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First Union: Fast Eddie's Future Bank

Finance: BANKING


How Crutchfield is racing to revolutionize America's No. 6 bank

In 1951, Katherine S. Crutchfield took her son, Eddie, to the First National Bank of Albemarle, in the town of Albemarle, N.C., pop. 11,800. Escaping from the sticky heat of the Tarheel summer, the 10-year-old loved the feel of the cold marble floor on his bare feet. His mother, a teacher who had studied economics at The Women's College of North Carolina in Greensboro, whispered in his ear: "You might want to think about banking as a career." Young Edward E. Crutchfield Jr. quickly assessed the prospects. A gray-headed man he recognized, Hazel Morrow, carefully counted currency, standing erect behind a desk, separated from the people of Albemarle by thick, black steel bars. Through a chest-high hole in his cage, Morrow doled out cash, circulating it to the free civilians.

His mother's vision horrified the young Crutchfield. "It was tantamount to saying you might as well think about a career in jail--spend your life behind bars," Crutchfield recalls.

Crutchfield did become a banker, but in his 33-year career at First Union Corp. he has knocked down the bars of banking with a vengeance. Beginning in the mid-1980s, he took Charlotte's third-largest bank on an acquisition spree--more than 70 deals in 10 years--that transformed it into the sixth-largest bank in the U.S., with $206 billion in assets. Along the way, he tested conventional banking customs and regulation.

Now, with his initial banking acquisition goals mostly accomplished, Crutchfield is focusing on the biggest bar-breaker yet: a top-to-bottom redesign of the entire retail operation of one of the country's largest banks. Crutchfield calls his concept Future Bank. It's a mix of all the elements he believes will be necessary for banks to survive onslaughts from brokerage firms and mutual-fund houses and from industry consolidation and technology. He is developing an aggressive, sales-oriented culture at First Union, unleashing a commission-only sales force to cold-call middle-market customers. He's building First Union's presence in product lines such as mutual funds and insurance."FUNDAMENTAL CHANGE." He's also reaching customers through an array of new channels: everything from Internet banking to minibranches to a new call center two-thirds the size of the Pentagon. On Mar. 4, he snapped up The Money Store Inc., a huge and highly profitable consumer credit company and among the savviest players in the subprime market, for $2.1 billion. Overnight, the deal turned First Union into the nation's largest home-equity and small-business lender and No.3 in student-loans.

To capitalize on these channels, Crutchfield has built one of the industry's largest data warehouses. He is mining the raw data to custom-fit sales pitches to individual customers. To make sure it all comes together, he has put First Union on an expedited timetable, demanding that the Future Bank concept roll out from its Atlanta test market into companywide implementation by the end of 1998. "This is massive," says John R. Georgius, First Union's president and Crutchfield's closest strategy adviser. "This is a huge, fundamental change to what we do."

Analysts applaud Crutchfield's ambitions, though some are skeptical that he will see a big payoff soon. The bank's stock has soared 151% since January, 1995. First Union's return on assets and equity have outstripped the Keefe, Bruyette & Woods index of 50 major banks. Assets have climbed from $159.6 billion in 1994 to $205.7 billion in 1997. Crutchfield is rewarded handsomely. His incentive-laden compensation package totaled $19.5 million last year.

While banks like Citicorp and Norwest Corp. have experimented with branch redesigns, and others like NationsBank Corp. and Huntington Bancshares Inc. have made significant investments in data warehouses, none has integrated as many pieces, and none verges on a systemwide rollout. Crutchfield's buying spree, combined with his Future Bank investment, contributed to a 17% rise in net income last year. He expects per-share income to climb 14% annually for the next two years. "They're not where they need to be," says Merrill Lynch & Co. analyst Sandra J. Flannigan. But, she adds, "they're further along the path than almost any other bank." As Scott D. Nelson, research director at Gartner Group Inc. in Stamford, Conn., says: "First Union is doing the best consistent job across the whole spectrum of new banking systems."

The focus on an internal revolution is a big change for a man who has spent most of his career turning heads with his insatiable appetite for buying banks. At one point, he was scooping up a bank a month, often paying eye-popping prices--amply justifying his sobriquet "Fast Eddie." Last summer, Crutchfield described the style he used in talks with Signet Banking CEO Malcolm S. McDonald, which First Union bought for $3.3 billion: "I had a stack of $1 billion bills and just laid them out for him one by one until he said yes."

Unlike rival Hugh L. McColl Jr., CEO of NationsBank, whose deals have taken him as far afield as California, Missouri, and Texas, Crutchfield has built his powerful franchise exclusively along the Eastern Seaboard--the golden crescent of U.S. banking, the primarily coastal states running from Connecticut to Florida. Among the last pieces of this mosaic was Philadelphia-based Core States Financial Corp,. which First Union bought in November for $16.5 billion, history's largest bank merger.FOLKSY VENEER. Crutchfield has mastered the Southern art of concealing his competitive blood lust behind a veneer of folksy witticisms. He regales people with deal stories as if boasting about the big ones he bagged on his latest fly-fishing forays to Montana or New Zealand. But in more reflective moments, he confesses that his most important deal decision was listening to Georgius in 1985 when he suggested putting every acquired bank on a single, unified computer system that would operate throughout the First Union franchise. That strategic call helped make Crutchfield's acquisition rampage possible, and now allows his rapid transformation of First Union's retail strategy.

Having a single system has enabled Crutchfield to outbid competitors on deals because it helps him integrate acquired banks into First Union in just nine months--easily twice as fast as any competitor. It has limited First Union's Year 2000 costs to just $55 million, compared with Citicorp's industry record $600 million estimate. And with the system's backbone becoming such a crucial part of the redesign of retail practices, the single system is proving its worth again.

Crutchfield is an unlikely man to lead a systems-intensive transformation of one of the nation's biggest banks. By nature, he's more Luddite than leading-edge. Any department at First Union wishing to install voice mail still must win his personal approval. His home computer is rarely used; and there's no PC in his spacious office. While he grudgingly invests in the bank's push into Internet banking, he confides to associates that he doubts any bank will make real money from the Internet anytime soon.

Crutchfield has always lived life in his own style. A high school football star, he and a friend once sent two Marines to the hospital after a fight at a drive-in movie. He turned down a scholarship offer from the University of North Carolina and instead went to Davidson College near Charlotte for its academic challenges. His mother's entreaties paid off, and rather than becoming a lawyer and judge like his father, he matriculated at the University of Pennsylvania's Wharton School.

As graduation approached, Crutchfield interviewed at each of Charlotte's three big banks--NationsBank's predecessor, North Carolina National Bank, Wachovia, and First Union. Secretly coveting the top job at whatever bank he chose, the 23-year-old asked to spend an extra day at each bank, so he could prowl the halls and furtively size up the people he would be competing with. He decided First Union had the most deadwood, and he took that job. His $7,200 initial salary was both the lowest of his offers and the smallest wage of anyone in his Wharton graduating class.IMPECCABLE TIMING. His instincts and timing proved impeccable. The man who hired him, Clifford Cameron, was on his way to seizing control of the bank. Almost from the start, Cameron began grooming Crutchfield as his successor. To improve Crutchfield's management style, Cameron assigned him to revamp the personnel department after noticing a shortcoming: Crutchfield was hell on people. "He couldn't understand why people couldn't get things done," Cameron recalls. Crutchfield could also never understand why anyone would want to leave First Union and profanely chewed out people with talent who resigned. He saw no value to outside activities, such as charity functions. Still, he shaped up, and was astounded when Cameron named him president of First Union Bank at just 32.

The job he is taking on now--redesigning First Union's retail operations--is no less daunting. The genesis of Future Bank was four years ago, at a meeting of First Union's top executives at the Greenbrier resort in White Sulphur Springs, W.Va. Crutchfield and Georgius said they were tired of seeing brokerage firms and mutual-fund companies snare the bulk of their customers' assets. "We're delivering the same products we delivered 30 to 40 years ago, with the same old-fashioned delivery system," Georgius recalls saying. "We have to change, or we'll just continue to lose share."

Now, Future Bank is rolling out across the entire First Union system. To make Future Bank work, Crutchfield and Georgius assembled a number of parts that were missing from First Union's portfolio four years ago. In 1985, they introduced the capital management account, dubbed CAP. It gives customers an attractive return on their funds by unifying brokerage and banking activity and sweeping free cash into a bank certificate of deposit or mutual fund, similar to Merrill Lynch's cash management account. Crutchfield paid $143 million to buy the Evergreen mutual funds, giving First Union a foothold in the fast-growing fund business. He recruited a star of the credit-card industry, Jack M. Antonini, to mine the bank's database of customer information for profitable new marketing schemes. And in 1997, First Union completed construction of its center for customer-service calls outside Charlotte. At Crutchfield's insistence, the 160-acre site is nearly triple the size of the plot Georgius first proposed, allowing room for major expansion.

The overriding notion of Future Bank is to integrate the back-office improvements such as the call center, CAP account, fund offerings, and sophisticated marketing into the action end of the bank: the branch. Crutchfield arranged the branches so that customers entering the building are met by greeters, whose job is to find their needs and, if possible, direct them away from tellers and lending officers and toward automated teller machines (ATMs), or connect them by telephone to the call center. Interception by a greeter saves money: ATMs handle transactions for 27 cents apiece, while tellers are slower and more costly, at $1.25 a transaction. Each branch receives several hundred names every day from a computerized system that identifies the most attractive prospects and suggests what products to sell them.

To boost sales, Crutchfield changed the compensation structure, putting everyone in the branches, from tellers to branch managers, on an incentive system based heavily on sales increases. He created job descriptions and invited all employees to select the job they were most suited for. First Union recruited heavily outside the industry, to attract former stockbrokers and consumer-product salespeople with more knowledge of selling than of old-style banking. "There will be a fair number of people who decide they do not want to sell," Georgius told First Union managers at a recent Future Bank orientation session. "If they don't want to sell, they need to go find something they feel comfortable doing, but our company has got to move on." The rollout moved so fast that Crutchfield and Georgius asked people to bid on new jobs before the compensation structure was complete--and got plenty of takers, thanks to the promise of incentive-based pay.COUNTRY HAM. The new plan will shift sales incentives to salespeople, not their managers, and will reduce payouts to poor performers while boosting bonuses for top performers. It boosts incentives to 40% of total compensation for all bank sales staff over the next two years. An employee who produces $60,000 in monthly revenue for the bank would receive $2,850 in monthly incentive pay, up from $236 under the old plan, while one who produces just $10,000 would see incentive pay drop from $326 to nothing. "When I came here, they gave you a country ham and a fruitcake at Christmas if you had a good year," Crutchfield told a group of top executives meeting to approve the plan. "Now, we're paying them out in cash on the barrelhead."

A key to Future Bank is people like Barbara Binko-O'Connor. She has an office at a First Union branch in Cobb County, Ga., but her real work space is her Accura Integra. Working from a notebook computer, she scans names and prepares presentations as she drives to offices and homes around Atlanta. She books appointments on her cell phone. Banks always have used calling officers to visit silk-stocking clients. But Binko-O'Connor's quarry is further down the economic scale: people with about $75,000 in annual income whom she can persuade to consolidate all their financial affairs at First Union. "We're looking for people who are going to be affluent rather than people who are affluent," she says. When she can, she turns new customers over to a service representative who does actual banking tasks, freeing her to hunt for new money.

Binko-O'Connor draws no salary and is paid purely on commission, with no limit to the amount she can earn. In one morning, she visits a lawyer whom she has known a long time to introduce his new service representative and to prod him for referrals to some new prospects. Between appointments, she scans a list of plastic surgeons in an office building where she plans some cold-calling visits. She meets with a health-care executive who is a longtime client, and in talking shop discovers that his business could use help from First Union's equipment-leasing unit. Binko- O'Connor's eyes sparkle with the prospect: She gets a take for 12 months on any new business she brings to the bank.

Deal-closing initiative like Binko-O'Connor's is just what Crutchfield expects from the Future Bank, and he has designed it into the systems at the call centers, too. By the end of 1999, Crutchfield wants 40% of First Union's product sales to come from the call centers, up from only 30% today in the Atlanta experiment. The center bombards the senses with exhortations to sell. A banner on the wall reads "Keep Florida Green"--a reference to First Union's corporate color and the tag line for the bank's effort to thwart NationsBank's efforts to dominate Florida following its acquisition of Barnett Banks Inc. last year. Photocopied certificates recognizing outstanding sales and service efforts paper walls and cubicles. Ceiling video displays show how many calls are answered, average hang-up rate, and incoming volume. At one phone, sales representative Doug Freas is trying to persuade a customer to move a $300,000 CD from Barnett Bank to First Union. "You know they're being taken over by NationsBank," he says. "If you're not satisfied, which I don't think you will be, with what they're trying to put you in, then I'm sure we'll be able to do better for you here."

Competitors and analysts are eyeing the Future Bank rally with a mix of curiosity and skepticism. John L. Brennan, head of channel strategy and development at NationsBank, notes that the nation's third-largest bank won't easily be trumped by its crosstown rival. NationsBank is getting good results from its supermarket branches, an outlet First Union has ignored, and is converting them into full-service operations. It's ahead of First Union in PC banking. And it's introducing a money management account to match up with First Union's CAP. "We really don't see any activity that would come from our competitors to do anything that would cause our customers to move from NationsBank to anywhere else," says Brennan.

Crutchfield acknowledges rivals, but he doesn't worry much about them. He plans to spend half his time this year in employee meetings, fielding questions in a town-hall format, and introducing them to the new First Union sales culture. And he's accelerating his Future Bank campaign. He may not wind up precisely where he thinks he will. But with the headstart he's got on modernizing the face of retail banking, Fast Eddie is likely to get there before anyone else.By David Greising in Charlotte, N.C.Return to top

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