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Inside a Bank Rescue : In a Room Filled With Cigar Smoke, the Two Sides Faced Off. Seafirst Was Near Bankruptcy. Bank of America Had Money to Spend. A Tale of High-Stakes Deal Making.

September 07, 1986|HOPE LAMPERT | Hope Lampert is the author of "Behind Closed Doors," to be published in November, from which this article is adapted

"It makes good strategic sense," McLin said. "One of my staffers just did a study. I want to take a closer look."

Armacost wasn't sure why McLin was pushing Seafirst so hard, but he figured that this was a passing fancy; he could humor him. "Go ahead," he told McLin.

McLin walked back to his office. He pulled out his papers on Seafirst. He looked at the numbers again. He was sure that buying was a smart move; the problem was how to protect Bank of America from unexpected Seafirst losses. Suddenly McLin thought of an answer: BofA could pay for Seafirst with a "shrink-to-fit" stock that was worth less as Seafirst losses got bigger.

By the time McLin had worked out some of the details, it was the end of March. Seafirst was looking sicker. Bank of America had to bid soon.

McLin knew that Armacost wouldn't raise the idea with the Bank of America board unless McLin had a supporter in top management. Lee Prussia, the chairman, was lukewarm. McLin called Bob Frick, the executive vice president and cashier. "Seafirst is a good strategic fit," he said. "I know it isn't No. 1 on our target list of states, but Washington has potential."

"That's a crazy idea," said Frick. Frick calls all McLin's ideas "crazy," and he says he expects just one in five of them to pan out. "But this is a crazy idea that might make sense. Might." He paused. "I've got some questions," he said. "First, management: Cooley is first-rate, but what about the other officers? Seafirst has fired a dozen or so already. Is there anyone left? Second, the loan portfolio: Are the commercial and local loans any better than the energy loans?"

"I don't know," said McLin. "I won't know until I talk to Seafirst." He handed Frick the staffer's memo.

Frick tossed it into his "in" box. "Keep working on this," he said. "I'll handle Sam."

A couple of days later, McLin sent an investigator to Seattle to look at the Seafirst books. The man liked what he saw. McLin called Armacost. "Can I invite Salomon Bros. to make a presentation on Seafirst?" he asked. A presentation might get Sam moving.

"OK," Armacost said. It couldn't hurt to listen.

McLin scheduled the meeting the day before Bank of America's April board meeting. Unfortunately, Armacost wasn't in a great mood that day. "Why the hell should I buy this bank?" he asked Kimmel as soon as the banker had sat down. "It's sick."

"Seafirst is really two banks," Kimmel said, handing Armacost a booklet of numbers that he had put together on Seafirst. "A very sick $1-billion energy bank and a healthy retail bank. It's a logical extension for Bank of America, more logical than it would be for, say, Citibank."

Armacost was skeptical. "When's this bank going to be profitable again?"

"Three years," Kimmel said.

"That's not soon enough," Armacost said. "And I think you're being optimistic." He looked at the booklet that Kimmel had given him. "Where do these numbers come from?"

"Look," Kimmel said. "This bank used to be a money machine. It made some bad loans. The cancer is contained. It's going to be profitable again."

Armacost scowled. "I'm not sure I like this. We've got problems of our own." He looked at his watch. "You guys can keep talking, but the numbers don't look good. I've got another meeting."

Dick Cooley had a deadline to find a buyer for Seafirst: April 21, the day of the Seafirst annual meeting. Cooley would have to announce first-quarter results in his presentation to shareholders, and the numbers would be so bad that depositors would run to withdraw their cash, forcing Seafirst into bankruptcy.

At the beginning of the month, Salomon Bros. still hadn't found a buyer, and Cooley knew that there was only one other option--a federal bail-out. So in the middle of April, just eight days before the annual meeting, Cooley flew to Washington to talk to bank regulators. The officials made it clear that they weren't going to help, and Cooley flew back to Seattle discouraged.

He spent the weekend talking to big depositors in Seattle. Tuesday morning he headed for New York to talk to the safety-net banks: Seafirst might have to borrow later in the week. Late in the afternoon, Cooley was chatting with Donald Platten, chairman of Chemical Bank, when Platten's secretary buzzed.

"Sam Armacost of Bank of America is calling for Dick Cooley," she said.

Bank of America had decided to bid.

Cooley couldn't stay to handle the talks: He had to fly back to Seattle that night to get ready for the shareholder meeting Thursday. Bill Pettit, Seafirst's chief financial officer, was already in New York. He would take Dick Cooley's place at the negotiating table.

"Bank of America is here to present an offer, not to negotiate," Bank of America's investment banker said when the two teams sat down at 11 that night. "If you don't like the price, we're back on the plane."

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