Look Who's Mixed Up With First Capital

Few executive ousters have been as acrimonious as Peter A. Cohen's forced departure as CEO of Shearson Lehman Brothers Inc. in January, 1990. While CEO of Shearson, he was blamed for a variety of blunders, such as the acquisition of E. F. Hutton & Co. and the firm's botched efforts in the RJR Nabisco buyout. The bitterness between Cohen and James D. Robinson III, CEO of American Express Co., which owns Shearson, was so intense that it took five months for Cohen's lawyers to negotiate his $10 million severance agreement. Then, he dropped out of view.

Now, because of a rather unusual set of circumstances, Cohen has surfaced in an improbable new role: de facto chief executive of First Capital Holdings Corp., the nearly bankrupt Los Angeles insurer that is 28% owned by Shearson. Back in 1988, Cohen engineered Shearson's purchase of a stake in First Capital and later joined the board. Officially, he's a full-time consultant with a salary of $25,000 a month. Yet, "Peter Cohen has been the principal person we've been dealing with," says John Garamendi, the California insurance commissioner who recently seized First Capital.

By most accounts, Cohen labored mightily to save First Capital. Cohen would surely like to rehabilitate his badly tattered reputation. "He's got an ego," says a source close to the situation. "He would like to resurrect his acquisition." Yet Cohen was unable to prevent First Capital from being seized by regulators or to forestall the company's banks from filing an involuntary bankruptcy petition. "We just ran out of time," he says.

Cohen fell into his job pretty much by default after Robert I. Weingarten, First Capital's founder and chairman, abruptly resigned on Mar. 15. Richard DeScherer, a New York attorney and mne of four Shearson-appointed representatives on the six-person board, was named acting chairman. Yet neither De Scherer nor any of the other Shearson directors had Cohen's experience in complex financial negotiations. Soon, Cohen eclipsed De Scherer and Gerry R. Ginzberg, First Capital's president.

Shearson sources, perhaps fearing possible legal liabilities, maintain that the firm doesn't control First Capital. A Shearson spokesperson says board member Jerome Miller represents Shearson and that "the other directors are independent." Yet as the situation deteriorated, Shearson seemed to have few alternatives other than to let Cohen carry the ball. Cohen's "involvement has become more intense as the problem has grown," acknowledges First Capital spokesman Charles Perkins.

PANIC ATTACK. It's far from clear whether Cohen could have saved First Capital, which was already reeling from sour junk-bond investments. He hired Salomon Brothers Inc. to find investors or buyers for some of its assets. And he and De Scherer tried to broker a deal between California regulators and American Express, jetting from their New York offices to meet with John Garamendi and his staff. Talks stalled in mid-May, when AmEx refused to inject additional capital. When word of the talks leaked out, panicky policyholders started a run on First Capital that forced regulators to seize the insurer.

Cohen also sought to work out a deal with First Capital's bankers, led by Citicorp, who are on the hook for a $275 million loan. The bankers say they were worried about the conflicting interests of the Shearson-appointed First Capital directors who have fiduciary responsibilities for First Capital's health. But since they had close ties to Shearson, they were concerned about the numerous Shearson customers who had purchased over $3 billion of annuities and policies from First Capital's operating units.

According to Ted W. Graham, a lawyer for Mitsui Manufacturers Bank, one of the senior lenders, the banks filed the bankruptcy petition because of that interest conflict. They feared Cohen and the other outside directors were about to siphon First Capital's cash down to the insurance units to benefit policyholders. Cohen and the other outside directors deny any conflicts. Says Cohen: "There was never, ever any intention to downstream the cash to the subsidiaries."

Cohen failed in his campaign to save First Capital, but he isn't out of the picture. While he has denied it, there have been reports that Cohen has been lobbying to be named by California regulators as First Capital's conservator. After terminating Cohen's earlier career, Shearson may have indirectly helped him launch a new one.