Prime Mover

Southwest leads the way

Interest rates continued their three-month-long slide last week, as many American banks dropped the bench mark prime inter est rate to 15 1/2%. In September the rate stood at 20%. The moneymen were again following the pattern set by Southwest Bank of St. Louis, which ranks only 1,270th in size among the some 14,000 banks in the U.S. but is a leader in setting the prune. Two weeks ago, Southwest was the first bank to lower its rate to the new level.

Southwest officials point to a number of occasions when their bank led the drive to cut the prune. When it dropped the rate in August 1971, President Nixon sent the bank a telegram saying: "I was particularly heartened by the positive action." An other Southwest-led reduction in the prime on Sept. 16, 1976, resulted in an 8.64-point jump in the Dow Jones industrial average. And in April 1980, commodity prices advanced broadly on the day of a Southwest decrease. The St. Louis bankers proudly claim that a meeting of the world's financial powerbrokers at the International Monetary Fund was once interrupted by news that tiny Southwest had cut its prime rate.

The Southwest Bank is headed by Colonel Isaac ("Zack") Long, 82, who says: "Our motto is first down and last up." Long earned his honorary officer's title while president of the St. Louis police board. He has presided over the bank's decisions since 1953, when a group of businessmen he headed bought a majority of Southwest's stock. The other big event that year was the death of two robbers in a gun battle during an attempted holdup of the bank. The Great St. Louis Bank Robbery, a 1959 movie about the incident, starred Steve McQueen, and was filmed partly at Southwest.

Long says he tries to keep the prime as low as possible because high interest rates are deadly to the small customers who borrow from his bank. Says he: "Big corporations just put the interest-rate figure in their computer, and it becomes part of the cost of whatever you and I buy from them. The ones who really get hurt by these rates are the little people."

Some rival St. Louis bankers complain, though, that Long is merely a "publicity hound" who can easily afford to slash the prime rate because Southwest has few commercial borrowers paying the low level of interest. Business lending amounts to only about 11% of Southwest's credit portfolio. The bank specializes in mortgage and installment loans to customers in its immediate, largely Italian, neighborhood.

But Long asserts that his bank cuts all its interest charges, including those on mortgages, when it lowers the prime. Says he: "We were the first to break the home-loan rate from 17% to 16% in November, when the national average was 18.17%."

In contrast to large New York and Chicago banks, which use rows of computers and intricate formulas to set interest rates, Southwest has a three-member executive committee that meets sporadically to keep an eye on a number of key economic trends and determine the cost of borrowing. "Our methods are not that complex," says Long. "It's more a question of trying to size up the meaning of dozens of things that we follow. We throw them all together and decide which ones to give the most weight to. It's a matter of judgment." The group is made up of Long, Southwest President Edward Berra and Vice Chairman Fred Giacoma.

Long maintains that there were only two occasions in the past decade when his institution reduced its prime rate and the major banks around the country did not eventually do the same. Boasts he: "They haven't always followed us, but our batting average is pretty good." Some of those big financial-center banks, with all their legions of vice presidents and complex computers, would like to bat as well as Southwest. .

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