Stephen J. Trafton appears to have done what few believed he would he able to do -- save Glendale Federal Bank.

Based in economically devastated Southern California and dogged by regulators, the thrift faced long odds until it announced last week that its $425 million recapitalization was successfully, under way.

Mr. Trafton's success at engineering an exceedingly, complex financial restructuring at the eleventh hour for his $17.9 billion-asset thrift, is a testament to the force of his personality.

At 46, Mr. Trafton has plied his trade as a financial specialist for 25 years at banks and thrifts. He joined Glenfed Inc., Glendale's former parent company, in 1990 as chief financial officer.

He took the No. 2 job a year later, vaulting past Glenfed's previous chief operating officer, Keith P. Russell. In 1992, he was named chairman and chief executive officer.

The Seattle-born Mr. Trafton is a controversial figure. Some regard him as a tireless and inspirational leader who has kept Glendale's morale high under tough conditions.

Others describe him as a bully who browbeats his staff and coldly cuts jobs. But no one denies the singlemindedness that he has brought to the task of turning Glendale around

In the interview below, conducted only a few days after he declared success on the recapitalization, Mr. Trafton gives his views on the outlook for Glendale.

Q.: Did you ever have doubts that Glendale would survive?

TRAFTON: The question of surviving has never crossed my mind. I would add rather quickly that clearly we have a long way to go.

My biggest concern is that we could stay focused on the financial aspects, the recapitalization aspects, too long and not focus as intently as we need to on the marketing aspects of the company to cure the core earnings.

We have been reading from a different script than other people have been reading from. The script in the past for major troubled institutions has been a slow floundering and then death by strangulation and regulation. That same script was being prepared for this institution. We absolutely refused to read from that script.

Q.: Does your reorganization mean that Glendale Federal's capital problems are solved?

TRAFTON: This transaction goes a long way toward meeting the final objective as far as capital is concerned -- the 5% and 10% [core and risk-based capital] requirements called for under the prompt corrective action agreement with the Office of Thrift Supervision.

Clearly we want to achieve the 5 and 10 at the earliest possible date. We have to [do it] by December 1994. If, however, at any time we touch 5 and 10, then the agreement is considered completed and there are no other ongoing requirements.

Q.: Glendale has posted losses for six consecutive quarters. When will you return to profitability?

TRAFTON: What we have been aiming to achieve is a consistent, sustainable improvement in asset quality and core earnings quarter by quarter.

As we look ahead, we expect that the September quarter will show some further improvement from the prior quarter, and the December quarter further improvement still. By the time we get to the March quarter, we hope to cross into positive territory.

We believe that the earnings stream can be rebuilt. The core base is there: the 215-branch franchise, one of the strongest franchises in California, and the Washington franchise, which is an incredibly strong bank. The Florida franchise is certainly substantial and profitable.

Q.: But you have put 23 western Florida branches up for sale. Do you intend to exit Florida altogether?

TRAFTON: The Florida sale represents a strategic option that we want to pursue. It is consistent with our philosophy that we want to pursue contiguous market areas for efficiency.

Q.: What is your plan for restoring earnings?

TRAFTON: It is multipart. One will be continued sustainable improvement in the overall asset quality of the institution. No. 2 is continuing to drive the efficiencies of the institution.

The third side of the equation is basic improvements in our single-family lending capability. We have focused on loan production on a purely retail basis from our branch system. We are prepared to implement a dealer-based lending program.

We at one time were active in the multifamily lending market, and we shut that down. There are now good values in that marketplace and, we plan to reopen that business line.

The fourth area is the development of the fee-income stream. We will have a much more intense focus on the sale of our brokerage and insurance products within our branch system and through a new telemarketing effort.

And we are exploring a number of strategic alliances for services that we hope to develop in tax planning, tax preparation, and estate planning through the branches.

Q.: Now that you have recapitalized, would you consider selling the thrift?

TRAFTON: Our goal is not to sell, but over the next three to five years to develop along two lines. One line is to build core earnings so that we can demonstrate a superior return to our investors. And the other path is to continue to develop franchise value.

Q.: Why in the middle of your recap effort did you switch from Goldman Sachs to First Boston as your investment banker?

TRAFTON: Goldman Sachs played a very important role in the original development of our strategic plan and in the initial negotiations with our bondholders. But we felt that First Boston had more experience in this type of transaction.

Q.: Glenfed common shareholders got only a 2% ownership stake after the recap, reducing the value of their shares to less than 40 cents. Was that the best you could do for them?

TRAFTON: The new money got about 80% of the bank. That was necessary in order to achieve a rate of return sufficient to pay them for their new investment.

The remaining three [classes of] holders needed to negotiate the remaining 20% of the bank. The bondholders and preferred holders clearly had a priority claim. The board and management did everything they could.

But clearly the significant dilution for the common shareholders was required in order to attract enough new money to recapitalize the bank.

Q.: Will Glendale's new owners change the makeup of the board of directors?

TRAFTON: The board should reflect the broader ownership of the institution. We will be working to achieve that representation.

Q.: As you change the board, are you worried that the new directors could fire you, as happened to Jerry St. Dennis after he engineered it similar turnaround at California Federal Bank?

TRAFTON: The answer is no. I have never lost sight of the fact that we would have to make a basic shift from recapitalization to regeneration of the core earnings stream. My work is really just starting. I would hope to a great extent that the investors came in because of my vision of the bank going forward.

Q.: Suppose the recap had failed. Did you have anything else up, your sleeve?

TRAFTON: What would we have done next? I don't know. I would have thought of something.

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