Union Patriot Capital

Hollywood Banker Behaves More Like a Movie Mogul

By Thomas R. King

March 1, 1995

When the rough cut of the low-budget movie "Sleep With Me" was screened last year, Michael Mendelsohn, the top entertainment banker at the Los Angeles office of Banque Paribas, did something few other bankers would have done: He ordered up some changes.

The drama about a romantic triangle was supposed to appeal primarily to women, says Mr. Mendelsohn, who had put together the film's financing, but the picture lacked "a sense of emotional understanding from a woman's perspective."

So Mr. Mendelsohn called in his wife, his mother-in-law and a couple of secretaries, and together they dreamed up a new scene -- a romantic bit of action set in Santa Fe, N.M. -- to start off the movie.

How pivotal Mr. Mendelsohn's role was is in dispute, but there's no doubt that the flamboyant 32-year-old executive has gained a reputation among members of Hollywood's low-budget film-finance crowd as a person who acts more like a studio chief than a banker. At Banque Paribas, where he is free to dole out as much as $250 million for film production annually, he has created what he likes to call the "virtual studio," a place where he picks scripts and oversees such details as casting and rewrites.

"Most bankers say: `I don't care who's in the movie, I don't care who's directing it or what it's about. Just show me the contracts, and we'll bank them,'" Mr. Mendelsohn says, adding, "We think that's absurd."

Getting intimately involved in the process is designed to help Banque Paribas avoid the missteps of countless other banks that have lost their shirts in Hollywood. Instead of lending money to studios and independent film companies to finance costly overhead items -- a practice that got Credit Lyonnais SA in deep trouble -- Banque Paribas has opted to lend money for specific movies.

So far, Banque Paribas has built a good track record, lending money for a lot of tacky erotic thrillers and some classy films, including Samuel Goldwyn Co.'s "The Madness of King George" and TriStar Pictures' soon-to-be-released Keanu Reeves thriller, "Johnny Mnemonic."

Now, Mr. Mendelsohn and Banque Paribas are about to raise the stakes and change the game a bit. The bank is in the final stages of setting up a separate, limited-liability company that will invest both bank funds and money from some of its high net-worth clients in movies that Mr. Mendelsohn chooses to make.

Unlike the regular loans the bank makes to producers, investments by the limited-liability company will provide equity interests in films, offering the bank a higher upside on hit movies but a potential loss of the investment if a movie flops. In straight film-financing, Banque Paribas typically insists that a movie have certain distribution guarantees before any cash is advanced. The limited-liability company won't necessarily insist on such guarantees.

The bank will tiptoe into this riskier terrain and start off the fund with a relative pittance, perhaps only $20 million. Still, people at the bank say the fund could grow quickly to $100 million. Any profits are expected to be split between Mr. Mendelsohn and the bank.

As a result, the focus is now on the movie-making acumen of Mr. Mendelsohn, who went to the Wharton business school but remembers being enthralled by movies like "Butch Cassidy and the Sundance Kid." He's expected to be credited as executive producer on many of the new projects. Mr. Mendelsohn has lots of fans who bet he can pull it off. Martin Bregman, producer of "Carlito's Way" and "The Shadow," calls him "a banker with taste -- he's a very special kind of guy."

But he also has some detractors who have found his style of in-your-face banking and creative input annoying. The creators of "Sleep With Me," which served as a kind of test case for the bank's new investment strategy, say Mr. Mendelsohn was entitled to make suggestions. But they take exception to his version of how the movie's opening sequence came about.

"We got his comments, and his wife's comments, but the opening [we] came up with had nothing to do with any suggestion he had," says Michael Steinberg, one of the writer-producers. He suggests that Mr. Mendelsohn's memory may be playing tricks. "Michael's got a very big ego," he adds.

Even though the movie, which starred Eric Stoltz, Craig Sheffer and Meg Tilly, bombed domestically, the bank stands to make a profit. The film cost a paltry $1.4 million to make, but Banque Paribas sold distribution rights totaling more than $2.3 million.

That kind of return makes Mr. Mendelsohn, a graduate of the fabled mailroom at the William Morris talent agency, light up. He attributes his success to the fact that he doesn't sit at his desk all day crunching numbers. He is so eager to make a low-budget movie called "On Condition of Secrecy" with actors Fred Ward and Ed Harris, for example, that he recently flew to New York to catch the opening night of an off-Broadway play called "Sympatico" starring both men.

On another day, he's involved knee-deep in a casting session to find a leading lady for a thriller called "Freeway," a modern-day "Little Red Riding Hood" story. Actor Cary Elwes has just passed on an opportunity to play the "big bad wolf" role, but Natasha Wagner, the daughter of Robert Wagner and Natalie Wood, is interested in playing the part patterned on Red Riding Hood.

Some of these movies will be financed completely with bank funds or money from the bank's wealthy clients. In other cases, the limited-liability company might finance 50% of the budget in return for the foreign distribution rights.

Meanwhile, Mr. Mendelsohn continues to work up more traditional film-finance deals. He recently lent Capella International, a foreign sales agent based in Italy, about $13 million to acquire the foreign rights to the Paul Newman movie "Nobody's Fool," which is being distributed in the U.S. by Viacom Inc.'s Paramount Pictures unit. Banque Paribas will pocket a percentage of the total deal -- perhaps 5% to 10% -- for its sales assistance, as well as interest on the loan.