Thursday, May 02, 2002

Peoples Bank 'very strong,' new leader says

By Patrick Crowley,
andJeff McKinney,
The Cincinnati Enquirer

        CRESTVIEW HILLS — The new leader of Peoples Bank of Northern Kentucky is convinced the institution is in sound financial shape, despite its linkage to a troubled home builder and the loss of two top executives.

        Veteran banker Merwin Grayson, 60, left his South Carolina coastal home and came out of retirement Tuesday night to take the reins of a company suffering through the worst crisis of its 10-year existence.

[photo] Merwin Grayson, 60, came out of retirement Tuesday night to take command of Peoples Bank of Northern Kentucky.
(Jeff Swinger photo)
| ZOOM |
        “This is a very strong bank,” Mr. Grayson said in an interview Wednesday at Peoples headquarters. “I have to admit there are problems. But I saw those problems and I felt that maybe I could help, that I had something special to bring to the table.”

        The new job won't be easy for Mr. Grayson, who has nearly 40 years of Northern Kentucky banking experience.

        “He has to figure out fast how bad the damage is, how to minimize any losses and keep existing business and individual customers calm,” said Bert Ely, president of Ely & Co. Inc., a banking consulting firm in Alexandria, Va. “He has to pour oil on the water, so to speak.”

        Mr. Ely said Mr. Grayson will likely spend much of his time with regulators trying to determine the extent of the damage to the bank and of its ties to the Erpenbeck Co.

        The board at Peoples — a bank with $209 million in assets and with six Northern Kentucky branches — turned to Mr. Grayson after John Finnan, the president and CEO, and Marc Menne, executive vice president for commercial lending, resigned Tuesday afternoon. The pair had a business relationship outside their bank employment with the Erpenbeck Co. and its former president, A. William “Bill” Erpenbeck.

        The FBI has acknowledged it's investigating the Erpenbeck Co. for possible bank fraud, although it won't comment on the probe. No charges have been filed.

        Mr. Finnan and Mr. Menne operated a company called Jams Properties that purchased model homes built by the Erpenbeck Co., and then leased them back. Board members have expressed concern about the company, which they found out about recently.

        In a brief interview Wednesday, Mr. Finnan said he and Mr. Menne did nothing wrong by having a separate business relationship with Mr. Erpenbeck.

        “But in the best interest of the bank and the bank's future success, we felt our resigning was the best thing to do,” he said.

        Mr. Menne could not be reached for comment.

        Mr. Grayson and Peoples Bank board member John Yeager said Mr. Finnan and Mr. Menne were not forced to resign, but instead left on their own because their involvement with Mr. Erpenbeck was damaging the bank's reputation and creating a public relations nightmare.

        “We know we're not going to come out of that scot-free,” Mr. Yeager said. “But at this point with (our) assets, this is simply not going to be a problem.”

        The bank has about $25 million in so-called hard assets — cash and other investments and holdings that could be quickly liquidated.

        Mr. Yeager, a developer who called Mr. Grayson on Saturday about taking over, said the Erpenbeck Co. owes the bank about $6 million — though the bank has not yet moved through lawsuits or other means to collect.

        Mr. Grayson said the loans are secured through collateral, mainly land and homes owned by the building company. But he hinted that the bank may not collect everything it is owed.

        “When you are trying to extricate yourself from a problem situation, do you take a modest haircut and get on with business? Maybe you do,” he said.

        “That's just a business risk you have to deal with.”


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