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Why CFFN shares are falling and why it will eventually stop

|Includes: Capitol Federal Financial (CFFN)

CapFed is in the midst of a plan to convert its two-tier mutual holding company into a full stock holding company. Driving the move are concerns about likely rule changes related to dividend payments, now that the Office of Thrift Supervision is set to be taken over by the Office of the Comptroller of the Currency, as required by the Dodd-Frank Wall Street Reform and Consumer Protection Act.

CapFed CEO John Dicus said in an earlier interview that a rule change for dividend waivers no longer would allow the holding company to waive its dividend on the 71 percent stake it holds and give the entire dividend to public shareholders. New rules about dividends also could require past waived dividends to be accounted for in diluting ownership stakes in a new public company. That could result in minority shareholders seeing their stake diluted by about 100 percent because of the several years that the company waived its dividend.

Read more: Capitol Federal Financial continues reorganization push despite setback - Kansas City Business Journal

CapFed CFO Kent Townsend said the company was seeking to sell 144 million to 195 million shares.

That's in addition to the existing 74 million shares.  More than tripling the existing float.

It fell short of the 144.5 million shares it needed to sell, though it is not commenting about how many it sold, said Jim Wempe, vice president of investor relations. The company attributed the failure to sell that amount to the overall decreasing value of bank stocks.

CapFed’s new shares have been listed at $10.

Therefore, Cap Fed's stock will keep falling until it resolves this issue.  The bank itself is in fine shape (I've been a customer since 1991, I live in Overland Park, KS).  However, this stock will be in free fall until a resolution is reached and the plan to sell 144 million shares at $10 is absolutely killing existing shareholders.

For the recorded I cut and pasted large sections of this text from an article by

James Dornbrook at the Kansas City Business Journal

(and by large sections I mean I cut and pasted the whole thing, I am not a business journalist, just wanted to let other SA readings in on the story behind this stock).

Disclosure: no position in this stock