Bank One: Out Of Excuses?

It's still beset by woes at First USA, and profits are slipping

Pity Verne G. Istock. On Jan. 11, after just 20 days as acting chief executive of Bank One Corp., Istock was trotted out in front of Wall Street analysts who have seen shares in the nation's most troubled major bank halved since mid-July. And there was little chance this crowd was going to give the new guy a break: Bank One announced a huge $725 million fourth-quarter charge and warned that 2000 results will come in far under already trimmed expectations. Istock's personal stock fell further on another bit of news: Bank One's board has asked Russell Reynolds Associates Inc. to look around for a new, permanent CEO.

After three profits warnings and the ousting of former CEO John B. McCoy Jr. on Dec. 21, Istock told the crowd, "It's fair to say we lost credibility." The bank's performance at the Jan. 11 meeting did little to restore any--though Istock and his managers promised, by 2001, to return First USA to industry-level growth and profitability.

Essentially, however, Istock wound up retelling the tale that McCoy told over and over last year: Problems at First USA, the credit-card unit it bought for $7 billion in 1997, continue to eat away at earnings. Once the prime engine of Bank One's profits, First USA's contribution has sunk from a third in 1999 to a projected 20% in 2000. But the excuse is wearing thin. On Jan 11, the stock hit a 52-week low of 28 5/8.

Management insists that noncard businesses are growing--and that the 1998 merger between Bank One and First Chicago NBD Corp. is still on track. But analysts are skeptical. "It's not all First USA. Nobody believes that," says analyst Nancy A. Bush of Ryan, Beck & Co. "There are problems with this company that go back several years."

Evidence for that view is abundant. For instance, the company will spend $80 million to cover losses in auto-leasing. And the company admitted on Jan. 11 that it's behind schedule on switching customers onto Bank One computer systems--which is intended to save costs.

None of this is good for Istock's ambition to run the show permanently. The 59-year-old former head of First Chicago led the merger with McCoy's Bank One in 1998, and his supporters say that the Bank One board, which wants to keep the bank in Chicago, would support him as a favorite son.

Outside critics, however, think the bank's problems require a tough outsider. "The chances of Verne being named CEO are very low. They really need to bring in somebody from the outside," says Tom Brown, chief executive of Second Curve Capital, which invests in financial services companies.

Bank One's board can't afford to dither over choosing a new CEO. After the battering the bank has taken in the last six months, it needs desperately to hire a strong chief who can lead it out of the mess. Otherwise a forced sale and breakup may be the only way out.

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