New York Knowhow At A Czech Savings Bank

By stressing friendly service, American CEO Jack Stack has made formerly state-owned Ceska sporitelna shine

Customer service reps at Ceska sporitelna, or Czech Savings Bank, clapped politely when John J. Stack, the New York-born CEO of the Prague bank, recently finished delivering a speech in Czech. Stack, who didn't speak the language at all when he joined the lender in 2000, admits he was mighty proud of his accomplishment -- until an employee confided later no one understood a word. "I was so disappointed," Stack says.

Fact is, on paper Stack, 58, was not an obvious choice to turn around the formerly state-owned bank after Austria's Erste Bank acquired a majority stake in 2000. Back then, he was comfortably employed as an executive vice-president at Chase Manhattan Bank (JPM ) in New York who had never been to Eastern Europe, much less spoken Czech. And the annals of management are rich with examples of American cultural ignorance leading to commercial disaster abroad: Look no further than Disneyland Paris.

Yet five years after its privatization, Ceska sporitelna (CS) is the leading retail bank in the Czech Republic, with 700 branches and 5.4 million customers in a nation of 10.2 million people. That's up from 3.5 million customers at the beginning of 2000. It has helped make Erste Bank the biggest lender in fast-growing Central Europe, measured by customers and assets. When Erste took control of CS, the Czech bank was losing money. But now it is the most profitable of Erste's four Central European units, with net profit in 2004 of $352 million, an increase of 14% over 2003. "He has exceeded my expectations," says Erste Bank CEO Andreas Treichl, who hired Stack.

Stack, an affable Bronx native whose parents were immigrants from Ireland, has succeeded in turning the bank around with a mixture of brashness and charm. Early in his tenure, he appeared at a sales meeting at the bank's headquarters wearing a T-shirt with the name of a competitor emblazoned on his chest. Loudly vowing to eat the rival's lunch, he ripped off the T-shirt to reveal the logo of another competitor -- and so on until the last T-shirt showed the CS logo. His Austrian bosses sitting in the front row looked mortified, Stack recalls, but the performance sent a message to Czech employees: "I wanted them to realize it's not going to be the same around here -- things are going to change."

Few doubted the change was needed. When Stack arrived on the scene, CS was technically insolvent, the result of years of lending without due diligence to an assortment of formerly state-owned companies. The state kept the bad loans when it sold the bank to Erste Bank, but there were plenty of other problems, particularly lousy service. One of the big reasons Erste recruited Stack was his 20 years in retail banking, including a stint as executive vice-president for marketing and customer service at Chase.

As was typical at state enterprises, CS operated for the convenience of its employees, not its customers. When Erste Bank acquired CS, more than 14 working days were needed to get a card for the automated teller machines (ATMS). The information technology system was so overloaded that, at the height of the 2000 Christmas shopping season, all 1,000 of the bank's ATMs crashed.

To cut costs and eliminate internal bureaucracy, Stack laid off nearly one-third of the staff of 15,500 soon after he arrived in Prague. But he has raised compensation for remaining employees by an average of 40% since then with the savings. He also introduced a bonus system for managers that ties as much as 36% of their compensation to sales and customer satisfaction surveys.

Under the new management, the bank's info tech has also gotten a massive upgrade. The new technology has helped CS introduce telephone and Internet banking, and these systems now have 800,000 users. Meanwhile, many apathetic branch employees had to learn to smile at customers and look them in the eye. "Sporitelna was on its knees [in 2000]. The need for change was accepted," says Petr Hlavacek, a board member.

Stack also had to teach the bank's customers a thing or two. Few Czechs had credit cards, and research showed they regarded loans as a kind of capitalist bondage. So CS advertising emphasized that a credit card allowed customers to pay for purchases on their own schedule. Today the bank has more than 200,000 credit-card customers, up from just a few thousand in 2002. "Jack's impact on the culture of [Czech] banking has been quite positive," says Zdenek Tuma, governor of the Czech National Bank.

There have been some tough moments for the American CEO, who plans to stay at CS at least until 2007. Stack took major heat from the Czech press in 2002 when he donated money to all three of the country's mainstream parties. That was seen as a cynical attempt to curry favor. And many challenges lie ahead for CS. With the most obvious restructuring out of the way, Stack says he wants to continue working on customer service while promoting mortgages and small-business loans, which are still below West European levels. Yet it may be hard for the bank to grow at the same pace as the market matures. Analysts point out that CS itself expects lower profit growth this year.

For all his bravado, the ebullient Stack isn't resented as a know-it-all American. If anything, Stack serves as an intermediary between the Czechs and their former imperial overlords, the Austrians, who run Erste Bank. But Stack also showed a willingness to adapt what he learned in New York to local conditions. Americans are better at customer service, Stack says, while the Austrians are superb in credit risk and the Czechs -- being from a former police state, after all -- are awesome at security. "We really didn't say: 'There's only one model, and that's it.' We tried to look at what's the best practice," Stack says. Good advice -- in any language.

By Jack Ewing in Prague

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