Cap Fed to make all of its shares public

John Dicus and other senior managers at Kansas' largest financial institution think the financial reform legislation being debated in Washington will change who regulates Capitol Federal Financial and the rules that govern it.

That is why the president and CEO of the holding company of Capitol Federal Savings Bank announced a reorganization Thursday that will make his company 100 percent publicly traded — and likely increase its capital.

The reorganization, which is subject to regulatory approval and expected in the third quarter, will not have any effect on the operations of Capitol Federal Savings Bank. The $8.4 billion bank operates 45 branches in the state and is a leader among Wichita-area mortgage lenders.

The reorganization calls for dissolving Capitol Federal Savings Bank MHC, a mutual holding company that holds 70 percent of the shares of Capitol Federal Financial, which owns the savings bank.

The remaining 30 percent of the shares in Capitol Federal Financial are owned by public stockholders. That stock is traded on Nasdaq under the symbol CFFN. The symbol will not change under the reorganization.

With the dissolution of the mutual holding company, Capitol Federal Financial will be the sole company above the savings bank.

Dicus said driving the reorganization is the likelihood that Capitol Federal eventually will be supervised by the Federal Reserve and not the Office of Thrift Supervision, based on federal financial reform legislation in the House and Senate.

A different regulator means it could be operating under some different rules that would affect the part of the company that is held as mutual stock. And those changes could affect the value of the publicly held shares of the company, Dicus said.

"For us to preside over a decrease in the value of our (stock held by) public shareholders like that is a risk management and the board was not willing to take," he said.

The plan calls for converting the 70 percent of shares in mutual stock to be issued as public stock in Capitol Federal Financial. The holders of the 30 percent of public shares would be issued new shares in Capitol Federal Financial.

Rick LeCompte, a Wichita State University finance professor, said Dicus' concerns about financial reform and its possible effects on Capitol Federal were "reasonable."

"Here's a company that didn't take TARP (Troubled Assets Relief Program) money and this is a chance for them to raise additional capital from the public financial markets," LeCompte said. "They're using (reform) as a chance to recapitalize, and it gets them to a more streamlined capital structure."

Dicus said even though Capitol Federal may not be regulated by the Office of Thrift Supervision, he doesn't anticipate the savings bank changing its thrift charter.