Southeast Banking Keeps Heading South

In its ads, Miami-based Southeast Banking Corp. likes to portray itself as the place to go when trouble's brewing--that's when it's "time to call Southeast." Now it's Southeast that is looking for help. Once the dominant bank in one of the fastest-growing states, $12 billion Southeast has been suffering a rapid deterioration, which could make it one of the next banks to be taken over by the Federal Deposit Insurance Corp. or bailed out by a competitor. First Union Corp. is considered the front-runner, and Barnett Bank Inc. and BankAmerica Corp., are said to be interested.

The bank has posted six straight quarterly losses, including $117 million in the first quarter of 1991. More losses are expected in the second quarter. Nonperforming assets at the quarter's end were $776 million, 60% more than a year ago (chart).

COST TRIMMING. Douglas E. Ebert, a 22-year veteran of Manufacturers Hanover Trust Co. who took over as Southeast's chief executive officer in January, 1991, is busily working on damage control. Ebert and other Southeast officials would not comment. But his apparent strategy seems simple: trim costs, downsize, and seek an infusion of capital so the bank can go it alone. Southeast acknowledged on July 3 that it is having exploratory talks with regulators about the possibility of an "assisted transaction involving a merger or a significant amount of new equity." The FDIC will not comment.

Getting Southeast back on its feet will be no easy task. Its customer base is shrinking. "They've been losing a notable amount of deposits as people become worried about the bank," says Richard Stillinger, a bank analyst at Keefe, Bruyette & Woods Inc.

Southeast's once highly profitable corporate banking franchise has been especially hurt. Several major clients have pulled their business. They include St. Petersburg-based Raymond James & Associates Inc., the brokerage firm, and Miami's Wackenhut Corp., the security service firm. Wackenhut had banked at Southeast for 34 of its 36 years in business but began switching accounts to NCNB in December, 1990. Deteriorating service spurred the change, says Wackenhut Chief Financial Officer Michael A. DiGregorio: "They became a lot less flexible. We needed a banking environment that was going to support us."Then there are Southeast's capital woes. Last July, it promised the Comptroller of the Currency it would meet capital ratio requirements above minimum industry levels. So far, it has failed to maintain those levels. The bank has until early August to submit a capital plan to the Federal Reserve Board. Barring a major upsurge in losses, however, analysts and regulators believe Southeast should avoid a liquidity crisis.

Such troubles would have seemed inconceivable a decade ago, when Southeast towered over its rivals. At the helm was Charles J. Zwick, an autocrat and Harvard-trained economist who ran the Office of Management & Budget under LBJ. His biggest mistake was ignoring the growing retail market, preferring to focus on corporate clients. But Florida was never a bastion of corporate headquarters, and the 1980s merger wave thinned its customer base.

By the time Southeast realized its errors, rivals such as Barnett Banks, NCNB, and First Union had built up strong leads in consumer banking. "It boggles the mind that they missed the consumer retail market in Florida," says analyst J. Frederick Meinke at Raymond James & Associates. As losses from soured loans piled up, Zwick came increasingly under fire. At a shareholder meeting in April, 1990, several investors urged him to resign. Finally, in January, under pressure from regulators, the board forced Zwick out. Zwick's lawyer says it isn't fair to blame Zwick for the bank's woes.

'CASE STUDY.' Most analysts believe that either through a merger or an FDIC takeover, Southeast will not be long for this world. One Southeast official with plenty at risk who is watching the situation is Alfonso Fanjul, a bank director. He heads the bank's executive committee and is its largest investor, with about 1.6 million shares, or 4.7%. Fanjul would not comment, but his attorney says his client has not written off Southeast. A government-assisted buyout might wipe out Fanjul and other shareholders.

Not that they haven't taken enough of a beating already. Since the end of 1988, Southeast's stock price has plummeted from $22.50 to under $2. "Southeast is going to be a case study of missed opportunities," says consultant Kenneth Thomas. "It was a big name that went nowhere." Except downhill.

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