Despite scramble, Buckhead bank fails

The letter didn’t work. Neither did any of management’s efforts.

Regulators shut down the bank a week ago, making Buckhead Community the latest in a string of Georgia banks to fail after taking on huge losses tied to the distressed real estate market. It was taken over by State Bank and Trust of Macon.

But the tactics offer a glimpse of the lengths troubled Georgia banks are taking to keep their businesses afloat, as well as the enormous obstacles they face.

Buckhead Community, launched a decade ago by legendary Atlanta businessman Charlie Loudermilk, founder of Aaron Rents, rode to profitability on the back of the real estate boom only to run into major trouble early this year.

By the end of the summer, the bank had lost nearly $60 million and built up a staggering $160 million in troubled loans, a deep hole that seemingly grew larger by the week.

Behind the scenes, the bank’s leaders scrambled to stave off closure.

Stephen Johnson, an Alpharetta-based consultant hired by Buckhead Community, said the bank spent months trying to partner with a leasing company but was never able to consummate a deal.

One potential merger involved a firm that leased “yellow iron” equipment‚ banker-speak, Johnson said, for earth-moving equipment.

Merging with a leasing company may seem an unusual arrangement, but Johnson said that a marriage could have worked.

Many leasing companies are flush with cash, he said, enough to absorb Buckhead Community’s losses. At the same time, many leasing firms have seen their credit lines cut off by lenders amid the financial crisis, starving them of the operating capital they need to survive. A bank, such as Buckhead Community, could provide a steady source of funding in the form of deposits.

Johnson said he was close to striking several deals, but regulators balked at allowing such an arrangement, and the leasing companies eventually lost interest as Buckhead Community’s losses mounted.

“We had several deals worked out to save them, and every time we got close to the finish line” the bank’s condition worsened.

Buckhead Community’s former president and CEO, Marvin Cosgray, declined to comment through a spokesman.

An apparently dramatic scene played out several weeks ago at the FDIC’s regional office in Midtown.

A group of Buckhead bank employees wrote a letter to the FDIC that they carried to the office, said Johnson. The group included lower-level employees such as tellers and clerks, he said.

The story going around the bank, Johnson said, is that the employees were given a stern lecture by an FDIC official about the bank’s problems.

“Instead of having any empathy for them, [the FDIC] just lectured them,” he said. “It’s not the right thing to do. These people work hard for a living.”

The FDIC confirmed that a letter was sent by bank employees and that a face-to-face meeting took place. But a spokesman declined to comment further or provide a copy of the letter.

At the same time, management continued to explore ways of rescuing the business, including raising money from its board of directors. But only a portion of the bank’s board offered to pony up, Johnson said, and the total fell far short of what was needed.

Several investor groups considered buying a stake in Buckhead Community, attracted by the institution’s affluent deposit base and locations in some of the region’s wealthiest neighborhoods. But they ultimately were scared off by the bank’s huge backlog of bad loans.

Lee Bradley, an Atlanta consultant, said as recently as two months ago he was working with a group of local investors who were considering injecting $40 million to $50 million into the bank and turn the bank’s focus from real estate lending to wealth management.

But the investors, worried about the bank’s troubles, wanted some assurance that the FDIC would not shut the bank down, a guarantee the federal agency did not provide, he said.

“Buckhead’s problem was their hole was just too damn big,” Bradley said.

John Kline, another bank consultant, said he, too, was working with a group of potential investors who were worried the FDIC would close the bank down after they plowed money into it.

“They weren’t sure if they put money in the bank they wouldn’t have the rug pulled out from under them,” Kline said. “That’s always the biggest challenge in trying to recapitalize any bank. If on paper the bank needs $30 million and you come up with $25 million, will [regulators] give you the chance to stay open?”