Bank United transformation still a secret on Wall Street

By Candi Calkins
   Bank United's transformation to a community bank under the direction of President & CEO Mehdi Ghomeshi, a Barnett Bank veteran who recruited former associates and opened new branches, has impressed some bank analysts even though the bank's stock price has drifted downward.
   Ken Thomas, an independent banking consultant, said that Bank United and BankAtlantic, both former thrifts now refocusing on traditional bank activities, have seen stock prices decline over the past two years.
   "As always, a turnaround is not moving as quickly as anticipated and that could be documented by looking at the stock market's reaction," said Mr. Thomas, a former shareholder.
   Mr. Thomas said he blames the decline partly on the vulnerability of banks to interest rates, which increased six times in the past year.
   Bank United's price declined from about $18 a share two years ago to $7 last week, Mr. Thomas said.
   "That's not," he said, "a glowing endorsement of a turnaround."
   Other analysts say the stock price has not yet reflected Bank United's progress in converting itself from a savings and loan operation into a retail and corporate bank that now competes head-to-head with Bank of America, First Union and other large banks.
   "The stock hasn't really fully appreciated with the changeover there," said Martin Freedman, director of research for Freedman Billings & Ramsay, an institutional brokerage that has a buy rating on Bank United stock. "My impression is it's been a total changeover in terms of people, in terms of culture and results."
   Until December 1998, Bank United was a thrift operation that depended mainly on purchasing and selling mortgages on the secondary market. Mr. Ghomeshi was hired to convert Bank United, bringing along more than 100 former Barnett Bank staffers to create a traditional community institution.
   "So far we've been very successful," Mr. Ghomeshi said.
   He said consolidations and mergers in the banking industry in South Florida over the past decade have created opportunities for Bank United, the largest bank headquartered in Florida. He said available real estate has made expansion inexpensive.
   Bank United has grown to 31 branches, up from 25 in 1998, and executives say they expect to reach 36 branches by year's end. In addition, the bank has had record earnings for four consecutive quarters.
   Mr. Ghomeshi said changes in the industry also have made customers willing to reconsider their options. "Any time there is a consolidation you may have customers who may not be comfortable with the new entity and may be open to making a change."
   In the past 18 months, the bank has introduced more than 100 new products, including commercial loans, investments and personal banking products.
   "Our strategy aims to be a bank that can provide all financial needs of our customers, not just their deposits or their mortgages," Mr. Ghomeshi said.
   He created a small unit to administer loans to business owners and also added cash management, international finance and other services for corporations.
   Internet banking, tele-banking and other services were also added for customer convenience.
   "We believe that our strategy is working and we have a wonderful team," Mr. Ghomeshi said. "In the entire country there are not too many savings and loans that have gone through what we have and been able to achieve the results that we have."
   Mr. Ghomeshi said that while total assets are $4.2 billion, "our focus has not really been on becoming bigger. Our focus has been to become a customer-focused bank. We believe that at the end of the day, if you have happy customers, that would improve profitability of the bank."
   Richard Bove, banking analyst with Raymond James Financial, said Bank United's new strategy was developed in 1998 after a mortgage refinancing boom fueled by lower interest rates had cut the bank's profitability.
   "It was evident that a change was necessary. The change came in the form of this team coming in from Barnett," Mr. Bove said. "Essentially, the whole management team of Bank United was replaced."
   Changes included a new emphasis on deposits, a credit card program with the Miami Heat, changes to the bank's compensation structure, and a renewed focus on originating mortgages and small business loans.
   "He's been getting some very extraordinarily good results," Mr. Bove said. "Obviously his strategies were important, but Bank United prior to Mehdi Ghomeshi joining the company was not attempting to grow."
   Mr. Bove said the changes allow Bank United to profit from Florida's growing economy.
   "I think what you're going to see is the company will continue to add product," open new branches and develop relationships, he said. "It will become a more trusted community bank in the area. As long as the area continues to grow, the bank will continue to do extraordinarily."
   Mr. Thomas cautioned that stock price movements indicate Wall Street's reaction. "We would have expected by now to have seen some movement upwards," he said. "From that perspective the market has not really indicated the growth.
   "We always look to see how the market reacts when someone comes in or there's a change in market strategy," Mr. Thomas said. "From that perspective, he still has his work cut out for him.
   "The goal would be that they would be at some point bought out," Mr. Thomas said. "Right now, at least to a large degree, it does not look like it's happening. Of course we're hopeful that things will turn around for them. But they still have a ways to go in their game plan.
   "He has made some very positive changes, but the bottom line is how are profits reacting," Mr. Thomas said. "It's not that easy in many situations when you're faced with the kinds of challenges he was faced with when he was brought in."