A Florida banking company swindled shareholders of a thrift it bought by concealing a problem that has since sent its price plummeting, according to a lawsuit.
Former shareholders of Bankers Savings Bank of Coral Gables sued the buyer, Republic Bancshares of St. Petersburg, Nov. 2 in Miami-Dade County Circuit Court. The investors allege that during merger negotiations Republic's management intentionally kept them in the dark about troubles in its mortgage subsidiary.
Republic, which has $2.5 billion of assets, agreed to buy the federal thrift in February 1998 for $11 million in stock.
On Jan. 4, two months after the deal closed, Republic announced that it would report a fourth-quarter operating loss of $21 million, which it attributed to problems at Flagship Mortgage Services. Flagship got stuck holding risky subprime mortgage loans late in the year when the secondary market for them dried up.
Because of the fourth-quarter troubles, Republic lost $12.7 million last year. Its stock fell Jan. 5, 1999, to a 52-week low of $12 per share -- down from $19.3125 on the November day when the Bankers Savings deal closed.
Republic has since shuttered the mortgage subsidiary, eliminating 340 jobs and closing three out-of-state loan production offices. Its chief executive, John W. Sapanski, resigned early in the year as part of the shakeup.
The stock price recovered after rumors started circulating that the company would be sold. And the corporate shake-up seemed to help performance; Republic has reported three consecutive profitable quarters.
But a July announcement that a buyer was no longer being sought sent the stock plunging again. Since then it has hovered near $14.75, where it was at midday Tuesday.
In the complaint, Bankers Savings shareholders allege that Republic knew before closing the deal that it was going to incur substantial losses in the fourth quarter of 1998 but did not disclose those losses. They are seeking an unspecified sum to make up for the drop in the value of the Republic stock they received.
Brian Stack, a Miami-based attorney representing the 18 plaintiffs in the case, did not return phone calls seeking comment.
In a Nov. 10 filing with the Securities and Exchange Commission notifying its shareholders of the suit, Republic said it believes the charges are without merit and that it intends to vigorously defend itself against all the allegations. William R. Falzone, the company's chief financial officer, declined to discuss the case.