Fleet's Can Do Spirit: We Can Do Without

Starting this month, it's B.Y.O.M. at Fleet Financial Inc. Translation: Bring Your Own Mug. The bank's pencil pushers have determined that styrofoam cups, at 1.2 apiece, for a total of $48,000 per year, are an unnecessary expense.

Other companies have banished free coffee cups to save money, but few healthy corporations have ever tackled a cost-cutting drill with as much fervor as Fleet. For the past seven months, the $48 billion Providence bank has un-dergone an intensive expense review under the guidance of former McKinsey & Co. consultant Chandrika Tandon. The cost-cutting zealot enlisted the help of 6,000 Fleet employees who came up with 28,000 money-saving ideas. The results: By next March, the work force will have shrunk by 20%, or 5,500 employees, including 3,000 who will be laid off; annual costs will fall by $300 million; and revenues will grow by $50 million.

Such bloodletting is usually reserved for companies in financial trouble. But that's hardly the case at Fleet. Profits soared 74%, to $488 million, last year--a healthy 16% return on common equity. Even so, Fleet Chairman and Chief Executive Terrence Murray says the cuts are essential. Fleet's noninterest expenses were $2.4 billion in 1993, 67% of revenues. Murray wants that ratio to fall to less than 60%. He argues that the issue is survival: Fleet must become strong enough to acquire another major bank or risk becoming a takeover target itself. "We're like a prize fighter getting in shape for a battle," he says.

Few bankers would argue with Murray's logic. Indeed, Fleet's reforms may prove to be a model for the industry. U.S. banks are in a panic about costs. The industry has become so competitive that there is little prospect for significant growth from the core businesses of taking in deposits and making loans.

Tandon has turned expense control into an art form. The 40-year-old native of Madras made her first cuts when she was in her early 20s: As a young Citibank executive in India, she had to persuade men in their 50s to take early retirement. Tandon later moved to Mc-Kinsey's New York office and developed a thriving banking practice. She left in 1990, with seven colleagues, to found Tandon Capital Associates Inc.

Tandon had two major assignments before Fleet: Midlantic Corp. in Edison, N.J., and Riggs National Bank in Washington. Both banks were seriously burdened by bad loans, and both achieved big cost savings after Tandon's surgery. Midlantic reduced its noninterest expenses by a third, and Riggs's were cut by a fifth. Says Midlantic Chairman Garry Scheuring, a Tandon fan: "We wouldn't be in the same position now if we hadn't hired her."

EMBARRASSMENTS. The reforms haven't come cheap. Fleet took a $125 million charge for the cost-cutting effort last fall, and it will take an additional $25 million in the first quarter. Neither Fleet nor Tandon will disclose the fees paid to Tandon Associates.

Still, Murray is enthusiastic about Tandon's ability to ferret out even the most mundane instance of excess. Says Murray: "We've been doing things that are so embarrassing, you just shake your head and say, 'I can't believe it.'" The embarrassments, according to Murray, include 28 monthly reports prepared by each of Fleet's 800 branch offices, of which only six were read by anyone, and $6 million in companywide annual Federal Express expenses.

Tandon has spent most of the past seven months holed up in a large office next to Murray's, guiding 200 Fleet employees in what has been dubbed Fleet Focus. Some flew in each week on a company-owned King Air turboprop from offices in Maine and upstate New York, and they had their own "war room"--rented office space across the street from Fleet headquarters.

Most employees would rebel at the thought of instigating changes that could cost them their own jobs. But Fleet Focus employees, coming from all levels of the bank, were assigned to examine areas they knew nothing about in order to avoid conflicts of interest. Each was assigned to one or more of 50 "working teams" that studied specific operations. Focus workers held hundreds of small group meetings with other Fleet employees to solicit money-saving suggestions. The result: 19 fat white binders filled with cost-cutting ideas that team members assessed for efficacy and riskiness sit on the office floors of Murray and his five lieutenants.

One idea sheet spells out how the company could save $500,000 a year by getting rid of company-supplied coffee. The risk factor assigned is a "2"--or medium risk--because it could hurt morale. The steering committee's verdict: Even though the cups are going, the coffee stays. Another sheet suggests that the bank could save $200,000 by changing from name-brand laser-printer toner to a recycled product. The risk rating was a "1"--low risk--and the toner will be changed.

One executive perk will be eliminated as a result of Fleet Focus: The use of company cars for some officers was restricted. Most of the cost cuts will affect the rank-and-file. And not all are going over easily.

PINK SLIPS. The fact that Fleet is healthy has made the reforms tough to sell to some employees. "The reason this isn't easy is because it cuts into the muscle of the bank," affecting high-quality employees, says Brian Moynihan, a company lawyer who has helped decide on what and where to cut. Adds Thomas E. Freeman, a lending officer who will be laying off dozens of employees: "No one feels good about no-fault terminations."

Yet many employees involved in Fleet Focus are convinced that it is worthwhile. "The cuts are across all levels `f the company, so that proves this is not a hatchet job," says Thomas Tomai, a senior vice-president and team leader. "A lot of people did rinky-dink things we didn't need." One example: Four employees had full-time jobs collating credit-card reports to be Federal Expressed daily to managers who had the reports on their computers.

There are dozens of other changes. One Fleet courier will make an extra stop every day, saving $30,000 in annual delivery costs. One warehouse employee proposed eliminating the sheets of paper that are attached to boxes to identify their contents, arguing that it would be cheaper to write the contents right on the box. Savings? $120,000 a year. In all, Fleet will be implementing 2,800 ideas, most of which were rated low-risk, and many of which will save from $7,000 to $15,000 each.

There are some big-ticket items as well. A key area is retail banking, where the bank will save $111 million. A large part of the savings comes from changing the daily routine of bank tellers (table). In addition, account balances will automatically be printed on receipts, saving $683,000 in teller time. "These were all very traditional ways of banking ingrained in the culture," says Michael R. Zuchinni, Fleet's retail bank chief. "But if you examine them closely, you can find ways to save millions of dollars in costs."

Commercial lending is getting an overhaul, too. Chief Financial Officer Eugene M. McQuade says the bank will save $90 million by slicing away two out of five management layers in his division and simplifying the loan process. Some loan officers will be demoted to a new "associate lender" position, more account responsibility will be given to higher-ups, and all lending will be centralized into three lending "hubs."

THUMBS UP. In addition, a number of checks and balances that were put in place during the 1990s credit crisis will be heavily trimmed--among them, dual credit officers and outside real estate appraisers. Fleet says that while the reduction in credit screens sounds risky, its auditors have given it a thumbs up.

Fleet is Tandon's biggest test so far. She hopes it will become a case study for other banks. "Any bank can do the same thing," she says. "Bankers tend to fundamentally think they are efficient, but they don't understand how deeply mired they are in inefficiency." A warning for employees at the next bank Tandon decides to tackle: Get your resume ready, and B.Y.O.M.


The number of full-time tellers will be cut back, and part-time tellers will be added for peak traffic periods. Services at little-used branches will be shrunk via a "hub-and-spoke" branch system. Customer calls to branches will be rerouted to central operators.


Two layers of management will be eliminated, and paperwork involved in loan processing will be sharply reduced. Layers of review added during the credit crunch of the early 1990s will be streamlined.


Cumbersome microfiche-based record-keeping system will be scrapped. Seven different accounting systems will be merged into one, and overnight mail will be reduced.


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