Entrust Learning Center > IRA Insights > July IRA Insights: Start Up Bank Stock in IRAs

July IRA Insights: Start Up Bank Stock in IRAs

In many small towns across the country, large banks have moved in and gobbled up smaller competitors to expand their presence. As this occurs, the one size fits all' approach used by these larger banks creates voids in what many people consider . . .

By: Jack Kiley

IRA Insights

By: Jack Kiley

In many small towns across the country, large banks have moved in and gobbled up smaller competitors to expand their presence. As this occurs, the ‘one size fits all' approach used by these larger banks creates voids in what many people consider the traditional banking relationship. These voids are seen by some astute businessman to be opportunities. This, in turn, has given rise to an increase in new bank formation.

As these prospective banks move forward through the regulatory and compliance maze, they reach the point where they receive the ‘green light' to begin the capitalization process. During this process, potential investors are contacted and the investment opportunity is shared with them. As part of the presentation, purchasing the new bank's stock with retirement funds is usually mentioned. (According to statistics, approximately 30% of start up bank capital comes from IRAs and retirement plans.)

Holding this asset in a self-directed IRA has a lot of appeal to some investors. Generally, these start-up banks are formed as closely held companies which are not publicly traded (this necessitates the holding in a self-directed IRA). Many investors like the thought of investing in an entity which helps their community. Additionally, history has shown over the past five years that acquired banks have sold for approximately two times book value. Further, many investors view the oversight by various regulatory agencies to be good for their investment. As with any investment, you and your advisors will need to do your own due diligence; but if approached, new bank stock may be worth your review.

Jack Kiley, is a Certified Public Accountant with a Series 65 license. He is a Partner of Entrust MidAtlantic, LLC., serving the states of Maryland, Virginia, District of Columbia, and the Eastern Counties of West Virginia.

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