Putting Workout Experience to Work

LITTLE ROCK - In the 10 years since Curt Bradbury left Stephens Inc. to help revive troubled Worthen Banking Corp., he has dealt with just about every problem a commercial banker can imagine.

As chairman, president, and chief executive, Mr. Bradbury helped Worthen work through a daunting series of securities losses, bad loans, and regulatory problems. After the smoke cleared, he oversaw a series of acquisitions by Worthen and finally engineered a sale of the company at twice its book value.

Now that he has returned to Stephens following the bank's sale to Boatmen's Bancshares, it should come as no surprise that Mr. Bradbury is looking to capitalize on his experiences and contacts.

"I thought this industry was going to continue to consolidate and the contacts I've made would be valuable to my new firm," he said recently in the securities firm's offices high above the Arkansas River.

What may come as a surprise, though, is the direction he is leading the newly established financial institutions group at Stephens. The group is expanding its focus beyond traditional financial advisory and capital formation, to offer practical expertise in such areas as back-room and operating efficiencies to small and midsize banks nationwide.

Mr. Bradbury sees the hiring of two of his former Worthen colleagues as key to the success of this new strategy. Michael Heald, who headed internal audit, and Gary Rickenbach, who directed loan review, joined Mr. Bradbury and corporate finance veteran Robert Ulrey to form the new group.

This uncommon blend of practical experience with investment banking skills will allow the group to offer the kind of restructuring and reengineering advice to community and regional banks that some big consultancies offer to the money-center banks.

"We've got more workout experience than anybody wants, because we inherited some real problems at Worthen," said Mr. Bradbury.

Following the 1985 failure of Bevill, Bresler & Schulman Asset Management Corp., a New Jersey securities firm, the bank was stuck with a $52 million loss on repurchase agreements. The loss forced the bank to nearly deplete its capital in order to meet its obligations to three Arkansas state pension funds.

With the help of a bridge loan from Stephens, the bank was able to keep regulators at bay until it received a $20 million insurance settlement and $32 million in fresh capital in a rights offering.

But the securities problems were just the beginning. Bad real estate and agriculture loans were compounded by a citation from the Office of the Comptroller of the Currency for violations of insider loan laws.

Later, the 25% stake in Worthen owned by members of the Stephens family led to an investigation by the Federal Reserve Bank of St. Louis into whether the family exerted influence over the bank. The investigations slowed the bank's ability to make acquisitions and take advantage of cost savings once deals were completed.

Having negotiated not only these regulatory and operating minefields, but also as many as 10 acquisitions and the sale of the entire holding company, Mr. Bradbury felt it was time to try running a financial institutions group.

Though the corporate finance group had handled bank work before, including a $17 million public stock offering for $700 million Simmons First National Bank Corp. of Pine Bluff, it was an area the company was reluctant to aggressively push.

"There may have been the perception that we were closely allied with Worthen from a corporate finance point of view," said Mr. Ulrey, noting that those fears seem to have disappeared with Worthen's sale.

Mr. Bradbury is hoping to turn Stephens' long-standing relationships with some 250 banks into corporate finance work. The relationships, developed through the company's financial services area, are based upon back-office, systems, research, and product flow support that Stephens provides to these banks' brokerage subsidiaries.

And because of Stephens' wholesale focus, the company hopes these relationships have garnered the trust of its client banks.

"Our guiding theory was that the individual banks own the retail financial services franchise in this country, and we want to make a business of helping them protect it," Mr. Bradbury said.

And it is helping these current clients in the area of operating efficiency that the group sees its best prospects.

Said Mr. Rickenbach: "It's not just M&A advisory work, but it's a knowledge of strategic planning, creating policies and procedures, and dealing with regulatory issues that we are providing."

The unit also has experience dealing with back-office and data processing issues that enables it to give management a better feel for how much room it has "to maneuver without overpaying" for a bank, said Mr. Heald.

And by giving the benefits of these experiences to other bankers, Mr. Bradbury hopes to send a message: "We're going to help you build your franchise. We're not going to attack it."

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