much-needed boost in capital

August 31, 2007|By Laura Smitherman | Laura Smitherman,SUN REPORTER

Federal regulators have approved a stock offering by BCSB Bancorp that would make the parent of Baltimore County Savings Bank a fully public company worth as much as $64 million and put the institution on more sound financial footing.

The offering is expected to give the community bank a much-needed boost of capital after it lost millions of dollars last year in a check-kiting scheme that also ensnared another area bank and money-order business. BCSB, which announced yesterday it is moving forward with the offer, has warned investors in regulatory filings that without the money raised, the bank could deplete its liquid assets by early 2009.

Chief executive Joseph J. Bouffard played down the bank's cash crunch in an interview yesterday, saying that while it is a possibility that the bank's holding company could run out of money, "it's pretty remote." He also said some proceeds from selling stock would be used to expand the bank, particularly by enabling it to undertake more commercial lending that requires a robust capital base.

"This will give us a stable capital base to do whatever we need to grow the company," Bouffard said. "From my standpoint, the check kiting is behind us, and we're moving forward."

BCSB's stock sale comes as financial markets have been rattled by a global credit crisis stemming from problems in the subprime mortgage market. The Nasdaq bank index has plunged 12 percent this year, compared with a 6 percent rise in the overall index of stocks traded on that market.

BCSB's existing stock, which is thinly traded on the Nasdaq, is down 40 percent this year to $9 a share. The bank is not involved in the subprime market, Bouffard said.

The so-called second-step conversion means that the remaining 65 percent of common stock that has been held by the bank will be sold to the public. The bank hopes to sell as many as 4.7 million shares at $10 a share, depending on the strength of demand.

Current shareholders in the bank, which sold some stock in a limited offering nearly a decade ago, will get new shares. The latest offering is subject to approval by depositors and shareholders at meetings in October.

Certain buyers will be given priority, starting with depositors and borrowers with accounts at BCSB. Any remaining stock would then be sold to the general public, with residents of Baltimore City as well as Howard, Harford and Baltimore counties getting preference because that is where BCSB has branches. Founded in 1955, BCSB has 18 branches in the region.

The bank hopes to draw investors by mailing information to customers early next month and then opening a stock information center at BCSB's headquarters in Northeast Baltimore County. BCSB has hired the investment bank Sandler O'Neill & Partners to help it sell the stock.

Bouffard said that he has fielded calls from investors. He said the offering is enticingly priced because it is likely to be less than the company's book value, which generally equates to a company's assets minus liabilities or what it would have left over if it went out of business. Stocks typically trade at several times book value.

But David Menlow, president of IPO Financial Network, which tracks initial public offerings, said a secondary offering of stock is likely to "hit the ground with a pretty loud thud." He said that "generally most deals have had the wind taken out of them if they already have stock trading on the market."

Last month, BCSB reported its first quarterly profit since revealing that it lost $11 million to the alleged check kiting carried out by a commercial customer, identified in court papers as Baltimore-based A&B Check Cashing. The bank has recovered $3.4 million of the loss from its insurance provider but has said it may not recoup the full amount.

The bank has been operating under a supervisory agreement with regulators, which had been implemented before the kiting scheme came to light, though Bouffard said he expects that regulators will release the bank from heightened scrutiny after its next examination. Bouffard took over late last year after CEO Gary C. Loraditch resigned in the wake of the kiting losses.

laura.smitherman@baltsun.com

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