Bank Of America's Big Bang

Grand ambition has defined the culture at Bank of America ever since A. P. Giannini attached that daring name to the small San Francisco bank that he founded back in 1904. But Giannini's dreams were repeatedly thwarted, first by restrictive state and federal legislation during the Great Depression and later by an avalanche of bad loans that forced BofA into a dramatic retreat. Yet through it all, the dream never died.

Now, it's close to reality. On Aug. 12, BankAmerica Corp., its health restored and its ambitions fired by the mergers sweeping U. S. banking, gobbled up Los Angeles-based Security Pacific Corp. in a stock swap worth more than $4 billion. The combination of BofA and its biggest local competitor will create a megabank spanning 10 states, whose $190 billion in assets will be exceeded in the U. S. only by Citicorp (table). Says BofA Chairman Richard M. Rosenberg: "This is an historic opportunity to become the leader in American banking."

A model might be more like it. Rosenberg's king-size deal comes close on the heels of two other record-breaking bank mergers--the $135 billion marriage of Chemical Banking and Manufacturers Hanover and the combination of NCNB and C&S/Sovran into the $6.8 billion NationsBank. San Francisco's Wells Fargo & Co. and Los Angeles-based First Interstate Bancorp now may be pressed to follow the BofA-SecPac example, either by hooking up themselves or finding an out-of-state partner. But neither seems to have the national ambitions of BofA. With federal and state restrictions on interstate banking crumbling fast (box), Donald G. Coonley, chief national bank examiner of the Office of the Comptroller of the Currency, predicts that by the mid-1990s, "two or three very large institutions" will tower over the pack of regional and local banks. As banks consolidate, he adds, "they will look at the whole country." Clearly, Rosenberg, 61, has that in mind.

There's little doubt that he has a distinct edge on other banks with big plans (table). The new BofA has $12 billion in capital, a solid base in the fast-growing West, and 2,400 retail branches--already the biggest such network in the nation. Rosenberg probably has the critical mass to move east, an ambition that is no secret. Earlier this year, he bid for the failed Bank of New England Corp.

'ON THE PROWL.' Regulators sold BNE to Fleet/Norstar Financial Group Inc. instead, prompting many analysts to figure that the government wants more regional and local consolidation--at least until Congress gives the go-ahead, perhaps as early as the fall, to full interstate branch banking. Still, BofA executives say they plan to expand eventually into three-quarters of the nation's banking markets. "They are going to be hunters on the prowl," says Donald E. McNees, who has advised both Rosenberg and SecPac Chairman Robert H. Smith at New York-based management consultant Cresap.

This won't be the first time BofA has tried to throw its weight around. Back in the 1970s, it was the largest U. S. bank, with an apparent goal of becoming the Bank of Planet Earth. Like cross-country rival Citibank, BofA pumped billions into foreign corporations and shaky Third World governments. But as the 1970s petrodollar boom faded, BofA started to implode. By 1986, the badly bruised giant even had to fend off a takeover attempt by First Interstate.

The comedown prompted a painful restructuring. To help bring it off, BofA's board turned to Rosenberg, then chairman of the bank's Seafirst Corp. subsidiary. Although Citi Chairman John S. Reed is still trying to pursue global business, Rosenberg has refocused the bank on consumer deposits and retail lending to score an amazing comeback. And that has allowed BofA to think big again. While Rosenberg's bid to return to his native New England didn't pan out, he has picked up more than a dozen properties, mostly failed thrifts, from Resolution Trust Corp. Earlier this year, after merger talks between SecPac and Wells foundered, Rosenberg jumped in. Says a banker who has known the chairman for years: "Rosenberg is feeling his oats."

In merging with SecPac, Rosenberg plans to pump up the combined banks' bottom line through a $1 billion-a-year cost-cutting campaign echoing BofA's earlier retrenchment. Hundreds of branches are expected to be shuttered, and industry experts look for 14,000 or more jobs to be eliminated within three years, representing nearly 2% of all financial-services jobs in California. The cost-cutting could help boost BofA's earnings to $6.25 a share in 1993 and $7.35 in 1994 from last year's $4.95, estimates Sandra Flannigan, an analyst at Alex. Brown & Sons Inc.

SecPac's Smith will help Rosenberg implement the cost cuts as his new No. 2. But it's an open question whether Rosenberg intends to groom Smith as his heir. Smith says he would be "happy to be the one that's selected when the time comes." But the BofA leader is already high on his own vice-chairmen, CFO Frank N. Newman and Lewis W. Coleman, who runs the bank's international business--which many think Rosenberg wants to expand. One banking expert believes any nasty surprises in SecPac's loan portfolio could sandbag Smith's chances.

COOLED OFF. Rosenberg declined to be interviewed. But some analysts think SecPac will bring less to BofA than Rosenberg anticipates. Consultant Norman Katz of MCS Associates in Irvine, Calif., thinks Rosenberg will be hard-pressed to reach his goal of $1 billion in annual savings within three years.

To do so, says Katz, he'll have to cut operating expenditures to 3.4% of the bank's assets. That's far below BofA's current 3.86% and SecPac's 3.93%. At 3.7%, Wells Fargo is considered the leanest and meanest big bank around.

Even if Rosenberg reaches his cost-cutting target, he still will have to contend with SecPac's loans. Not long ago, it was considered one of the nation's hottest banks, but SecPac cooled off as the recession hit the West. With nonperforming loans and foreclosures rising fast, Rosenberg and Smith will set aside an extra $1 billion to cover bad debts. But while traders have bid BofA's stock up 16% since the merger was announced, not everyone on Wall Street is totally thrilled. The credit-rating agency Duff & Phelps Inc., for one, worries that SecPac's bad loans could "burden the consolidated entity."

Don't try telling that to Rosenberg. Like founder Giannini, he wants to see BofA's red-and-blue logo wherever he goes. Chances are that he'll see his wishes fulfilled, perhaps even more quickly than he ever thought possible.

      Figures are pro forma for all but Citicorp, pending completion of recently 
      announced mergers
      Bank         Assets       Equity capital    Reserves *   Branches/ATMs
                   Billions      Billions
      CITICORP     $216.9           $10.2          48 %         1,700/2,449
      BANKAMERICA   190.0            12.0          70           2,400/4,000
      CHEMICAL      135.5             7.7          71               660/977
      NATIONSBANK   118.2             6.8          89           1,896/1,641
      *As a proportion of nonperforming loans

— With assistance by Bill Glasgall

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