Saturday, November 9, 2002

Bank's final payout estimated

People's shareholders might get what they put in

By Jeff McKinney
The Cincinnati Enquirer

After the sale and liquidation of the operations of Peoples Bank of Northern Kentucky are completed, Peoples' investors will essentially get about the same amount they invested in the bank when it opened 10 years ago.

It appears that shareholders of the Crestview Hills, Ky.-based company - hurt severely because of its ties to troubled Northern Kentucky home builder A. William "Bill" Erpenbeck - could be paid $8 to $11 a share, a drop from the $38 a share the stock traded at as recently as January.

According to a proxy statement issued this week to its investors, Peoples Bank's parent company estimated it will have about $26 million worth of equity to settle claims, lawsuits and other matters tied to the Erpenbeck fiasco; the rest will go to shareholders.

That $26 million includes a $15 million cash payment that crosstown rival The Bank of Northern Kentucky Inc. will pay to mainly buy about $170 million in assets and about $178 million in liabilities - as well as pick up eight branches in the area - from Peoples.

After that liquidation occurs, Peoples executives figure that the remaining shell of a company will have $10 million to $14 million to cover financial losses, legal fees and other claims tied to Erpenbeck. The remaining amount - ranging from $12 million to $16 million, or about $8 to $11 a share - would be paid to Peoples directors and its roughly 220 individual investors. The whole process could take another two years to complete.

Original shareholders paid $35 to $40 a share shortly after Peoples went public . But adjusted for stock splits and stock dividends, the adjusted basis of those shares would today be about $7.62 to $8.71 a share.

The proxy comes seven months after Peoples Bank got in trouble with federal regulators because of ties to Erpenbeck, an Edgewood home builder under investigation for bank fraud. The builder was accused of taking checks made out to other lenders at home closings and depositing them into its accounts at Peoples.

Opponents of the Bank of Kentucky deal, including Cincinnati lawyer Michael Brautigam, who has filed a shareholder lawsuit against the bank representing about 50 investors, said those estimates prove that the company's board breached its fiduciary responsibility.

He said insiders at Peoples, including at least one director, were buying shares of the stock when it was trading at $38 in January, three months before the Erpenbeck scandal hit in April.

"This decline in price is not due to market conditions, but fraud,'' he said. "These guys went to these parties (people employed by Erpenbeck) and knew or should have known that the Erpenbeck situation was improper.''

John Yeager, Peoples board chairman, said the bank is disappointed by the suit. But he said he is confident that shareholders will approve the offer from the Bank of Kentucky when Peoples shareholders meet Nov. 18 to vote on the deal. The main reason, he said: Investors risk not receiving anything if they vote against the offer and regulators seize and sell the bank.

"There's no doubt that investors will be disappointed with what's distributed, considering we were once rated a No. 1 bank among community banks nationally," he said. "When the stock was trading at $38, that was before this Erpenbeck mess broke. That also shows that the board did not have any knowledge of this.''

Merwin Grayson, Peoples' president, said there is no question that a lot of people will lose money when the final tally is made. "The good news, though, even with the Erpenbeck tragedy, a lot of people will get money back, based on our early estimates.''


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