RETRENCHMENT AT SECURITY PACIFIC : Closing of Merchant Banking Unit Means End to Executive’s Dream

The dissolution of Security Pacific’s merchant banking arm ends the dream of David R. Lovejoy, who made a name for himself as an aggressive--and many say abrasive--competitor at the helm of the bank division.

Lovejoy did not take phone calls Monday. Rival Los Angeles investment bankers said there is no doubt that the decision to disband the merchant banking unit was a huge disappointment to Lovejoy. Security Pacific said Lovejoy will depart after a transitional period.

The 42-year-old executive was a protege of Security Chairman Richard J. Flamson III. Lovejoy joined the firm in 1970 and ran the bank’s European, Middle Eastern and African businesses from 1976 to 1981, based in London. He served as treasurer of Security, and since 1985 has guided the merchant-banking arm. He also is vice chairman of Security.

One of Security’s major merchant-banking thrusts under Lovejoy was the so-called securitization of the bank’s mortgage portfolio and other assets. Loans were packaged and sold in pieces to investors, which earned the bank fees.

Lovejoy also guided the bank into overseas corporate finance and merger advisement in the United States. Indeed, Security made no secret in the ‘80s that merchant banking was the bank’s great hope for the future. Now, the bank clearly is admitting it erred.

Though many top Security Pacific executives said they respected Lovejoy, some competitors said his style was aggressive with clients and with his own staff.

“He unnecessarily stepped on heads,” one rival investment banker who, as is typical in the banking business, refused to talk about a competitor unless he was promised anonymity. This competitor said that, as treasurer of the company, Lovejoy alienated Wall Street brokerages “who could have helped him later” in syndicating business.

Security CEO Robert H. Smith insisted that he and Lovejoy remain on good terms. But some rivals speculated that with Flamson ill, Lovejoy has lost his mentor, and that Smith has been forced to extract Security from merchant banking activities grown far too risky given the merger drought and general economic slowdown.