How Interim CEO Saved the Day For Ameritrust's Battered Owners
Some executives would view submitting their banks to a buyout as a humiliating defeat. But Craig R. Smith turned the process into a triumph.
Capping a tumultuous 18 months as interim chairman and chief executive of ailing Ameritrust Corp., Cleveland, Mr. Smith sold the bank last month to Society Corp. for $1.2 billion, or double its book value. That's quite a haul, considering the outfit lost $37 million during the 12 months ended June 30.
His secret? Get employees on board with turnaround efforts, go to great lengths in sounding out weaknesses and promoting strengths -- and bring a poker player's instincts to high-stakes negotiations.
Model Solution of Predicament
"People thought Ameritrust was a turkey, but it turned out to be a wounded eagle," exulted Mr. Smith, who will retain his posts until the merger in consummated. "We did fairly well by our shareholders."
Though cautioning that each deal is different and that Mr. Smith's feat won't be widely repeated, analysts hold up the executive's performance as an encouraging model for banking executives in similar predicaments.
"You have to give the guy high marks," said Henry "Chip" Dickson, a banking analyst with Kemper Securities Group, Chicago.
Interestingly, Mr. Smith, 66, never worked as a bank officer before taking over at Ameritrust in August 1990. He succeeded Jerry V. Jarrett, who was forced out after Ameritrust reported a surprise first quarter loss of $52 million.
Educated as a mechanical engineer at Case Institute of Technology, Mr. Smith is a former chairman of Warner & Swasey, Cleveland, a machine tool manufacturer. He also was chairman of Ransburg Corp., Indianapolis, a maker of auto painting equipment.
It was through these positions that Mr. Smith became a director of Ameritrust, about a decade ago.
And the posts prepared him well for what was to come: Warner & Swasey got bought out by Bendix Corp. while Mr. Smith was at the helm in 1980; he ushered Ransburg into the waiting arms of Illinois Tool Works Inc. in 1989.
Credit Cops on the Beat
Worried, after taking over, that further dark surprises lurked in Ameritrust's portfolio, Mr. Smith assembled a team of credit cops to audit the company. This was crucial in restoring credibility, analysts say.
Meanwhile, Mr. Smith barraged employees with pep talks, communiques, and video presentations, rallying them around the cause of reviving the company. He even went so far as to promise that Ameritrust would build the new headquarters skyscraper envisioned by the prior management team in 1988 - a position he later had to reverse.
"We kept pumping out information, we communicated the hell out of this place," Mr. Smith said. "They might have thought I was a nut who didn't know banking, but at least they knew who I was and what we were trying to accomplish."
Moments of Despair
Privately, Mr. Smith had several deep concerns.
He was confronted in September with an unsolicited offer to engage in merger talks from rival National City Corp. "We took that very seriously," he recalled. "But it would have been a foolish time to sell."
The low point came in December. Beyond concluding that Ameritrust's problems were not fatal, Mr. Smith's audit team still had not ascertained just how much housecleaning was needed. The board halved the dividend. The stock was in the cellar. And he had ruled out takeover talks as premature.
"I still wasn't sure about asset quality, and whether the situation was manageable," said Mr. Smith.
Up from the Nadir
But it wasn't long thereafter that Mr. Smith's star began a remarkable ascent.
Cautioned by investment bankers that the company's securities might become penny stocks after fourth-quarter 1990 results were announced, Mr. Smith watched with glee in January as the stock rose on Ameritrust's revelation of a $77.2 million loss, provoked by a $147 million loan-loss provision.
Wall Street was encouraged that the loss was not greater and concluded that Ameritrust had dealt with the worst of its problems, Mr. Smith explained.
Events again careened out of his control, however, when National City went public in May 1991 with an unsolicited offer for the company.
A Favor in Disguise
Aside from eliciting high pressure from Wall Street, the announcement upset Mr. Smith, who was kicking into high gear with his own plans to revive Ameritrust.
"Anybody who comes forward with a public offer - and goes over the head of management and the board of directors - well, that's not the most friendly action," he said.
In retrospect, however, it appears National City did Mr. Smith a great favor.
Following a flood of publicity over the National City offer, and a July announcement that Ameritrust would consider any and all bids. "I probably heard from 80 of the top 100 banking companies," he said.
Rationale for Rich Bids
At this point, Mr. Smith held an advantage over other executives steering their banks through takeovers. Though hard pressed, he was astride an institution seen as highly valuable in spite of its troubles.
Not only does the company operate a highly profitable trust operation, it commands the largest share of the retail banking market in northern Ohio. What's more, National City and Society, both based in Cleveland, spotted cost-cutting and competitive opportunities that justified rich bids for Ameritrust.
The real riot for Mr. Smith was in August, when several bidders simultaneously brought in their own 200-person audit teams to prowl Ameritrust. And the company, in turn, was hustling to scrutinize the bidding institutions.
"Talk about a Chinese fire drill," Mr. Smith said.
Finale Brought |Euphoria'
The finale came on Sept. 12, at the end of a five-hour meeting between the directors of Ameritrust and Society. Mr. Smith - having come through the dark days when Ameritrust's stock was trading at less than $7 per share - agreed to deed over Ameritrust for $32 per share.
"We all felt a certain amount of euphoria at that point," Mr. Smith said the next day. "I was feeling it from the standpoint that this incredible process I have been going through, keeping all these balls in the air for so long, is now over, and I've landed what I absolutely was convinced was the right [deal]."
The executive had more than a little of his own money at risk in the transaction. Owning 8,000 shares, Mr. Smith saw the value of his holdings rocket to roughly $256,000 from $56,000 between January and September. His salary has not yet been disclosed by Ameritrust.
Brisk Tempo to Continue
Mr. Smith will continue in his current duties until March, when Society is expected to complete its acquisition. He then will become a director of Society.
Even then, it's unlikely the energetic Mr. Smith will slow down.
He expects to take an active role in Society. And he already is stepping up his activities on boards of other companies.
The continued whirlwind of activity is in keeping with an executive who clearly thrives on challenges.
"I've been through this retire and unretire routine so many times, I've lost count," he said with relish.
PHOTO : SAFEKEEPING: Craig R. Smith breathed a sigh of relief after guiding ailing Ameritrust Corp. through to a triumphant solution.