Trafton to the Rescue: How Tough CEO Put Glendale Back in the Race Again
Zuckerman, Sam, American Banker
SAN FRANCISCO -- Resurrection is a miracle when it occurs once. Glendale Federal Bank's Stephen J. Trafton has been through it twice in one year.
Eight months ago, in one of the most sensational rescue operations in savings industry history, Glendale's chairman and chief executive successfully completed the long-shot recapitalization of the nation's fourth-largest thrift.
Mr. Trafton's feat staved off a federal takeover of Glendale, based in the California city of the same name, confounding a legion of skeptics who had predicted its demise.
But fresh equity did not restore Glendale to health. The thrift still faced a weak California economy, falling revenue, and stubborn credit problems. At times its plagues seemed almost biblical: earthquakes, floods, and fires pounded the thrift's real estate portfolio.
Back from the Brink
Yet, just when it looked as if the roof was about to fall on Mr. Trafton again - with losses mounting, capital dwindling share prices plummeting and stockholders demanding his head- the 47-year-old executive once more pulled Glendale back from the brink.
This go-round, it wasn't the capital markets but the timely sale of Glendale's Florida operations that bailed him out.
He agreed to sell 60 Sunshine State branches and $3.6 billion in deposits to Barnett Banks Inc. for $243.5 million - a spectacular 6.7% deposit premium.
The deal promises to shore up Glendale's balance sheet at closing later this year. But beyond that, it has won back the affections of a high-powered group of institutional investors who had become irate over Mr. Trafton's performance.
To be sure, the Florida sale is not the only thing that turned Glendale shareholders around.
Results for the March quarter showed the $17.3 billion-asset thrift's revenues rising and its losses narrowing. California's business climate is looking brighter. And Glendale's current bulk asset sale will slash loan problems without requiring further writedowns or charges to capital, Mr. Trafton assures.
"We have experienced slow but consistent improvement," Glendale's chief said in an interview.
That sense of progress is reflected in Glendale's stock price. Offered at $9 in September, shares fell below $6 after a $40 million loss was reported for the December quarter. Now, despite the bear market for stock, Glendale's shares have regained all their lost ground.
"It looks like the storm clouds are clearing" said Salomon Brothers analyst Bruce Harting.
All the same, for months sale of the Florida branches was the main issue dividing Mr. Trafton and his investors.
After putting the branches on the block, Mr. Trafton took them off in October. But the shareholders demanded he proceed with the sale to provide a capital cushion. Throughout the fall and winter, Mr. Trafton refused.
The December quarter produced a worse-than-expected loss of $40 million, pushing Glendale to just $28 million above minimum regulatory capital levels. Some investors came to view Mr. Trafton as an obstacle not just to the success, but perhaps even the survival of the institution, according to several shareholders.
One major investor, who asked not to be identified, said: "Another quarter like December and the feds would have come in."
'He Did the Right Thing'
For months, relations between Mr. Trafton and shareholders remained strained. But when he announced the deal with Barnett, the air quickly cleared.
Udayan Ghose, a partner at Omega Advisors, which invested $20 million in Glendale's September stock offering, was among those who pressed for a Florida sale. Now he says of Mr. Trafton's performance: "He did the right thing by waiting to sell Florida until the valuation was right."
Some analysts are convinced the investors forced Mr. Trafton's hand. …