Seattle Rescue

Seafirst's $1.5 billion backstop

Richard Cooley was 59 and had been chairman of San Francisco's Wells Fargo & Co. for 16 years when he abruptly quit his job last December. A day later it turned out he was to become chief executive of another bank-holding company, Seafirst Corp. in Seattle. With $10 billion in assets, Seafirst is less than half the size of Wells Fargo, but Cooley's new job is turning out to be double the challenge of his old one. Last week Seafirst, which owns the Seattle-First National Bank, reported a surprisingly large operating loss of $61.4 million for the fourth quarter, bringing its 1982 deficit to $90.2 million. Just before the stunning announcement, a dozen of the largest U.S. banks, including Wells Fargo, had agreed to make available $1.5 billion in standby credits lest some of Seafirst's large depositors lose confidence and withdraw their money, precipitating a run on the bank.

The hastily arranged bailout plan revealed the bankers' concern for the health of the U.S. financial system, which is straining under a troubling load of bad foreign and domestic loans. Said one participating lender: "We were motivated to do something out of self-interest. The more smoothly this thing is handled, the better."

The problems at Seafirst apparently run deeper than Cooley realized when he became chairman on Jan. 3. On Sept. 30 the bank had $134 million in loan-loss reserves, mostly to cover losses on energy loans acquired from Penn Square Bank, the notorious Oklahoma City institution that failed last July. But last week Seafirst announced that it had added $125 million to the reserve in the fourth quarter alone. Notes a Seattle banker: "Their problems go far beyond Penn Square."

Seafirst revealed that its portfolio contains $800 million in problem, or nonperforming, loans that have not been written off, a figure that is some $200 million more than analysts had thought. The trouble spots include a $40 million credit to Mexico's bankrupt Grupo Industrial Alfa, the largest private firm in Latin America. The so-called nonperforming loans amount to nearly 8% of Seafirst's $10 billion in total assets; the banking industry average is about 3%. What is more, the loans exceed by 7% the sum of the bank's shareholders' equity and loss reserves, which can be thought of as its cushion against disaster.

Seafirst began seeking a bailout about two weeks ago. Cooley first called Alfred Brittain III, chairman of Bankers Trust in New York and a longtime friend, to ask him to put together a two-year loan with other lenders. That effort fell through, but telephone lines were soon buzzing between banks over a different arrangement. The terms will allow Seafirst to draw on the $1.5 billion for 24-hr, loans if it loses other sources of funding and needs money. The participating banks include BankAmerica, Citibank, Chase Manhattan and Continental Illinois.

The San Francisco Federal Reserve Bank apparently helped stiffen the resolve of the lenders, many of whom have substantial loan problems of their own. Moreover, the New York Federal Reserve branch telephoned banks in its region that were considering joining the lending syndicate to tell them that their participation would be welcomed.

The rescue mission was clearly a relief for Cooley, who had been forced to slash the quarterly dividend by two-thirds, to 12-c-. All these revelations, and the high-noon scrambling by bankers, left Wall Street remarkably unruffled. On Friday, the day after Cooley disclosed just how bad things were, the bank's stock dropped just 1 1/8 points, and closed at 14 5/8. This file is automatically generated by a robot program, so viewer discretion is required.