Insurance and Government

BEHIND THE NEWS: Unique, low-profile bank shaking up the status quo

December 4, 2006

It's a quiet giant, but not a sleeping one.

The Federal Home Loan Bank of Indianapolis is the state's fourthbiggest private company, with revenue last year of $1.8 billion. The $45-billionin-assets financial institution racked up 2005 profit of $153 million.

Yet the board and executives of the 150-employee quasi-governmental enterprise aren't wallowing in self-satisfaction. Seeing storm clouds on the horizon, they're taking pre-emptive action to ensure the bank remains competitive and retains its formidable financial strength.

"We've been cutting back," CEO Martin Heger said. "That's part of the costcutting and re-engineering of the company that has led to my early retirement."

Indeed, Heger, 61, is stepping down. That might not seem like a big deal-unless you're a banker, his name probably doesn't ring a bell. But he's no dime-adozen executive. He's been with the Federal Home Loan Bank of Indianapolis since 1980. Since he took the helm in 1992, assets have risen nearly sixfold.

But a number of pressures are converging on the bank, which operates in relative obscurity because its customers, and owners, are financial institutions and insurance companies-not the business community or consumers. It's one of 12 home loan banks formed in 1932 to promote home ownership, primarily by making wholesale loans for mortgages. Ten percent of annual profit goes to affordable housing programs.

Like other home loan banks, the Indianapolis institution, which serves 430 members in Indiana and Michigan, is feeling the effects of stiff competition in the funding business at a time the housing market is slowing. It's also girding for new capital requirements regulators are considering, and adapting to the loss of some important customers.

This year, for instance, it lost Indianapolis-based Union Federal Savings Bank when it was bought by Ohio-based Sky Financial Group Inc. and Fishersbased Irwin Mortgage Corp. when it was broken up and sold to several buyers. In addition, it lost National City Bank when National City consolidated charters, leaving the Cleveland-based company without any banks based in its jurisdiction.

The various challenges are taking a bite out of the Federal Home Loan Bank of Indianapolis' bottom line. In the first nine months of this year, profit was $90.5 million-down 27 percent from the same period a year earlier. In the third quarter, profit was off 41 percent.

Big changes have been brewing for months. During strategic planning in March, the board appointed task forces to study a range of options, including whether to find a merger partner. Heger said the board rejected that concept. Instead, it voted to keep the bank independent, with headquarters remaining in Indianapolis, and to pursue cost cutting in other ways.

Hence, Heger's departure. In October, the institution offered early-retirement packages to all workers who were at least 50 and had worked there at least 10 years. The group includes 28 employees, including three of the six highest-paid.

Heger, who earned salary and bonus of $978,000 last year, already has accepted, as has one of the other two highest-paid executives. The offer adds $95,652 to Heger's annual retirement benefit, or $1.5 million if he opts for the lump-sum option. Following Heger's departure at year-end, Senior Vice President Brian Fike will serve as interim CEO until the board picks a successor.

Improved efficiency should translate into higher profit, which would make more money available for the affordable-housing program.

But the changes aren't driven by any sort of financial pinch. In a report this month, New York-based Standard & Poor's reiterated the bank's sterling AAA credit rating. S&P noted the bank's quasigovernmental status makes it tax-exempt, fattening the bottom line.

Yet it saw room for improvement on the profit front.

"Core profitability measures are weak in absolute terms," S&P wrote.

Biomet boss retires in style

Dane Miller made good money running Biomet Inc. He'll make even better money not.

A regulatory filing this fall shows Miller, 60, who stepped down last spring as CEO of the Warsaw-based orthopedicdevice company, has signed a consulting contract with Biomet that will pay him $10 million from 2006 through the first quarter of fiscal 2010.

Under the pact, he collected $4 million in October and $500,000 in November. He'll receive $500,000 quarterly payments until the 10-hour-a-week consulting pact expires.

The payments dwarf what Miller earned as Biomet's boss. In his last full year at the helm, he collected salary and bonus of $438,700.

The consulting pact buys Biomet more than sage advice, however, which may explain why it's so rich. It bars Miller from competing with the company, or hiring away its employees.


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