How I Made $304,200 in Twenty Four hours!
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Prudent Savings Bank was founded in 1839. Prudent is a lucrative bank and has amassed over $300 million bucks in retained earnings since its founding. Prudent is a mutual savings bank. Mutual savings banks are owned collectively by their depositors. Provident's revenues have been accumulating for several years but can't be accessed by the depositors. Provident Bank decided to convert to stock ownership and sell shares of stock in the bank to its depositors. The stockholders of the stock own all the equity or net worth of the bank including the kept earnings that've been building up for a few years. Provident sold stock to its depositors at roughly 65% of book worth. Book value is calculated by subtracting the debt of the bank from the assets of the bank (including the retained revenues). Book worth for many banks is typically cash (retained earnings and the money received from the IPO). So that the depositors purchasing the Prudent stock in the IPO are essentially purchasing the net worth of the bank for 65 cents on the greenback. The IPO stock price was $10 per share. If the stock is coming out at 65% of book value then the book value is about 15.38 per share (15.38 x .65 = 10.00). If the stock trades up to book value at 15.38 then there'll be a 53.8% return for depositors who purchased the stock at $10 (15.38 minus 10.00 cost = 5.38 gain divided by 10.00 cost = 53.8% return). Provident Bank converted from a mutual bank to stock ownership and offered depositors of the bank to purchase stocks in the conversion IPO at $10 per share. As a depositor at Prudent Bank, I received notice by mail of the approaching conversion and a stock order form which allowed me to purchase stocks in the conversion at the propitious IPO cost of $10. I finished the stock order form and returned it to the bank together with a check to buy the stock. As a depositor at Prudent Bank, I was ready to purchase 52,000 shares of Provident Bank at $10 per share. I received a stock certificate from the bank (see copy of stock certificate that follows). I deposited the 52,000 shares of Prudent Bank in my brokerage account. On the IPO date shares of Provident Bank started trading on the stock exchange. On the first day of trading, shares of Prudent Bank closed at 15.85. Purchasing the shares at $10 produced a $5.85 profit per share on the IPO date (current cost of $15.85 "purchase price of $10 = profit of $5.85). I had 52,000 shares of Provident Bank which produced a total open trade profit of $304,200 on the IPO date. Not bad for a day's work!