Keefe, Bruyette & Woods Inc. is staging a comeback in bank mergers.
After being a key player in mergers that reshaped the banking industry in the middle 1980s, the New York firm dropped off the radar screen in 1989 after a string of top-level departures.
But this year the merger advisory business at Keefe, whose specialty is bank securities, is running at a pace unseen since the glory days of 1985-87.
Most recently, the firm advised Multibank Financial Corp., Dedham, Mass., in its $197 million agreement to be acquired by Bank of Boston Corp.
Last month it assisted Pittsburgh's Equimark Corp. in its $282 million acquisition by rival Integra Financial Corp. Earlier it served in a similar capacity for Key Centurion Bancshares, Charleston, W. Va., which is being acquired by Banc One Corp.
Capital Markets Momentum
These deals are not comparable to Keefe's efforts in the creation of modern superregionals Wachovia Corp. and Sun Trust Banks Inc. or the assembling of the since-failed Bank of New England Corp.
But a trend can be seen. "We've created momentum," noted James J. McDermott Jr., Keefe's president. "I certainly don't say we've done all we would've liked, but the pipeline is filling up."
Much of that thrust has been in the capital markets area. As of Sept. 1, the firm had helped raise over $830 million of fresh capital through various financings and private placements for a dozen banking companies.
Capital markets relationships often blossom into merger advisory roles. That happened for Keefe most recently in the case of once-ailing Equimark.
Shareholder Rights Success
Early this year, Keefe led a highly successful rights offering to shareholders that put the Pittsburgh bank back on solid ground. Seven months later, it accepted a lucrative acquisition offer from Integra worth a hefty
premium of 2.1 times its book value.
Equimark previously had engaged Goldman, Sachs & Co. as its link to Wall Street but opted for Keefe "after reviewing three or four candidates," said Joseph J. Whiteside, the bank's executive vice president and chief financial officer.
Mr. Whiteside had also gotten to know John G. Duffy, Keefe's executive vice president and corporate finance director, when he was chief financial officer at Bank of New England.
"We got a lot of attention from the top people in the firm," Mr. Whiteside said. "They're knowledgeable, aware of what's practical and what isn't, and they have a speciality in the size of transaction we were talking about," he said.
Indeed, on one else on Wall Street has links to the nation's regional banks in quite the same way Keefe does.
Positioned for Interstate Era
The firm was founded 30 years age to introduce the then little-known banks outside New York City and Chicago to institutional investors.
So when the ear of regional interstate banking dawned in 1985, no one was more perfectly placed than Keefe for the role of assisting at the birth of the superregional banks.
But the merger pace slowed after the 1987 stock market crash and slammed to a halt in 1989 and 1990 as banks were hit by rising loan problems. Their stocks skidded to historic lows amid intense bearish market sentiment.
Tumultuous Opening of Decade
In the first 10 months of 1990, aggregate market value of the nation's top 50 banks fell a stunning 28% to $65 billion from $90 billion.
"I'm an optimist, but '90 got to me," Mr. McDermott, 41, confided during a recent interview.
As if that were not enough, Keefe was in a period of considerable internal trauma and reassessment.
In March 1989, Harry V. Keefe Jr., a founder and guiding light of the firm, left because of disagreements with the board of directors and what he felt were declining profits for the securities business.
Keefe's Personal Touch
Some of Wall Street wondered how the firm would carry on. Mr. Keefe was known as the dean of bank stock analysts and had cultivated lenghtly and close personal ties with many regional bank executives.
With Mr. Keefe at the helm, the firm had operated - perhaps without even knowing it - on the comfortable assumption that it filled a niche that would never have to be defended, according to some observers.
"Harry's departure threw down a big challenge for us," acknowledged Mr. McDermott, who assumed his post in October 1990. "He had definitely been our rainmaker," added Mr. Duffy.
Mr. Keefe's leaving to set up his own consulting firm was compounded just three months later in June 1989 when Michael C. Connor resigned as head of the firm's merger and acquisition team to change careers.
Other Partners Depart
And Mr. Connor's successor, C. Edward "Ched" McConnell, left in October 1990. He was replaced by Mr. Duffy, 43.
Another founder, Gene F. Bruyette, also departed in the same period. That left Charles H. Lott, who is now Keefe's chairman and chief executive officer, as the sole remaining original partner.
But in retrospect, the swoon in bank stocks during 1989-90 provided an important breathing spell for Keefe.
The spate of mergers among regional banks during the mid-1980s caught the attention of major Wall Street investment houses. By 1989 many of them had beefed up their own financial institutions departments and were on the prowl for customers.
"It may have been a blessing in disguise," said Mr. Duffy. "1990 was a slow year for everybody. Had the markets been more active it would have given competitors more of an opportunity to pick clients away from us."
The firm itself remains well capitalized but has undergone a significant retrenchment.
Its London offfice has been closed. The San Francisco office is also being shut, with executive vice president Donald K. Crowley electing to retire rather than relocate to New York.
However, the corporate finance staff was bolstered this summer by the hiring of Robert J. Stapleton as senior vice president. He arrived after five years of similar activity at Lehman Brothers Inc. Before that, he spent five years at Morgan Stanley & Co.
Smaller Can Be Better
Mr. Duffy has restructured the 15-person corporate finance department at Keefe with the idea that a smaller firm can provide better service to clients.
Previously, the corporate finance department had been split into a mergers and acquisitions group and a capital markets group.
"I prefer that people have expertise in both areas," said Mr. Duffy, "because they can then stay with the client no matter what kind of transaction it is.
"There are other firms where a deal is brought in and then handed off to someone else," he said. "But when you wear both hats, it means you're always closed to the client."
In this year's deals, Keefe has mostly represented sellers. Over the past decade, the firm's ratio has generally been about 60% sellers to 40% buyers, who are future clients as well.
Landing New Clients
But Mr. Duffy notes that both Equimark and Key Centurion were not Keefe customers before their deals this year and so were net gains on its client list.
"We retained them based on their reputation and some contracts we had made,: said Edsel R. Burns, chief financial officer at Key Centurion.
He added that "over the past few years we'd heard from most of the big Wall Street firms." Key Centurion's last link was a capital-raising move in 1986, managed by Shearson Lehman Brothers Inc.
Moreover, Keefe landed some business from a big new client, Chemical Banking Corp., this summer, and it was due in part to new corporate finance priorities set by Mr. McDermott and Mr. Duffy.
"We sat dowm and decided to focus our energies on 30 to 40 banks with strong managements that are likely industry survivors were we've had good relationships, where the chemistry has been good." Mr. Duffy said.
Mostly, those were regional banks, but they also decided to look at money-center banks, especially at Chemical and Manufacturers Hanover Corp.
Keefe was not an adviser when the banks merged and was not a co-manager of Chemical's equity offering earlier this year. But it advised in Chemical's sale of 31 upstate Manufacturers branches to Fleet Financial Group, Providence, R.I.
It was the first corporate finance business for Keefe from a money center bank in over 20 years. Keefe's previous work in selling upstate New York branches of Midlantic Corp., Edison, N.J., played a role in its hiring by Chemical.
Mr. Duffy has been with Keefe for 15 years and in the corporate finance area since 1981 - a time of enormous changes in the banking landscape.
The assembling of modern Wachovia, based in Winston-Salem, N.C., through its purchase of First Atlanta Corp. in 1985 ranks first in terms of both professional accomplishment and "sheer excitement," he said.
The transaction was structured on a fast track in the first days after the landmark decision by the United States Supreme Court permitting the states to create regional banking zones.
The court delivered its ruling on June 10, 1985. The deal by Wachovia and First Atlanta was announced June 14.
Adding further drama, NCNB Corp., now NationsBank Corp., Charlotte, N.C., made its own bid for First Atlanta during that period. Although higher, the offer was refused.
The low point, not surprisingly, involves a deal that never got done.
Working for Bank of New England in 1983, Mr. Duffy and the bank's chairman and chief executive officer, Walter J. Connally, believed they had secured "a handshake at midnight" for the purchase of Rhose Island Hospital Trust Corp., Providence, R.I.
They were stunned to learn at an 8 a.m. meeting the next day that Hospital Trust had signed a deal with Bank of Boston Corp.
Mr. Duffy is still shaking his head at that one. "It was," he recently said, "the night I should have never gone to bed."