Central Bancshares Taps Europe for Sale of Stock

Capitalizing on renewed appetite in Europe for U.S. bank stocks, a regional Alabama bank with a solid track record has privately placed a $20.3 million stock issue overseas.

Central Bancshares of the South is the first regional bank in two years to privately place a stock offering overseas, according to analysts. The placement was an indication that investors in Europe, like their counterparts in the United States, are again willing to buy bank equity.

Europe's Receptiveness

"There is some evidence that the European market is more receptive to purchasing bank stocks than it has been for the past two years," said Norman Jaffe, a bank analyst with the deal's underwriter, Fox-Pitt, Kelton Inc.

Private placements can be a faster and cheaper way for a bank to raise capital, as well as a way to secure a more stable investor base.

"The people that were interested in our stock overseas were long-term holders," said Garrett R. Hegel, Central's chief financial officer, who decided that overseas markets and a private placement were the cheapest, fastest way to raise capital.

"They are willing to stick with you for a few years," he said.

A long-term view is critical to Central Bancshares. The Birmingham, Ala., company's employees and directors own 40% of the outstanding shares, a very high percentage of insider ownership.

Averting Short-Term Pressures

"Since we own so much ourselves, we try to avoid short-term earnings pressures so we can reinvest for the future," said Mr. Hegel.

Fox-Pitt, Kelton N.V. placed the offering with 30 European institutional investors who paid $24.62 a share. Had price been the only issue, Mr. Hegel said, he believes the bank could have gotten a competitive price from U.S. investors.

The size of the deal was kept to only 4% of outstanding shares in order to minimize dilution.

What attracted investors was the bank's financial strength. At yearend 1990, it reported earnings of $2.34 a share, a 20% increase from 1989. For 1990, the bank reported a return on assets of 1.04% and and return on equity of 15.4%, among the best performances in the industry.

Issuing Costs Halved

Mr. Hegel estimated the cost of issuing 900,000 shares was $150,000, only half what a public offering would have cost. The savings came from lower legal, printing, and share registration fees. The deal was done under Regulation S, which means the shares can be traded without being registered. The offering was completed in two weeks, a fast deal.

"This is an alternative route for some banks to take if they are not widely known and don't want to go through the expense of a road show and filings," said Mr. Jaffe.

The private placement was the first stock issue by Central Bancshares since the early 1980s. The deal, which closed Wednesday, raises the bank's shareholder equity to 7.17% of total assets, from 6.84% at June 30.

Interestingly, Mr. Hegel said the bank did not need an immediate capital infusion. In the past 18 months, Central has been buying banks in Houston and Dallas, spending retained earnings. Mr. Hegel said the company plans to continue to acquire banks, typically of $100 million to $400 million in assets.

"In the event we get the opportunity for further acquisitions, we wanted to have the cash available," he said.

PHOTO : The Overseas Option Source: Fox-Pitt, Kelton

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