Gary Wendt: How's He Doing?
Three years ago, life turned bitter for Gary C. Wendt. First, the then-chief executive of General Electric Capital Services Inc. went through a very public, exceptionally acrimonious divorce. Then his boss, John F. Welch, CEO of General Electric Co., asked him to resign. Welch had begun looking for successors and thought Wendt, who ran GE's most profitable division, would overshadow the contenders. So Wendt relinquished control of his $41 billion empire and tried to live quietly in Greenwich, Conn.
It didn't much suit him. When four shareholders of beleaguered insurance and finance company Conseco Inc. approached Wendt 18 months later, he needed little persuasion. Conseco was the perfect challenge for the still-ambitious Wendt: It was clearly in trouble, and he would be clearly in charge. Conseco also offered a $45 million signing bonus and a compensation package that could now total $200 million--and is only loosely tied to performance. Within a month, Wendt and new wife Rosemarie headed for Carmel, Ind. Here--at a business one-fifth the size of GE Capital, in a town with few other companies of note--Wendt hopes to come into his own again.
It won't be easy. Staving off bankruptcy wasn't too difficult for a man of Wendt's experience. But now he has to wring profits from Conseco's sluggish insurance business and revive its loan operations at a time when many of its customers could be heading into financial trouble themselves. Conseco Finance, the former Green Tree Financial Corp., is the country's biggest mobile-home lender. The division accounts for only 28% of revenue, but it had enough problems to almost bring down the company.
Wendt's predecessor, founder Stephen Hilbert, had spent recklessly and pushed for growth at all costs. But buying Green Tree left Conseco with huge debts and soaring defaults, and Hilbert resigned in disgrace. By the time Wendt took over in June, 2000, Conseco had restated earnings twice and didn't have the cash to pay the $1.2 billion in bank loans coming due in 80 days. The shares had fallen to $4.75 from a high of $57.75 in April, 1998. Conseco had also lost its "excellent" insurance rating from A.M. Best Co., a fate that usually spells doom. Wendt, who had tried to buy Conseco when he was at GE, says: "I just didn't believe that it could be in that bad a state."
Wendt, 59, has brought to Conseco the discipline he was known for at GE. He has also hired three ex-GE Capital execs as consultants and introduced GE's much-copied Six Sigma management system to boost efficiency. In his first few weeks, he tore apart the balance sheet looking for ways to pay off some of Conseco's debt: He sold five business lines, slashed 2,000 jobs (some 14% of the workforce), and shut 47 offices. Then he negotiated with banks to stretch out the company's debt payments over three years. Conseco won back its superior insurance rating. And the shares are now about $14. Irwin L. Jacobs, a Minnesota bankroller who owns nearly 5% of Conseco's stock, is more than pleased with Wendt. "Gary understands this business like nobody else," he says.
Wendt seems to enjoy showing off Conseco's new frugality. He grounded the helicopter Hilbert used for even the shortest of road trips. He also threw out Hilbert's signature tiger-skin armchair, stripped the executive suite of its Baroque paintings, and divided the huge CEO office into four. "At a time like this, the leaders can't afford to spend money foolishly. You've got to hunker down and work," he says.
TOUGH BOSS. Wendt is blunt, demanding, and exceedingly detail-oriented--nearly the opposite of Hilbert. Martin H. Bauman, a recruiter in New York, says that's why there was a lot of turnover at GE Capital: "Wendt is a tyrant who made a lot of money for the company, but he's a very difficult guy to work for." Still, some former employees say he pushed them to positive effect. "I've seen him extract more value than most people," says Daniel W. Porter, now CEO of Wells Fargo Financial in Des Moines, Iowa.
Today, Conseco is no longer near ruin, but it is still $6.13 billion in debt. Wendt has sold off most of what he can; now he has to get cash flowing and profits growing in Conseco's finance and insurance businesses. He wants annual earnings to grow 25% to 45%, but even the slower rate seems too optimistic to many analysts. The company's net income in the first quarter did increase 8.7% from last year, to $84.1 million, but that came largely from the sale of a riverboat casino. Wendt expects the finance unit's profits to increase by 50% a year over the next four years. By forgoing acquisitions, Wendt hopes the division's income can go straight to the bottom line. But as the economy slows, Conseco's mostly lower- and middle-income customers are especially vulnerable to default. Indeed, Conseco's loan losses in the first quarter jumped 53%, to $121.4 million, from last year.
Meanwhile, it will take some time to build up the insurance business, which Conseco's former management neglected. The division's 2000 income of $818 million was 30% lower than the previous year's. "They aren't trophy business lines in either life insurance or retirement services, which makes it doubly challenging," says Patrick Finnegan of Moody's Investors Service. To boost growth, Wendt wants to broaden operations to include savings, investment, and risk-management products.
Wendt is not quite ready to predict when Conseco's transformation will be complete. He'll say only that "the target for success keeps moving." Others are less sanguine about Conseco's prospects. Billionaire financier Carl C. Icahn, who has shorted Conseco's shares, is one doubter. "My grandmother used to tell me you can't make a silk purse out of a sow's ear," he says. And Colin W. Devine, an analyst at Salomon Smith Barney, says: "The company needs some major restructuring to get rid of the debt and become a profitable business. We haven't seen anything that convinces us that's the case just yet."
Wendt isn't used to having to convince people of his worth. In his 14 years as CEO of GE Capital, Wendt built an empire that at times outshone GE's other businesses. When he left, GE Capital accounted for fully 40% of the company's total profits.
Wendt's accomplishments at GE were, at the end, eclipsed by his failed marriage. After he filed for divorce from Lorna Jorgenson Wendt, his wife of 32 years, she argued that she deserved half of their $100 million estate. He offered $10 million. She took him to court and won twice that much. Lorna is still seeking some of Wendt's unvested GE benefits and has been promoting her Institute for Equality in Marriage. "I don't lose much sleep over her, as I can't change the fact that she has made the divorce her career," he says.
Now, Wendt seems to be a real family man. His wife, Rosemarie, 68, was an executive in GE's travel office; they met while he was still married to Lorna. Although they have a townhouse in Indiana, they return to Greenwich on weekends. There, Wendt is the head usher at the Methodist church. He's certainly devoted to Rosemarie's two granddaughters. He even postponed Conseco's second-quarter earnings announcement by two weeks this August to take them on a safari in Kenya.
Wendt knows Conseco isn't going to be the next GE Capital. As he says of the company: "I'm aiming to be the best that we can be." That almost sounds modest for a man like Wendt.
By Pallavi Gogoi in Carmel, Ind.