I am struggling with the MHC concept as well. Some feedback on the example below would be very helpful. I found the following article on MHC structure and second offering very helpful:
http://reminiscencesofastockblogger.com/category/regional-banks/
I split below the claim on earnings between the case of retained earnings and distributed earnings.
Retained earnings
I hope to get feedback on the following example. F.e. BV of the example bank is $100, public shareholders have 40% and P/B is 1. So public shareholders have $40. The bank earns $10 and retains all of it, so the BV becomes $110, 40% of this for the public shareholder is $44.
Now, after the second offering (and assuming share price is equal to bv):
- MHC holders pay 60% x $110 = $66 for the 60% shares issued.
- BV becomes $66 + $110 = $176
- 40% of the new book value is $70.4
So, the 10% earnings on $40 equity ownership, turns into $70.4 equity ownership, an increase of $30.4. Probably the second offering will be for a discounted share price, there will be a loan for stock option plan, a local charity contribution, etc. But this seems a large margin of safety.
Distributed earnings
According to the following article, the depositors need to waive their right on dividend each year:
http://www.fa-mag.com/news/mutual-banks-may-struggle-under-fed-dividend-rule-9799.html
Is this rule still applicable? In case the depositors waive their right, the earnings would remain disproportionately accretive to the shareholders otherwise not.