Pacific Bank's downsizer waging an uphill battle.

As the veteran banker brought in to run San Francisco's troubled Pacific Bank, Leonard Busse has to make some tough decisions.

Like many Golden State community banks, $643 million-asset Pacific Bank has been limping under the weight of nonperformers. Nonperforming loans equaled 16% of all loans as of Dec. 31.

Mr. Busse, who became chief operating officer on June 1, is working to clean up the bad assets, trim expenses, and grow. But some say the odds are against him.

"If I was of a betting mind, I'd take even odds that this bank will go away," said Greg Madding, investment banker at Hoefer & Arnett.

But Mr. Busse is not shrinking from doing whatever it takes to straighten out the bank. Pointing out that the members of Pacific's management team, including the company's chairman, chief financial officer, and corporate counsel are new, Mr. Busse, 54, says: "There are no sacred cows."

Among his first tasks will be whittling away at the bank's noninterest expenses, which at year end accounted for more than 5% of average assets, according to Sheshunoff Information Services. Branches will be consolidated and the 380-member staff will be reduced by 25%.

"One of the problems today is that we are a $1 billion organization that is now at $600 million," said the executive.

Mr. Busse, formerly an executive at Continental Illinois National Bank, is not unfamiliar with the job of stringent cost cutting. From 1985 to 1988, Mr. Busse pared Continental's international banking department from 34 to 12 branches worldwide and reduced staff from 1,600 to 800 employees.

To drum up new business at Pacific, Mr. Busse said, he is building up a competent cadre of lenders by introducing training and education programs.

Before downsizing the international unit, Mr. Busse headed up the Chicago bank's domestic and commercial loan operations on the East Coast, growing the portfolio from $50 million in 1978 to $2.4 billion in 1984.

Since leaving Continental in 1988, Mr. Busse has worked as a private banking consultant.

At Pacific, Mr. Busse is working under a consent order with the Office of the Comptroller of the Currency that requires the bank to raise $25 million in capital by the end of the year.

What's more, the Comptroller's office forced the bank to rescind $10.7 million private placement last month after regulators required the bank to restate 1992 earnings. Regulators feared investors might have been misled by the initial earnings report.

But Mr. Busse is confident that under chairman Ned Dean the bank will raise the necessary capital in time.

To strengthen the bank's revenue stream, Mr. Busse is setting up a Small Business Administration lending unit. And his appointment has freed up his predecessor as chief operating officer, Michael Tun Zan, to focus on international trade financing, one of the bank's key businesses.

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