Smith Successful Business Leaders

Exploring Past Encounters and Events That Help Define the Qualities Required of Successful Business Leaders
1. Auflage 2018
ISBN: 978-1-5439-4572-0
Verlag: BookBaby
Format: EPUB
Kopierschutz: Adobe DRM (»Systemvoraussetzungen)

E-Book, Englisch, 250 Seiten

There is a demand for guidance in becoming an effective and successful business leader through the exercise of strong management skills and effective leadership qualities. Successful Business Leaders is an important and meaningful guide toward learning the qualities essential to effective leadership. Of the numerous books currently available on the subject, many are worthy of review-yet a substantial portion are based on theoretical thinking of experts and educators and not on real-world experiences. Successful Business Leaders aims to fill this gap, and while the 42 stories included are experiences extracted from banking in the 80s and early 90s, the lessons identified within these stories remain universal to today's business environment.

Autoren/Hrsg.

Smith, Robert H.

Leseproben

1

THE BEGINNING OF A TROUBLED ERA

Charles Keating’s Adventure

Enormous consequences are often the result of humble beginnings; a trickle begat the Grand Canyon. One impromptu meeting between a helpful bank executive and a soon to be disgraced real estate developer can set in motion the dynamics of a series of events that could lead to a near bank failure.

The banker was me, and my guest that day was Charles H. Keating, who years later would become the national image for the ultimate failure of the savings and loan industry. It was thirty-five years ago in April 1983, and I had no idea I’d just shaken hands with a human lightning rod. We sat down for a meeting that, had it not taken place, or had it ended differently, might have prevented the demise of my company, Security Pacific Bank, eight years later. I might also have saved the taxpayers $3.4 billion in cash required to bail out the Keating empire and the cost of numerous federal trials and appeals for fraud, racketeering, and conspiracy.

Charles Keating was a customer of ours, and that morning I’d received a phone call from one of my senior account officers. “Bob, this guy Keating wants to see you. Our loan experience with him has been great and he’s become a real pioneer in real estate development. Will you talk to him?”

“What does he want?”

“He has expressed to me an interest in buying a California savings and loan.”

Because we were one of Keating’s primary banking relationships and we were active real estate lenders, it was only a minor surprise to me that a man who was one of the largest real estate developers in Arizona would express an urgent desire to see us. With $37 billion in assets, Security Pacific Bank was, in spring 1983, the second largest bank in California — smaller than Bank of America but larger than Wells Fargo and First Interstate banks — with more than 620 domestic and 36 foreign branches.

I thought for a minute, consulted my schedule, and said, “Yeah, send him up.”

Keating was an impressive man: charismatic, knowledgeable, even elegant. He was six foot-five, with imposing teeth. His physique remained a testament to his youthful passion for swimming. It has been said, appropriately, that he had a “larger than life” quality about him. I offered him a seat.

“Mr. Keating, what is it you have in mind?”

As I expected, Keating was not at a loss for words. “I would like to buy a savings and loan.”

I paused for a moment and asked the obvious question. “Why?”

He began by noting, quite rightly, that thrift institutions were having a rough time, and he saw it as an opportunity to buy into the savings and loan business. S&Ls were lenders to investors in real estate, he observed, and he was a real estate developer; it seemed like a perfect fit. If he could find the right S&L to buy, he saw considerable synergies. It could grow its deposit base, which would serve to finance various real estate projects that his other business interests developed.

While his objective made a certain amount of business sense, I cautioned him: “You know, Mr. Keating, the regulators aren’t going to let you run a savings and loan like a captive finance company or a piggy bank. They’re going to watch that pretty closely.

CONFIDANT – Business leaders should be capable of expressing a confidant demeanor.

He knew all that and could deal with it, he said, and asked if I knew of any S&Ls in the West that were currently for sale.

“How much do you want to spend?”

“I’m thinking of maybe a $40 or $50 million investment.”

“Well, as a matter of fact, I do know one institution.” I could see Keating straighten up in his chair and begin to rivet his attention on me. This amount was perfect for acquiring a thrift I was thinking about.

The savings and loan I had in mind was called Lincoln Savings and Loan. Lincoln had the lowest ratio of delinquent mortgages of any thrift in the area, but like other Southern California thrifts, Lincoln was losing money because it was paying increasingly high interest rates to retain short-term deposits while continuing to earn low rates on its long-term fixed-rate home mortgages.

I knew Lincoln’s number through a neighbor who had become a good friend of mine. Lincoln was an institution of about $1 billion in assets; this perfectly fit the amount Keating wanted to spend. Recently, my friend had mentioned that Lincoln might be sold, as they were uncertain about Lincoln and the S&L industries future.

Keating percolated. “I’m intrigued.” He expressed an interest in further exploration of this “opportunity.”

“I’d be happy to introduce you. However, we are in the investment banking business, and we’d like to represent you. I’d be happy to serve as an introduction, but I’d like you to go down and speak to my investment banking guy.” I wanted Security Pacific to represent Keating, but I also wanted Security Pacific to get paid for it.

CREATIVE – Business leaders should continually seek additional business opportunities.

COMMUNICATIVE – Business leaders should aggressively communicate to seek opportunities for new or expanded business relationships.

“No problem,” he said. “Set me up!”

Quickly, we drafted an agreement formally stating that Keating had hired us to represent and introduce him to Lincoln.

Keating was intelligent, but I could see he wanted to keep his cards close to his vest. He never tipped his hand in our early conversations that he might have more ambitious plans for Lincoln than just making home loans.

I phoned my friend at Lincoln and made formal arrangements for Keating’s introduction. I accompanied Keating to Lincoln headquarters, where they had a short but productive conversation. Two weeks later, when Keating offered Lincoln $51 million—one and a half times its book value—they struck a deal. Keating quickly signed an agreement to purchase Lincoln Savings and Loan.

The expedited regulatory application was approved in early 1984. A few months later, when pressed, Keating told us he wouldn’t pay us our contracted advisory fee of $250,000 because we “only” introduced him and didn’t add much to the deal. After months of debate with his lawyers we ultimately settled with him for half the contracted fee. This was an interesting test of his character.

Seven months after Keating acquired Lincoln, I received a phone call from my friend there. “You ought to know that this guy Keating is not on the same course as everybody else. He’s laid waste to top management, and the people Keating hasn’t fired are going to walk. He’s buying land in foreign countries, he’s buying huge blocks of land all over Arizona. He’s not making any real estate loans, he’s making land investments and doing all sorts of strange things using the company deposits. So, as a friend I’m telling you to watch out.”

I immediately talked with our credit people about this conversation. “The word I get is that this guy Keating is going off in all kinds of different directions, and we’d better watch out. Hopefully, now that he owns the S&L he won’t need us anyway.”

Mercifully, we did take this caution to heart. We stopped being Keating’s principal bank.

PROTECTIVE – Leadership should identify situations, transactions, and relationships involving unacceptable risks and be willing to avoid those matters.

Home lending, as we recognized in the months that followed, was not Keating’s objective. In 1984 Lincoln Savings and Loan granted only eleven home mortgages, four of them to employees. Keating was, to put it graciously, a man with bigger plans in mind.

While the regulators looked the other way, Keating promptly embarked on a series of “nontraditional” banking deals, carefully structured to capitalize on the newly established savings and loan rules and their liberal powers designed to keep the industry afloat. By the late 1980s, these deals triggered Lincoln’s collapse and seizure by the government and Keating’s personal fund-raising antics conducted through Lincoln began a long legal entanglement and ultimately a jail sentence.

Keating was certainly not the only fringe operator of the day. Michael Milken was known as the leveraged buy-out and junk bond king. He and other rogues of the period would become household names in the years ahead and were often heralded as icons and celebrities. This group perplexed and concerned me but somehow didn’t change my often aggressive nature.

“We Do Deals”

On another later occasion in 1986, while flying from New York back to Los Angeles, I found myself sitting next to Abraham “Abe” Spiegel a man who made so much money in the stock market that he dropped out of school and became a stockbroker. With him on the plane was his son Thomas, the president and CEO of Columbia Savings and Loan. Tom along with Abe, his eighty-year-old father and my seat-mate, were the company’s two leaders. Their current success accounted for Thomas’s generous $9 million salary in 1985. The company was an enthusiastic buyer of junk bonds as one of a growing number of loyal disciples of Michael Milken. Thomas was said to so idolize Milken that he availed...