Robert W. Steiner thinks of himself as a missionary, preaching the gospel of community capital raising to an angry and frustrated cadre of small bankers in Southern California.

Too many community bankers in the state are still in denial of the regulatory steamroller headed their way, Mr. Steiner believes.

Mr. Steiner was a banker for 30 years in Northern California and was a founding director of three banks. His consulting firm, Steiner & Associates, is affiliated with Bankmark, a marketing organization that sells its own brand of capital raising exclusively to community banks.

Bankmark relies heavily on executive and director participation and on circumventing the traditional and costly route of hiring a broker-dealer to sell new stock.

Mr. Steiner started peddling his product in Southern California, where dozens of community banks are hurting from real estate problems, eight have failed, and a host of others are under regulatory order.

American Banker spoke with Mr. Steiner about how community bankers react to regulatory capital directives and how executive attitudes toward raising capital have evolved.

Q.: A lot of community bankers feel they don't need or can't afford an outside consultant or broker/dealer to raise capital. Is that attitude changing?

STEINER: I'm afraid to say it hasn't. They really in their hearts believe they can do it themselves. Banks, that have tried that haven't been successful.

Bank presidents are under a tremendous amount of pressure from their board to do the job, and it's hard to accept the notion that they need help. It's hard for bankers and boards to pay those fees, too.

A third issue, and the most critical, is that a great number of bankers and the boards are still in denial. They don't think they are going to need either the capital or the help in raising it until it's too late. In those cases, the regulators are unforgiving.

Q.: How much can a community bank expect to spend on a successful secondary offering of stock?

STEINER:.I don't like to quote prices. I can say our program is much less expensive than going to the brokerage. [A benchmark fee for a broker-dealer is 15% of the offering in fees.]

In our program, it's the banker's job to go out and make the transaction happen; they're the ones selling the stock.

The heart of our program is we go in, sit down and analyze the situation, and develop a clearly defined language for telling the institution's story to prospective stockholders.

We orchestrate a series of meetings with specific, targeted members of the community where they're not only told about the investment, they are told the straight story of the bank's situation.

It not only sells the stock, it sells the institution's story to the community.

Typically, it takes about 1,000 contacts to raise every $1 million in capital.

Q.: In California, have you noticed regulators being more or less flexible in the ways community banks raise new capital?

STEINER: I think that they're flexible in that they will look at different things. They have a preconceived idea of how a capital plan should look.

The Problem is the regulator is taking much more time than is practical to approve it.

From a business standpoint, I don't think that tracks very well. From a regulatory standpoint, they have their job to do. If their mission is to really help banks and give them a boost toward solving their capital adequacy problems, they should take a hard look at improving the mechanics of the approval process.

If their main strategy is to make it difficult for banks to do that and reduce the number of banks on the planet, then that strategy is working.

Q.: Should a capital-poor community bank always look to the community first for capital or should it seek a third-party investor from the outset? Does it matter?

STEINER: We think it matters. Capital acquisition is either tactical or strategic in nature. Tactical is just get the money. Strategic is taking a longer-term view. If an offering goes into the community it's going to do you good down the road. What does a third party bring to the table other than bucks?

There's a base model: Every shareholder in the bank should have an amount that makes him committed but not so much that it's concentrated. Every stockholder should be a customer of the bank. Every time you step away from that model, it's less effective.

Today, too many bankers seem to be waiting for that big check from Asia.

Q.: Under what conditions would you recommend a change in the board or management of an undercapitalized community bank to mike a community offering successful?

STEINER: We don't have direct influence in that, but we've made recommendations. I'm not sure you should look at the management differently in times of stress. But the reality is most people do.

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