Vesta Insurance Group of Birmingham, Ala., is shopping for a bank or thrift as it continues to recover from the hard times it had in the late 1990s.

The multiline insurance company, which had net premiums of $344.1 million in 1999, has hired Thomas J. Chana as senior vice president for the express purpose of helping it expand into banking through acquisition.

Mr. Chana, who had been senior vice president at Banc One Securities Corp. and had the same title once at First National Bank of Chicago, would not name names but said, “I’d like to see us acquire something in a major metropolitan market — a community of at least 175,000 to 200,000 people — and preferably where we may already have an agent representing Vesta and its product line.”

The company said it could not say when a deal might be announced.

Vesta sells through 3,600 agents in 42 states. It says the ideal acquisition would bring it a retail bank that matches its customer base.

It is more concerned with that match and with candidates’ product mix and personnel than with their regulatory body, Mr. Chana said. “We’re accustomed to a high level of regulation, and we’re aware that there would be certain regulatory hoops we would have to go through.”

Getting into banking “means a way to deliver additional product to our customer base,” he said. “It’s just a trend that makes an awful lot of sense.”

Mr. Chana said his company could cross-sell the life, homeowners, and auto insurance lines it already has to an acquired bank’s customers, as well as develop the banking business.

Vesta’s chairman, James Tait, said buying a bank would also give his company a lift on Wall Street.

“The three [financial services] groups or companies that the markets value highest are American Express, AIG, and Citigroup,” Mr. Tait said. “All three have already embraced the convergence of the market. This is the direction in which the competition is moving.”

In June 1998 Vesta said it would take second-quarter charges of $13.6 million related to irregularities in previous years, and its president and chief executive officer, Robert Huffman, resigned. These events and subsequent shareholder lawsuits crushed Vesta’s stock price — it tumbled from $52 in May 1998 to a low of $3.7865 in December 1999. It closed Tuesday at $5.375, unchanged.

Mr. Tait was brought in as chief financial officer in the second half of 1998 after the financial irregularities were disclosed. In August he was elevated to the top spot; he shares the chairmanship and chief executive officer duties with Vesta’s president, Norman Gayle.

Since 1998 Vesta has taken several steps to clean up its balance sheet and focus on its core: retail customers. Though it retained its homeowners and auto lines, it sold its reinsurance lines and stopped writing commercial lines in 1999. Vesta’s exit from the commercial lines business allowed it to return to profitability. The company reported had net income of $23.3 million in 1999, versus a $141.2 million loss for 1998.

In June, Vesta bought a controlling interest in American Founders Financial Corp., a life insurance company in Phoenix.

“We took a hard look at the business we’re really in, and we’re really in the consumer side,” Mr. Tait said.

Vesta does not have a thrift charter, but Mr. Tait said it is thinking about forming a financial services holding company.

The main goal, he said, is “adding value to each client relationship that we have, whether on the insurance side or the banking side.”

Carmen Effron, president of C.F. Effron Co. in Westport, Conn., says a bank purchase could bolster Vesta’s bottom line.

“When you look at the returns on equity an insurance company makes in the best of times, if it makes 12% to 15%, that’s good,” Ms. Effron said. “But banks can be returning 20%.”

Such a purchase could also help Vesta lower its customer acquisition costs, she said. “It is always cheaper to sell something to an existing client than to go out and find a new client.”

But the most important thing for Vesta, she said, will be finding the right partner and the right people to run the bank.


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