BofA's Happy Surprise

Consumer chief McGee's sweeping makeover of Fleet's branches is a success

It's a blustery Thursday morning, and Liam E. McGee is a man on a mission as he marches briskly into a Fleet Bank branch in Boston's historic district. McGee isn't here to cash a check. Rather, as president of Bank of America Corp.'s (BAC ) consumer and small-business division, he's making spot checks on some of the 1,500 branches the bank inherited when it bought FleetBoston Financial Corp. last April. Striding through an eerily long corridor that winds back to the teller windows, the 50-year-old Irishman frowns as he navigates the quirky floor plan. "Layouts like this are just one of the challenges we have," he says. Finally inside the lobby, though, McGee is pleased to see the branch manager and reps engaging customers as they enter. "If you'd visited here six months ago, you would have seen all these people hidden back in their offices," he says.

So far, McGee's efforts to integrate FleetBoston's consumer businesses into Bank of America appear to be paying off -- much to the surprise of Wall Street. The markets roundly panned the $47 billion deal -- one of the largest bank mergers ever -- when it was unveiled in October, 2003. The concern was that BofA had grossly overpaid for FleetBoston, which had been notorious among customers for poor service and on Wall Street for lackluster financial performance. The deal was initially marred by a heavy exodus of Fleet executives as well as a spate of negative headlines after Boston politicos accused BofA of breaking its initial pledge that there would be no net job losses in New England as a result of the merger.

But thanks in large part to McGee's sweeping makeover of Fleet's branch network, the deal is looking like a winner. After several years during which Fleet lost customers, Bank of America added 184,000 new consumer checking accounts and 196,000 savings accounts last year in Fleet's old stomping grounds. BofA achieved that growth while wringing $909 million in costs from FleetBoston, slightly more than it had projected. The result: Fourth-quarter profits at the original Bank of America and the old FleetBoston grew 12%, to $3.85 billion. Over the past year, BofA's shares have risen 16.9%, vs. a 6.3% return for the Philadelphia KBW Bank Index. The Fleet deal "has gone far better than I anticipated," says Steven Wharton, a portfolio manager at Morgan Stanley Financial Services Trust (MWD ), who holds 440,200 BofA shares.


McGee's role has not gone unnoticed. If he can maintain the heady performance of the consumer unit, some BofA watchers believe that he will be one of the favorites to succeed Bank of America Chief Executive Kenneth D. Lewis. Lewis, 57, is fully expected to remain in charge until he's 65. But BofA watchers look for Lewis to anoint a successor by the end of the decade. "[McGee] is the rising star right now," says one former BofA executive.

Banking wasn't the first career choice for McGee, whose father worked as a Los Angeles bus driver after moving his family from Ireland when Liam was a child. McGee's initial brush with banking was a brief job as a teller during college. "The truth is, I hated it -- back then it was all about paperwork, audits, and initialing forms," he recalls. But after earning a law degree from Loyola Marymount University, McGee rejected a career in law for a job as a lending officer for a small California bank. After stints at Wells Fargo & Co. (WFC ) and Security Pacific Corp., he eventually rose to oversee technology and operations for the old San Francisco-based BankAmerica Corp.

After NationsBank Corp. in Charlotte, N.C., acquired BankAmerica -- and adopted the Bank of America name -- McGee's star really began to rise. While many execs from San Francisco bailed out, McGee bought into the deal. As head of BofA's Southern California operations, he was instrumental in rallying the old BofA's demoralized workforce through whirlwind branch visits and regionwide voicemails. And when the city councils of Santa Monica, Calif., and San Francisco enacted ordinances to prohibit BofA from levying ATM surcharges on noncustomers, it was McGee who stepped in front of the TV cameras and helped turn public sentiment against the bans. The California courts ultimately ruled that they were unconstitutional. "More than any other individual, Liam turned it around for BofA in California," says one former BofA manager who worked closely with McGee at the time.

The key to BofA's unexpected success with FleetBoston, say analysts, has been the efforts of McGee and his team to overhaul Fleet's branches, from products to training to culture. To lure new customers, BofA dangled free checking and free online bill-paying, a service for which many New England banks still charged. And while the old FleetBoston simply gave customers the 800 number for an outside mortgage lender, BofA has outfitted roughly two-thirds of Fleet branches with special software that approves or rejects a customer's application for a mortgage or home-equity loans within 30 minutes.

At the same time, Bank of America recruited dozens of new branch managers and reps from retailers with strong service cultures, such as Target Corp. (TGT ). It also adopted a few touches from Walt Disney Co. (DIS ) (Employees are now "on stage" when they're meeting with customers and "off stage" when they're in a back office handling paperwork.) And he implemented an exhaustive "playbook" that has scripts for everything down to the language with which tellers are supposed to greet customers. Still, at one Boston branch McGee visited, Paul J. Hillson, a consumer marketing manager, concedes that he encountered initial resistance from some FleetBoston tellers: "What you hear is, 'But I already know that customer."' McGee agrees that changing employee behavior "is still a work in progress."

Measuring each branch's performance and giving employees feedback are critical parts of the makeover. BofA brought in Six Sigma specialists to develop systems to generate reports on everything from customer satisfaction to sales productivity at each branch so that district managers can quickly intervene at underperforming offices. Already, each Fleet branch employee is signing up customers each day for an average of 4.1 new products, such as savings accounts and credit cards. That figure has more than doubled since the merger, from 1.9, and McGee expects it to hit 6.4 this year. To prevent branch employees from indiscriminately flogging new products, BofA redesigned its pay plan to rescind bonuses paid for sales of any products that customers cancel within four months. "I don't want our associates just pounding product that customers really don't need," says McGee.


McGee isn't out of the woods yet with FleetBoston. The biggest test comes this summer, when BofA switches Fleet's branches over to its own software platform -- a process that, more than anything else, can lead to the service glitches that trigger customer defections. And some rivals contend that any gains BofA is making on the retail side are being partially offset by the defections of Fleet's old commercial-lending officers to other banks.

McGee acknowledges some loss of lending officers, but he denies that it has resulted in "anything close to a material nature" in lost loan volume. If that's the strongest criticism competitors can level, McGee has more than the luck of the Irish going for him.

By Dean Foust in Boston, with Michael Eidam in Atlanta

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