SOTR- Southtrust, nice bank in Southeast- featured in WSJ today"
HEARD ON THE STREET
SouthTrust Chairman's Retirement
Raises Questions for Buyers, Holders
By CARRICK MOLLENKAMP
Staff Reporter of THE WALL STREET JOURNAL
When will Wallace retire?
That is a popular question in Birmingham, Ala., as locals guess how long it will be before
Wallace Malone Jr. retires as chairman of SouthTrust Corp., one of the Southeast's
biggest banks. Mr. Malone, 65 years old, has run SouthTrust with a tight grip since the
1970s. And the answer has potentially big ramifications for shareholders.
Some believe his retirement wouldn't only loosen Mr. Malone's grip on the company -- he
owns or controls about 2.1% of SouthTrust -- but also would set up SouthTrust for a sale.
Investors digging into SouthTrust's recent proxy filing with the Securities and Exchange
Commission might find some clues: It details two retirement packages for Mr. Malone
that suggest he might depart as soon as next year.
SouthTrust's proxy for the first time gives details of a retirement plan for the bank's top
executives, which became effective in January and would pay Mr. Malone $755,000 a
year on retirement. A second plan specifically set up for Mr. Malone would add to that
an annual benefit of $157,386 if Mr. Malone leaves on or before June 30 of this year. If
he sticks around until Dec. 31, 2003, that added annual benefit would nearly triple to
$452,351.
While there's nothing conclusive to be drawn about a departure from these dates and
figures, of course, those who have read the company's filings over the years note this:
Last year's proxy mentioned Mr. Malone's retirement plan, but it didn't mention the dollar
amount of the benefits or a trigger date.
All of this suggests that specific plans are in place and are signals that Mr. Malone "could
retire by end of 2003," banking analyst Christopher Marinac of Atlanta investment firm
SunTrust Robinson Humphrey wrote in a recent report.
Through a spokesman for the bank, Mr. Malone declines to comment. The spokesman
notes that Mr. Malone has indicated to investors that he doesn't plan to be a "long-term
player," though he hasn't a specific departure date in mind.
Mr. Malone, who last year was paid a salary of $976,042 and received a bonus of $2.1
million, has a reputation as a cantankerous and conservative banker who runs the bank
with a firm hand. A few years ago, he yanked Internet access from his 11,000 employees
and made them reapply in writing to regain access. The reason: An Internet message
board posted messages discussing whether the bank might merge with another. One
person messaging online claimed to have an inside source at SouthTrust. Another claimed
to work at the bank.
Mr. Malone's style is, "it's my way or the highway," says Thomas Finucane, a portfolio
manager at John Hancock Advisers, which owns 3.7 million SouthTrust shares. "Wallace
is an irascible guy, but he's a good banker. He's made us a lot of money."
In the past two years, SouthTrust's shares, adjusting for stock splits, have more than
doubled, to their 4 p.m. Friday price of $25.55, when they were up 28 cents in Nasdaq
Stock Market trading. That compares with a 24% increase in a Keefe, Bruyette &
Woods Inc. bank index and a 2.4% increase in the Dow Jones Industrial Average during
those two years.
Today, the bank has 700 branches in Alabama, Florida, Georgia, Mississippi, the
Carolinas, Tennessee, Texas and Virginia. "The SouthTrust franchise is mighty
attractive," the analyst Mr. Marinac wrote. He figures the company could fetch more
than $32 a share if a sale were to happen over the next six to 12 months. That valuation,
based on estimates of its earnings capacity in 2003, would mean a $11.3 billion deal. "In
the meantime, the stock should hold near current levels," he adds. Mr. Marinac has an
"outperform" rating on the shares.
The bank has entertained the idea of selling during the past year. According to people
familiar with SouthTrust, Mr. Malone kicked around the idea of selling to AmSouth
Bancorp, whose headquarters also are in Birmingham. But those talks fell apart.
AmSouth spokesman David Rickey says the bank doesn't comment on speculation. Mr.
Rickey does say, however, that AmSouth is focused on increasing income internally, with
plans to sharply ramp up the number of branches it opens annually.
SouthTrust's branches, especially those in fast-growing Southern cities such as Atlanta
and Tampa, also could make it an enticing acquisition target for banks such as BB&T
Corp., Winston-Salem, N.C., or Bank One Corp., Chicago, Mr. Marinac says.
SouthTrust's spokesman says the bank doesn't discuss speculation.
Meanwhile, a more immediate decision may be at hand at SouthTrust: naming a
successor to Mr. Malone. According to people familiar with the bank, a search has gone
in fits and starts over the past year. Several candidates were identified, but a clear
successor has yet to emerge.
For now, many bets are on 61-year-old Julian Banton, SouthTrust's current chief
executive. But Mr. Malone has yet to formally name Mr. Banton as his successor, and Mr. Banton's age suggests that "he is
a three- to four-year solution," says Lori Appelbaum, an analyst at Goldman Sachs.
Even if SouthTrust wasn't a takeover play, some investors see its shares, which trade at a price-to-earnings ratio about equal
to those of peers, as a safe hiding place in an unsettled economy. While its loans to real-estate firms could deliver some pain,
the bank's conservative stance has protected it from the exposure to troubled companies that is dragging down the stock
prices of bigger banks. "They don't do the Global Crossings, the Enrons, the telecom and the other sexy stuff," says John
Hancock's Mr. Finucane, referring to specific companies and sectors where bankruptcy-court protection has been sought
since late last year. |
