Selling private bank stock, experiences or tips?

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
Post Reply
Topic Author
thx1138
Posts: 1164
Joined: Fri Jul 12, 2013 2:14 pm

Selling private bank stock, experiences or tips?

Post by thx1138 »

I have an acquaintance who has inherited some private bank stock. It is a small community bank in the mid-west (farming community). The amount of stock is too large a portfolio allocation so some or all of it needs to be sold.

Talking to the bank CEO it sounds like they maintain a list of interested buyers and so there is demand for the stock. There is also some sort of calculated share price used to value the shares so they have an estimate of the value of the stock inherited. I have no idea how the stock would be valued during a transaction and what if any regulations guide that. The whole thing is solidly outside my realm of experience so I'm having trouble giving them any advice. They do have reliable local legal consul so they won't be doing this blind. Nonetheless, the value of stock involved is enough that it is certainly worth them taking the time to get a little educated themselves on how these transactions work but I'm having trouble finding any good references.

Does anyone have any experience with such transactions of private stock, particularly community bank stocks? Anyone have a good reference, either online or in print? Really any information or experience would be appreciated, but as a start just understanding how such private stock transactions work would be very helpful.

Thanks in advance!
mw1739
Posts: 1146
Joined: Mon Mar 21, 2011 5:44 pm

Re: Selling private bank stock, experiences or tips?

Post by mw1739 »

Most bank sales I've seen lately have been for around 1.2x book value. Take the bank's assets, subtract the bank's liabilities and you get the book value. Divide that by the number of shares and you should get a rough idea of the minimum you should expect the shares to be worth. If the buyer is offering anything greater than that I would go for it. If it's selling for less than book value the bank likely has financial difficulties and the assumption is the assets aren't worth as much as the bank has them on the books for.
Buysider
Posts: 764
Joined: Sun May 18, 2008 9:36 pm

Re: Selling private bank stock, experiences or tips?

Post by Buysider »

Check if the bank has an employee benefit plan with company stock in it. ESOPs and other plans have to have a formal valuation done annually. that is helpful in setting a range for the price.
Greenleaves
Posts: 30
Joined: Mon Jan 27, 2014 9:08 am

Re: Selling private bank stock, experiences or tips?

Post by Greenleaves »

Is the small bank organized as a C or S corp? Sometimes for a S corp bank there are share amount minimums so be careful to not go below that with what you keep ,and there are also restrictions about who you can sell S corp stock to and maintain tax status.

I have seen ads placed in the classified sections of local papers to sell and purchase these small bank shares. Also word of mouth by local lawyers and CPA firms.

Many times the bank employees have shares and may be interested in acquiring more and might know recent share transaction prices . The banks list of interested buyers sounds like a good bet for you. Sometimes people who want to get into a S corp bank stock are waiting on the sidelines to put together the min shares they need say over 1000 or so. When a small bank which we held shares in changed from C to S corp they introduced a minimum and we had to scramble a bit to acquire the shares we needed by the deadline mainly because we did not live locally. However this also forced a lot of small shareholders out , some who were lower level employees.
Good luck
Tanelorn
Posts: 2370
Joined: Thu May 01, 2014 9:35 pm

Re: Selling private bank stock, experiences or tips?

Post by Tanelorn »

mw1739 wrote:Most bank sales I've seen lately have been for around 1.2x book value.
I'm not an expert, but I think this reflects the value for prime acquisitions. Most banks aren't that good, so will sell for less.
nodenuff2
Posts: 382
Joined: Tue Mar 06, 2012 3:08 pm
Location: Deep South

Re: Selling private bank stock, experiences or tips?

Post by nodenuff2 »

I sold some inherited back stock through the local bank. it was an arranged sale to an interested party just before the financial meltdown ..... Blind squirrel finds acorn
2014 No. 42 2015 No.342 2016 No. 6 2017 238 2018 no. 175 2019 no. 144 6 year average 157.83. Proves I am just an average investor.What do I know? "Good bless America land that I love..."
TDAlmighty
Posts: 171
Joined: Fri Dec 06, 2013 12:01 pm

Re: Selling private bank stock, experiences or tips?

Post by TDAlmighty »

You can look up various financial ratios for regional public banks on Yahoo finance. Last time I looked I believe the P/E range was like 12-16.

Private banks are going to be lower. I personally know of one private small regional bank that has an upcoming private follow-on stock offering and I calculated a diluted P/E of 8-9.
Topic Author
thx1138
Posts: 1164
Joined: Fri Jul 12, 2013 2:14 pm

Re: Selling private bank stock, experiences or tips?

Post by thx1138 »

Thank you everyone for the helpful posts and data points! I might have more questions once I know more details about the transaction in question. Thanks again.
Valuethinker
Posts: 49019
Joined: Fri May 11, 2007 11:07 am

Re: Selling private bank stock, experiences or tips?

Post by Valuethinker »

thx1138 wrote:Thank you everyone for the helpful posts and data points! I might have more questions once I know more details about the transaction in question. Thanks again.
I suspect with a private bank it will be done on price to book (book = assets- liabilities = net assets) rather than PE basis (price per share/ earnings per share).

Earnings tend to be volatile, especially in small private financial institutions (and listed ones!). And so book is a less volatile, more 'solid' basis on which things are valued.

They should not sell for less than 1.0x book (the implication would be that the bank's assets are overstated). Hopefully they will get some premium to that.
Buysider
Posts: 764
Joined: Sun May 18, 2008 9:36 pm

Re: Selling private bank stock, experiences or tips?

Post by Buysider »

They should not sell for less than 1.0x book (the implication would be that the bank's assets are overstated). Hopefully they will get some premium to that.
YMMV, but a lot of small banks are being bought out at significant discounts to book value. Has nothing to do with the assets being overstated. If you have a bank with a book value of $10 per share but it breaks even in terms of profit, it ain't worth $10. A lot of small banks are struggling to generate earnings in this low interest rate environment, are facing large increases in regulatory costs, etc., etc.
Valuethinker
Posts: 49019
Joined: Fri May 11, 2007 11:07 am

Re: Selling private bank stock, experiences or tips?

Post by Valuethinker »

Buysider wrote:
They should not sell for less than 1.0x book (the implication would be that the bank's assets are overstated). Hopefully they will get some premium to that.
YMMV, but a lot of small banks are being bought out at significant discounts to book value. Has nothing to do with the assets being overstated. If you have a bank with a book value of $10 per share but it breaks even in terms of profit, it ain't worth $10. A lot of small banks are struggling to generate earnings in this low interest rate environment, are facing large increases in regulatory costs, etc., etc.
OK thank you.

I was thinking of the accounting definition of an asset 'held at lower of book or net realisable cost, for the creation of future economic value'. ie that if a bank's valuation is below book value, the implication is that the assets will not create future economic value in excess of their current valuation, therefore a write down is necessary.

However of course European banks have been trading at significant discounts to NAV (book value). So a theoretical nicety about accounting is not necessarily reflected in reality.
Post Reply