Inside a Bank Rescue : In a Room Filled With Cigar Smoke, the Two Sides Faced Off. Seafirst Was Near Bankruptcy. Bank of America Had Money to Spend. A Tale of High-Stakes Deal Making.

Hope Lampert is the author of "Behind Closed Doors," to be published in November, from which this article is adapted

Dick Cooley and Harry Mullikin sat in Cooley's office at Wells Fargo Bank's regional headquarters on South Flower Street in Los Angeles, studying Mullikin's list of possible chairmen for Seafirst. No one seemed quite right.

"We're running out of time," said Mullikin, chairman of Westin Hotels and head of the Seafirst board's search committee. "We've got to have a man by mid-December, and it's already Thanksgiving."

Cooley looked at Mullikin for a minute. "I just told my board that I'm going to resign next year," he said. "I've been chief executive officer of Wells Fargo for long enough." Cooley paused. "I've always said I was going to retire when I turned 60. I'm 59 now."

Mullikin had heard Cooley say that he was going to retire at 60, but he'd never quite believed it. "What are you going to do?" he asked. "I can't imagine you sitting still."

"I wish there were a banking job that looked right," said Cooley.

"I've got one for you," said Mullikin. "Chairman of Seafirst."

Cooley stared.

"I was joking," Mullikin said. He paused. "Let's get back to the list."

"Running Seafirst would be a new challenge," Cooley said. After all, Seafirst had lost $56 million in the third quarter of 1982, and it looked as if it might lose more than $60 million in the fourth. "I might be interested."

Mullikin was startled. "If you're really interested," he said, "why don't you come up to Seattle and talk to the board?"

Cooley looked straight at Mullikin. "I'll do that," he said. "Next week."

Later that afternoon, Mullikin put in a call to each of the 17 members of the Seafirst board of directors to say that Dick Cooley was looking. "I hope he takes the job. If anyone can save the bank, Dick Cooley can."

DICK COOLEY IS IN CONstant motion. Today, at 62, he looks 42--tall, slender, with light brown hair and glittery gray eyes--and he attacks his work with the zip of a man of 22. He skis in the winter, boats in the summer and reads escape fiction all year round--he says he reads too much nonfiction on the job. Cooley lost his right arm at the shoulder when his fighter plane was shot down by the Germans during World War II; he wears a hook as a right hand, yet he plays squash and golf (his handicap is 21). He has a huge ego. At Wells they called him "Richard P."

Cooley was born in Dallas and majored in industrial engineering at Yale. He studied hard, but he played harder; he won letters in football, tennis and squash. After he graduated in 1944, Cooley joined the Army Air Corps; when he got back to the States five years later, he signed on at American Trust Co. in San Francisco. He had wanted to be an engineer, not a financier--he joined American Trust because he needed a job--but he turned out to be quite a banker. He was named a vice president in 1957, a senior vice president in 1964 and president of Wells Fargo, the new owner of American Trust, in 1966. He was 43 years old.

Under Cooley, Wells grew from a sleepy San Francisco bank into a regional giant, the brains behind MasterCard, the only bank card that held its own against the BankAmericard. The Wells loan portfolio leaped from $4.2 billion in Cooley's first year to $24 billion in 1982; at the same time, profits skyrocketed from $16.8 million to more than $100 million.

Lots of people asked Cooley for help; he was one of the West Coast's most esteemed bankers. Naturally he had heard about Seafirst.

"See Seafirst First." For more than a hundred years, the Seattle-First National Bank had been the chief bank in the Pacific Northwest. It was the bank where Washington banked: half the households in the state; two-thirds of the region's "middle market" companies--the business customers bigger than mom-and-pop stores but too small for the Fortune 1000-plus giants such as Carnation, Boeing, Weyerhaeuser and Westin Hotels. Banking experts called Seafirst farsighted, well managed, a model for even the country's largest banks. In 1981, the bank proudly announced its 20th straight year of increased savings; by then, the loan portfolio totaled $800 million.

Seafirst had traditionally made its loans just in the Pacific Northwest, but as the bank got bigger it opened seven domestic and foreign branch offices and encouraged officers to lend to national companies and to South American countries. In 1979, Seafirst started to make energy loans. At first, the bank lent money to large oil companies on the West Coast and in Alaska. Then Seafirst opened a branch in Oklahoma City.

The well-established Texas banks had a lock on loans to reputable independents. That meant that Seafirst had to lend to less credit-worthy borrowers--gas drillers in Oklahoma, wildcatters in Texas, small refiners such as NuCorp Energy and Good Hope Refineries--who were willing to pay high interest rates.

Seafirst also bought loans. Buying loans isn't itself unusual--the law says that a bank can lend no more than 10% of its capital to a single borrower, so when a small bank lands a big loan, it has to sell "participations" to other banks--but the Seafirst purchases were somewhat odd. Four hundred million dollars worth came from the Penn Square Bank of Oklahoma City.

Penn Square had a reputation in the financial world. Bill Patterson, the executive vice president who ran the oil and gas division, had been seen drinking beer out of a cowboy boot. Sometimes he showed up for work in a Nazi uniform; other days he wore his Mickey Mouse hat. Penn Square didn't do much credit checking, and it didn't keep careful records. Most banks shied away from Penn Square.

John Boyd, the head of Seafirst's energy department, didn't seem to care about Penn Square's reputation. Between the end of 1978 and early 1981, the Seafirst energy portfolio grew from $11 million to more than $300 million. In November and December, Boyd bought $350 million in loans from Penn Square. That brought total energy loans to $1.2 billion, almost 12% of all Seafirst loans.

Oil prices collapsed in June, 1982. Seafirst borrowers started to go bankrupt.

Penn Square missed its first payment on Seafirst's bought loans in June. The bank failed over the Fourth of July weekend.

Two weeks later, Seafirst fired Boyd. Soon after, the bank announced that it had written off $125 million in bad energy loans in the quarter. That made the three-month loss $56 million. Seafirst had lost just $44 million in bad loans in all of 1981.

Seafirst's chairman got the ax at the August board meeting, effective Dec. 31. Harry Mullikin was named head of the committee to find a new chairman. First, Mullikin called a headhunter. Then he called his old friend Dick Cooley.

The two talked for hours. Mullikin flew to Los Angeles.

Mullikin came to Los Angeles again in the middle of November. By then, he had a list of finalists. As it turned out, none got asked. That was the meeting in which Cooley told Mullikin that he might be interested in the job as chairman of Seattle-First National.

While Mullikin courted Cooley, Seafirst coasted. Every day more Penn Square loans went bad. Every day the Seafirst losses ballooned. The lame-duck chairman did what he could: cut staff, cut costs, sold loans.

But that was not enough. If the ratio of Seafirst capital (cash in the bank's own account) to bank deposits fell below the minimum set by the comptroller of the currency, Seafirst would be forced to close. Seafirst needed $100 million to stay afloat, and Bill Pettit, the bank's chief financial officer, started to look for an investor.

Before he could find one, Mullikin called off the search. Dick Cooley had just agreed to become chairman, and Mullikin wanted him to have a chance to solve Seafirst's problems by himself.

SAM ARMACOST LOOKED down the fairway. "I wish I weren't so busy," he said. "I'd like to get in a game every week, not just on the day before Christmas Eve." He swung his iron. "My game is slipping. I have a seven handicap, but I've been hitting like I'm a 15."

Steve McLin laughed. "Seven is a lot better than my 12," he said.

Armacost gave his putter to his caddie. He turned to McLin. "What kind of wild ideas have you been looking at back there in your corner office?" he asked.

Steve McLin didn't answer at first. He took the 3-wood from his caddie and weighed it in his hand. "I've been running acquisition studies on banks with a big market share," he said. "Banks like Seafirst."

Armacost frowned. "Seafirst?" he said, laughing. "Haven't I been reading about that bank? Didn't Seafirst buy a lot of loans from Penn Square?"

"Seafirst used to be the premier bank in the Northwest," said McLin. "It would be a perfect extension for the Bank of America. If we have the daring to buy it."

"You've got to be kidding," said Armacost.

"I'm serious," said McLin. "The fit is good. Buying Seafirst would start to lock up the West Coast."

They walked down the fairway.

"Seafirst," mumbled Armacost. "What next?"

Sam Armacost is conscientious. At 46, he's six feet tall, with a round baby face, brown hair and brown eyes. He's a natty dresser, a rock-'n'-roll dancer and a race car fiend. Until he was named president of the bank, he zipped around in a 280ZX. Recently he's been forced to use the company's limousine to get to the office in the morning: He's got so much to do that he needs the extra hour to read his memos. He used to be a bit overweight, the result of too many five-course meals with clients--so he went on a diet and lost 15 pounds. He still makes a point of counting calories; he orders light when he has to eat lunch out, and when he doesn't, he lunches on a cup of coffee at his desk. No one walks into his office without an appointment, and getting an appointment isn't easy: Armacost books a year in advance. Yet he's got a lighter side. At a cocktail party once, his wife, Mary Jane, introduced Armacost as an employee of the Bank of America, and he casually offered to help the person open an account.

Armacost grew up in Newport News, Va., and Redlands, Calif. He went to Denison University in Ohio and, to the dismay of his college president father, spent more time chasing girls than hitting the books. In 1961, Armacost got a job at the Bank of America as a credit trainee in the San Bernardino office. He took two years off to get an MBA at Stanford and returned to the bank as a junior lending officer. From the start, it was clear he was on the fast track. He rose through the ranks in California and was sent to London for seasoning. After a stint in Chicago as head of the bank's Midwestern division and a tour in San Francisco running the corporate office, Armacost was named head of the overseas division. Two years later, in 1979, he was cashier, the No. 3 job at the bank. In 1981, Armacost was promoted to president and chief executive officer. He was 41.

Bank of America had once been one of America's proudest banks. A consumer bank with 1,100 branches and 40% of California's deposits, it had been the first U.S. bank with branches instead of just a headquarters office, and one of the first banks to cross state lines. Bank of America pioneered the TimePlan installment credit system and popularized the bank credit card with its BankAmericard, now called Visa. Bank of America bankrolled farmers, vintners, movie producers, aerospace giants and Silicon Valley start-ups. In the 1970s, it lent more money to students for college tuition than any other bank in the world.

But then Bank of America lost its touch. It kept banking the way it always had. Personnel policy was: no pink slips and no raises. Decisions were made--or rather weren't made--by committee. Bank of America stopped taking risks, and it didn't react when Congress deregulated interest rates on its bread- and-butter passbook savings accounts. The mistakes hit hard on the bottom line. The bank had had 72 consecutive quarters of increased earnings, but earnings were down by $199 million in 1981, $52 million in 1982, $5 million in 1983. By the end of 1982, Bank of America wasn't the world's biggest bank anymore, or the most profitable. Citibank had $9 billion more in assets and twice the earnings.

In 1981, Sam Armacost began to kick the bank back to life. He raised salaries, bought modern computers, installed automated teller machines and hired aggressive executives away from American Airlines, IBM and American Express. That helped, but Armacost knew that if Bank of America was to become America's pre-eminent bank, it had to have imagination. So three months after he was named chairman, Armacost picked Steve McLin, then vice president, to be chief planner.

Steve McLin is cerebral. At 39, he's tall and balding and decidedly unbankerly. Although he usually wears pinstripes, he doesn't own a tuxedo, and he isn't on the San Francisco social circuit. McLin's an avid reader, from Shakespeare to Alexander Pope to John MacDonald and Len Deighton. He collects California wines, smokes $125 worth of MacBaren's tobacco a year and zooms around town in a 280ZX, the same model that Sam Armacost drives, but with power windows--Armacost laughs that he can "roll his own windows down." McLin spends his holidays hiking around Angels Camp, his wife's home in the heart of the California Gold Country.

McLin is an Army brat, born in St. Louis and raised at a dozen Air Force bases around the country. He went to college at the University of Illinois and set his sights on being a petroleum engineer. Armed with a degree in chemical engineering, he landed a job at Atlantic Richfield in Los Angeles in 1968, where he helped analyze the first barrel of crude oil pumped from the North Shore of Alaska. A year at Arco convinced McLin that he didn't want to be an engineer, but deal making looked like fun. He went to Stanford for a master's in mechanical engineering and an MBA in finance. After a stint at the First National Bank of Chicago, he joined Bank of America as an assistant vice president in the cashier's division. Seven years later, Armacost made him the top strategist.

McLin's biggest coup had been engineering the acquisition of Charles Schwab & Co., the largest discount broker in America.

Since the late 1970s, McLin had been thinking about getting Bank of America into Washington state. He just didn't know how.

Then Penn Square failed. Seafirst looked weak. In late September, 1982, McLin called a staffer into his office. "Put together a study on Seafirst," McLin said. "The bank isn't for sale yet, but it might be on the market soon. Buying Seafirst might be a good strategic move for Bank of America."

The staffer started the study.

McLin didn't mention the idea to Sam Armacost until the two went golfing the day before Christmas Eve. Armacost had only laughed. The day McLin got back to the office after Christmas, the staffer doing the Seafirst study walked into his office. "Dick Cooley has just been named chairman of Seafirst," he said. "I want to stop working on this study. Cooley isn't going to sell the bank."

"Keep working," McLin said. He wanted to be ready.

On Dick Cooley's first day on the job, he called a staff meeting. "It's good to be here," he began. "We're going to be a great team." He paused. "We'll get the problems under control. It seems to me that the biggest problem at this bank isn't bad loans, it's morale," he said. "And I'm going to do something about that. We're going to get a new slogan--'Expect Excellence'--and everyone's going to wear it on his lapel." He looked at the head public relations man.

"The pins are on order," said the man. "They'll be in later this month."

Cooley nodded. "We're getting rid of the square table in this conference room," he said. "Henceforth, we're using a round table." He motioned to the office across the hallway, the former chairman's throne room. "That's going to be a conference room," he said. "My office is going to be in here." The president's office, the place for the man on the way up. "I don't think there's enough communication at this bank. Decisions always seem to be made in secret closed-door meetings; henceforth, we're going to have a regular morning staff meeting. Just walk into my office when you have a question. Or sit down with me in the executive lounge for a chat." He paused. "Any questions?"


"Great," Cooley said. "Let's get to work. There's a lot to do."

Cooley had thought that he could save Seafirst simply with better management, but he quickly realized that the losses were too big for that. At the end of January, Cooley put together a $1.5-billion "safety net" line of credit to back up Seafirst's loans. Two weeks after that, he flew to New York to talk to Salomon Bros., Seafirst's investment bank, about raising $200 million in capital.

"You may have to sell Seafirst to raise that rescue money," said Lee Kimmel, the Salomon partner in charge of commercial bank finance. "Two hundred million is close to the market price of the Seafirst stock."

"I know that," said Cooley.

"It's illegal for an out-of-state bank to buy Seafirst," Kimmel said. At the time, interstate banking was legal only when the Federal Deposit Insurance Corp. arranged a shotgun wedding to save a failing bank. Cooley knew that, too, but he thought he could get clearance.

Later that afternoon, Kimmel began to make his calls.

Security Pacific, the second-largest bank in California. No. Citibank. No.

Industrial Bank of Japan, one of the big Japanese banks. No.

Dai-Ichi Kangyo bank, another Japanese giant. No.

Barclays, the biggest British bank. No.

The Midland Bank, the British bank that then owned Crocker Bank in San Francisco. Maybe.

Hong Kong Shanghai Bank. Maybe.

In the middle of March, Kimmel called Steve McLin at Bank of America.

"I don't think Sam is interested," McLin said. "Seafirst is a black hole."

Kimmel kept calling. Surely someone wanted to buy Seafirst.

But Steve McLin, of course, did have his eyes on Seafirst. At the beginning of March, two weeks before Kimmel's call, McLin brought it up in a meeting with Armacost. "Seafirst is up for sale. Why don't we think about making a bid?"

Armacost raised an eyebrow. He knew all about Seafirst. He'd read the newspapers. "My God," he said. "We've got enough to do here in California. We don't need to buy someone else's problems."

"It makes good strategic sense," McLin said. "One of my staffers just did a study. I want to take a closer look."

Armacost wasn't sure why McLin was pushing Seafirst so hard, but he figured that this was a passing fancy; he could humor him. "Go ahead," he told McLin.

McLin walked back to his office. He pulled out his papers on Seafirst. He looked at the numbers again. He was sure that buying was a smart move; the problem was how to protect Bank of America from unexpected Seafirst losses. Suddenly McLin thought of an answer: BofA could pay for Seafirst with a "shrink-to-fit" stock that was worth less as Seafirst losses got bigger.

By the time McLin had worked out some of the details, it was the end of March. Seafirst was looking sicker. Bank of America had to bid soon.

McLin knew that Armacost wouldn't raise the idea with the Bank of America board unless McLin had a supporter in top management. Lee Prussia, the chairman, was lukewarm. McLin called Bob Frick, the executive vice president and cashier. "Seafirst is a good strategic fit," he said. "I know it isn't No. 1 on our target list of states, but Washington has potential."

"That's a crazy idea," said Frick. Frick calls all McLin's ideas "crazy," and he says he expects just one in five of them to pan out. "But this is a crazy idea that might make sense. Might." He paused. "I've got some questions," he said. "First, management: Cooley is first-rate, but what about the other officers? Seafirst has fired a dozen or so already. Is there anyone left? Second, the loan portfolio: Are the commercial and local loans any better than the energy loans?"

"I don't know," said McLin. "I won't know until I talk to Seafirst." He handed Frick the staffer's memo.

Frick tossed it into his "in" box. "Keep working on this," he said. "I'll handle Sam."

A couple of days later, McLin sent an investigator to Seattle to look at the Seafirst books. The man liked what he saw. McLin called Armacost. "Can I invite Salomon Bros. to make a presentation on Seafirst?" he asked. A presentation might get Sam moving.

"OK," Armacost said. It couldn't hurt to listen.

McLin scheduled the meeting the day before Bank of America's April board meeting. Unfortunately, Armacost wasn't in a great mood that day. "Why the hell should I buy this bank?" he asked Kimmel as soon as the banker had sat down. "It's sick."

"Seafirst is really two banks," Kimmel said, handing Armacost a booklet of numbers that he had put together on Seafirst. "A very sick $1-billion energy bank and a healthy retail bank. It's a logical extension for Bank of America, more logical than it would be for, say, Citibank."

Armacost was skeptical. "When's this bank going to be profitable again?"

"Three years," Kimmel said.

"That's not soon enough," Armacost said. "And I think you're being optimistic." He looked at the booklet that Kimmel had given him. "Where do these numbers come from?"

"Look," Kimmel said. "This bank used to be a money machine. It made some bad loans. The cancer is contained. It's going to be profitable again."

Armacost scowled. "I'm not sure I like this. We've got problems of our own." He looked at his watch. "You guys can keep talking, but the numbers don't look good. I've got another meeting."

Dick Cooley had a deadline to find a buyer for Seafirst: April 21, the day of the Seafirst annual meeting. Cooley would have to announce first-quarter results in his presentation to shareholders, and the numbers would be so bad that depositors would run to withdraw their cash, forcing Seafirst into bankruptcy.

At the beginning of the month, Salomon Bros. still hadn't found a buyer, and Cooley knew that there was only one other option--a federal bail-out. So in the middle of April, just eight days before the annual meeting, Cooley flew to Washington to talk to bank regulators. The officials made it clear that they weren't going to help, and Cooley flew back to Seattle discouraged.

He spent the weekend talking to big depositors in Seattle. Tuesday morning he headed for New York to talk to the safety-net banks: Seafirst might have to borrow later in the week. Late in the afternoon, Cooley was chatting with Donald Platten, chairman of Chemical Bank, when Platten's secretary buzzed.

"Sam Armacost of Bank of America is calling for Dick Cooley," she said.

Bank of America had decided to bid.

Cooley couldn't stay to handle the talks: He had to fly back to Seattle that night to get ready for the shareholder meeting Thursday. Bill Pettit, Seafirst's chief financial officer, was already in New York. He would take Dick Cooley's place at the negotiating table.

"Bank of America is here to present an offer, not to negotiate," Bank of America's investment banker said when the two teams sat down at 11 that night. "If you don't like the price, we're back on the plane."

Pettit shifted in his seat. He couldn't figure out why Bank of America was being so hostile. Not only were they sitting like the enemy, lined up along one side of the table, they were talking like the enemy, too.

"The price is $400 million," the BofA investment banker said. "It's in three pieces: $150 million in capital, $125 million in cash, $125 million in special shrink-to-fit stock."

"That's not a $400-million offer," Pettit said. "You know that as well as I do. The $150 million of capital isn't payment, it's money shifted from one Bank of America pocket to another. That makes that a $250-million offer. It might even be a $135-million offer if that special stock turns out to be worth the minimum of $10 million."

"Let's caucus," said the BofA investment banker.

Pettit called Cooley.

It was 10:30 in Seattle. Cooley had just gotten home from the airport.

"It's $250 million, half in cash," said Pettit.

"That's much more than Seafirst could get by trying to sell off all its assets," said Cooley.

"I don't think the board is going to understand that this is a good deal," Pettit said. "I don't think they understand that the bank is almost bankrupt." He paused. "I was hoping for $250 million, all cash."

"You're right about the directors," Cooley said. "We need more."

"It isn't going to be easy," Pettit said. "They're pretty hostile."

"Keep fighting," said Cooley. "Stall. Make them think you're talking to someone else."

Pettit came back to the negotiating room. The air conditioning had gone off at 5 o'clock, and the place was roasting. By now it was so full of cigar smoke that he could hardly see across the table. "I want more money," Pettit said. "We need the whole $250 million in cash."

The BofA investment banker shook his head. So did Bob Frick.

"We need more money," Pettit said.

Now Frick took over as the Bank of America negotiator. "We can't pay more cash," he said. "But I'm willing to haggle over the terms of the stock."

Pettit and Frick argued.

"That's not enough," said Pettit when Frick finally sweetened. "I need more cash. I need a promise that Bank of America will guarantee Seafirst deposits."

"No," said Frick.

"We need a better offer," said Pettit.

Frick wouldn't budge.

They kept talking. They didn't settle any of the terms. "I've got to make a call," McLin said a little after 3 in the morning. It was midnight in California. He had to brief Armacost. "We're stuck on the terms," McLin said. "But it looks like we'll have a deal by sometime tomorrow. Seafirst is ready to concede."

"I need to know the new Seafirst numbers," Armacost said. "What was their first-quarter loss?"

"I don't know how much Seafirst lost," said McLin. "Pettit hasn't said."

"He's got to know," said Armacost. "Seafirst's annual meeting is on Thursday. Cooley is going to announce the numbers then."

"I've asked," said McLin. "I'll ask again."

"We've got to settle the order of the board meetings," Armacost said. "It's important that they meet first to approve our offer and then we meet." He was scared that Seafirst would turn him down after he'd put his neck out in front of his own board. If the Seafirst board met first, that couldn't happen.

McLin walked back to the negotiating table. "We need to have Seafirst's first-quarter results," he said.

"I don't have the exact numbers," said Pettit. "I've gotten some estimates."

"You've got to make the announcement Thursday," McLin said. "I don't believe you still have estimates."

"We're having trouble figuring out which energy loans are bad," Pettit said. He read the numbers. Then he demanded more cash.

But Frick wouldn't give a penny.

McLin didn't leave the Salomon Bros. office until 8 in the morning. Frick had gone to the hotel at 4--he was feeling sick, and he wanted to lie down. "I'll be back at noon," McLin told his investment banker as the two walked to the elevator. "I've got to get some sleep."

"Don't go to sleep," the investment banker said. "You'll just feel worse. Take a shower instead."

McLin caught a cab to the Inter-Continental Hotel on 48th Street. McLin showered, ate breakfast and headed back downtown.

Pettit and Frick were still arguing.

Finally, late in the afternoon, the lawyers finished up a handwritten draft of the agreement.

Pettit left to take a nap.

McLin called Sam Armacost. "I think we've got a deal," he said.

"What about those Seafirst first-quarter numbers?" asked Armacost.

"I'll get them," said McLin.

"What about the board meeting?" Armacost asked.

"I'll settle that right now," McLin said.

As soon as Pettit got back to the negotiating table, McLin demanded the first-quarter numbers. Pettit said he didn't have them.

"Seafirst has to get approval for this merger first," McLin said. "After your board approves, Sam will present the merger to our board."

"The Bank of America board meets first," Pettit said. "Seafirst can't accept an offer that hasn't been made."

"No," said McLin. He sounded edgy.

McLin and Pettit argued.

Pettit walked down the hall to Kimmel's office. "We've got to get more money," he said.

"It isn't going to be easy," Kimmel said.

"Maybe we can use this board meeting thing to force them," Pettit said. "Why don't we have Cooley call Armacost and say he thinks that the board is going to veto the deal unless he gets more cash."

"It can't hurt to try," said Kimmel.

Pettit called Cooley. "The price is too low," he said. "You've got to call Sam Armacost."

Cooley called Armacost at about 4 that afternoon. "I understand your team in New York is being intransigent," Cooley said. "You have to be a little more flexible. The Seafirst board doesn't like your offer at all."

That was exactly what Armacost had been worried about. "I want to be flexible," he said.

"We need more money," said Cooley.

"I'll talk to my team in New York," Armacost said. "I want to get a deal done."

Armacost called McLin. It was 8 in the evening. "I've just talked to Cooley," Armacost said. "Don't you think that we should give him more money?"

"We don't need to give," McLin said.

"I think we should," Armacost said. "We can afford more." Bank of America earned almost as much in a quarter as it was proposing to pay for Seafirst. "The Seafirst board has to OK the deal."

Armacost called Frick at the hotel.

"Cooley says you're being intransigent," said Armacost.

Frick laughed. "If that's what Cooley told you, we're doing a good job," he said.

Bill Pettit had got a couple of hours of sleep that night. He looked at the typed draft agreement first thing Thursday morning, hours before the Seafirst annual meeting was scheduled to begin. One of the clauses said that Bank of America was free to drop out of the agreement if there was a "material and adverse" change in the condition of Seafirst. Most contracts had a similar clause to protect the buyer from some kind of natural disaster, but in this case it didn't seem appropriate. Seafirst was up for sale precisely because it had had a material and adverse change in its condition, and including the clause in the contract seemed to mean that Bank of America could drop out any time it wanted to.

"That's boilerplate," Frick said when Pettit pointed out the clause a couple of hours later. "If an earthquake hits Seattle, Bank of America has to have the option to back down."

"The Seafirst board won't approve the offer if it has that clause in it," Pettit said. "The Bank of America board isn't going to OK any deal without it," Frick said.

"This is supposed to be a friendly merger," Pettit said. "You're talking as if it's a hostile takeover."

"Maybe we could put some parameters on what you mean by a material and adverse change," suggested one of the lawyers. He looked at Frick. "Make me a list of what you're worried about. We'll write those things into the agreement."

"No," Frick said. "What I'm worried about is the unknown. If I make a list of everything I can think of, I'll leave out the one change that will cost the bank $100 million."

Pettit signaled to Kimmel. They caucused in the room down the hall.

"This won't work," he said. "The Seafirst annual meeting is going to start in a couple of minutes. There isn't anyone else interested in buying Seafirst."

"Let's give them one last try," Kimmel said. "If that doesn't work, we'll have to have Cooley call Armacost again."

Pettit and McLin and Frick argued for hours. At 9 o'clock, Pettit played his trump card. "Cooley's got to talk to Armacost," he said.

McLin shook his head. "I don't think that's necessary," he said. He looked at his watch. It was 10 o'clock in New York. "I'm not even sure where Armacost is right now," McLin said. Sam's secretary would know. McLin called her at home.

"He's in Fresno," the secretary said. "At the Piccadilly Inn."

McLin scribbled the number down.

"What's up?" asked Armacost when McLin finally got him on the line.

"Dick Cooley is going to call you," McLin said. "Don't give an inch. Just tell him you've got a deal."

Dick Cooley called half an hour later. "My people in New York tell me that you aren't going to sign a binding contract," Cooley said. "I guess it's too late to convince you on that--but before I take this to the board, I want to know something. Do we have a deal?"

"Yes," said Armacost. "The Bank of America is going to buy Seafirst."

The merger announcement went over the wires at 5:15 Saturday afternoon, and a month later the Seafirst shareholders approved the deal. They had no choice.

Once the Bank of America owned Seafirst, Cooley could worry about market share instead of survival. He held a monthlong loan "sale" and quickly won back the bulk of Washington's business. Seafirst earned $12 million in 1984 and $29 million in 1985.

By then, however, Bank of America had plunged into the red. In the second quarter of 1985, BofA reported a loss of $330 million. In January, after another near-record loss, the bank was forced to eliminate its 80-cents-a-share dividend. Armacost fended off two takeover proposals in the spring of 1986, from Sanford Weill, former president of Shearson/American Express, and from Joseph Pinola, chairman of First Interstate. Falling oil prices and problems in Greek shipping and Dallas construction have hurt many of the bank's clients, leading to a loss of $664 million in the second quarter of 1986. Until recently, the bank board has stood firmly behind its chairman, but director Charles Schwab resigned in August, and insiders speculate that Armacost's days are numbered. A rumor is circulating on Wall Street that a Japanese bank is considering a bid to rescue Bank of America, just the way Bank of America rescued Seafirst. Among the successors mentioned to replace Armacost is Dick Cooley.

Steve McLin has been to Seattle just once since the negotiations to buy Seafirst--for the shareholder meeting to approve the Bank of America offer. He has been promoted to executive vice president, though he is still involved in strategic planning. He's looking at other ways to bank out of state, and he's intrigued with the idea of buying a big brokerage house--if only it were legal.

Excerpted by permission of the Charlotte Sheedy Literary Agency Inc. from "Behind Closed Doors" (Atheneum), by Hope Lampert. Copyright 1986 by Hope Lampert.

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