Security First Network Bank has gotten a much-needed boost for its Internet strategy: an infusion of $14 million from six prominent financial services companies.
The money came in the form of $1 million stock investments each from Barnett Banks Inc., Citicorp, Huntington Bancshares, Principal Financial Group, Synovus Financial Corp., and Wachovia Corp.
In addition, Barnett, Citicorp, Principal, and Synovus agreed to license Internet banking software from Security First's technology unit.
The contributions come at a crucial time for the Atlanta-based company that describes itself as the first all-Internet bank. Despite its pioneering status, Security First's stock suffered from a recent backlash against Internet stocks that investors viewed as not building earnings fast enough.
With 13,000 customers but little in the way of revenue, Security First had been running through about $2 million in capital each month, said Neeraj K. Vohra, an analyst at Friedman, Billings, Ramsey & Co., Arlington, Va.
The new equity buys time for Security First and represents a vote of confidence by some impressive names in financial services.
Two of them-Huntington and Wachovia-were early investors in Security First. Each is augmenting the 1.1 million shares it obtained at the initial public offering in May 1996, which was underwritten by Friedman Billings.
Synovus and its Total System Services credit card processing subsidiary had a strategic alliance with Security First.
Barnett, Citicorp, and Principal, a $63 billion-asset insurance holding company based in Des Moines, represent true "new money" for Security First.
"This transaction provides a significant amount of the funding we will need to finish the product and get us to a point where we are profitable," said Robert Stockwell, chief financial officer at Security First.
The investment "gives them a little breathing room," said Charles Wittman, an analyst at Wheat First Butcher Singer.
"The most significant barrier for investors in this stock has been the concern about (the bank's) capital," he said. "With the capital issue put to rest, investors can now focus on the bank and its technology."
Analyst said Security First had just $25 million in its coffers before the new licenses and privately placed investments. "These deals address those risks head on," Mr. Vohra said.
Along with their licenses of Security First Technologies' Virtual Financial Manager software, the four institutions participating in that side of the transaction obtained rights to participate in the development of new products. Security First refers to these development deals as Strategic Tactical Advisory Relationships.
Given Security First's added credibility, prospective software customers "will no longer need to spend a year researching this," Mr. Vohra said.
Security First's share price, which had dipped as low as $5.75 in recent weeks, rose $1.125 Wednesday-a preliminary press announcement went out late that day-to $9. The price rose again Thursday to $11.25.
It still has a long way to go to where it was on the first day of issue- $45 on May 23, 1996.
Edward Horowitz, executive vice president of advanced development at Citibank, said: "Our object is to be the leading provider of electronic banking to the global marketplace. Our investment in Security First is a component of this strategy"-and a sign that Citi is gearing up for transactional services on the Internet, which it had previously shied away from.
Mr. Stockwell, the Security First CFO, said the signing of Principal, which has a pending application to open a thrift institution, is significant in that the Internet banking company is succeeding in selling to financial service providers other than banks.
Cybercash Inc., an Internet payments company that has also suffered in the stock market reaction, announced a $15 million private placement of convertible preferred stock.
"We are, in effect, raising today's capital at tomorrow's prices," said chief financial officer James Condon. "If our stock price increases, our stockholders will sustain less dilution than if we had simply sold common stock at a typical discount from the market price."
