Strikes Back at Critics of His Tenure at B of A : Clausen Spreads the Blame
World Bank President A. W. Clausen, after enduring in silence five years of criticism of his tenure as Bank of America’s chief executive, has struck back at current bank officials who blame him for the bank’s recent devastating losses.
Clausen coldly rejected charges that he severely weakened Bank of America through mismanagement, questionable accounting and lax lending policies during his 11 years as its president and chief executive. A number of senior bank executives have leveled such accusations in off-the-record interviews since Clausen left B of A to take the World Bank post in the summer of 1981.
“The managers of the bank now were managers when I was there. They shared in those decisions. I rest my case,” Clausen said in a 75-minute interview Friday in his World Bank office here.
After 10 years of spectacular profit growth under Clausen, B of A in 1981 entered a steady decline. Last week, the bank reported a stunning $337-million loss for 1985, the third-largest annual deficit in U.S. banking history.
“I’d say my record is there. It’s very visible,” said Clausen, 62, who has announced that he will leave the World Bank in July at the end of his five-year term. He said current bank officials who blame him for the bad loans that they are writing off today are engaging in an age-old banking tradition.
“I left the West Glendale branch as assistant manager in 1956, and 10 years later they were still charging off loans in my name. I’ve been out of the bank for five years now. So be it.”
Clausen did acknowledge that the seeds of some of the bank’s current problems, particularly in foreign lending, were planted during his tenure. The bank has written off hundreds of millions of dollars in loans to the Third World, many to private borrowers who later went bankrupt.
Other major banks’ Third World lending losses, while severe, have been relatively smaller than B of A’s because the bulk of their loans were to governments and other public entities. Many of those loans have been rescheduled under the auspices of the International Monetary Fund and other multilateral institutions.
“Bank of America was not in the international business before the mid-1960s, and then we moved in slowly and picked up the crumbs the other institutions weren’t interested in,” Clausen said.
Candid Interview
That approach led to such blunders as B of A’s purchase of an ailing Argentine bank for $150 million--nearly three times what any other foreign bank was willing to pay--shortly before Clausen left. It also lent heavily to Greek shipping firms that other banks spurned and to private companies from Mexico to Nigeria that today cannot repay the loans.
In an unusually candid interview, the normally reserved Clausen, known to his friends as Tom, also implicitly criticized the Reagan Administration for belatedly recognizing the severity of the world debt crisis and proposing to address it with a plan that is vague and underfunded.
Regarding the so-called Baker Plan, devised by Treasury Secretary James A. Baker III and Federal Reserve Board Chairman Paul A. Volcker, Clausen said it should more properly be dubbed the Baker Initiative.
“If you look at it, where’s the plan?” Clausen asked.
“Intellectually, it is sound as a concept, which is all it is. All the pieces are not yet clear. We’ve got to find a way to enlarge the flow of the funds to the developing countries.”
Clausen also said he has been “disappointed” by the level of financial and rhetorical support that he and the World Bank have received from the Reagan Administration.
Clausen, unlike his predecessor as president of the World Bank, Robert S. McNamara, is not known for outspokenness. But as his term nears an end, he appears to be allowing himself the luxury of speaking his mind in public. World Bank staff members who have observed him during the past five years professed surprise at how bluntly he expressed himself in last week’s on-the-record interview.
Until last week, Clausen has steadfastly refused to comment on his years at Bank of America or to answer his critics both at the bank and in the industry at large. During the past five years, former colleagues have accused him of refusing to tolerate criticism and leaving the bank with an incompetent corps of executives. The most common complaint is that he sacrificed the long-term health of B of A in order to inflate quarterly profits and his own reputation.
“Under Clausen, the bank didn’t have a strategy. It was run like a highly bureaucratic public utility with a civil service mentality,” one very senior bank executive who served under Clausen said in an interview last year. He spoke only under the cloak of anonymity.
People Skills Questioned
“His great weakness was that he was not a people person, not a leader. He was insecure in dealing with people. He couldn’t tolerate a subordinate with a diverse point of view.
“Nobody knew how bad a shape the bank was in when Tom (Clausen) left. His obsession was with maximizing earnings, and he didn’t invest in the future.”
Another senior official said that, toward the end of Clausen’s tenure at B of A, earnings were overstated by what he called “aggressive” accounting techniques.
He also noted that, between 1975 and 1980, the number of customers complaining of errors in their accounts doubled, reaching one in five depositors. Repairing that damage has been extremely expensive, he said.
Clausen’s successor as B of A president, Samuel H. Armacost, is not among those who blame the bank’s current travails on Clausen. Armacost, who was Clausen’s protege, acknowledges that he participated in many of the decisions that helped lead to today’s problems but adds that larger economic forces have done the worst damage.
Bank of America is the nation’s largest mortgage and farm lender and has a huge consumer base. All three areas have led to huge losses because of volatile interest rates, deregulation, falling prices of land and commodities and large industrywide losses on credit card and other consumer lending.
In the last several years, the bank also has had to invest hundreds of millions of dollars in computerized systems to handle the massive volume of paper work generated by the bank’s far-flung branch office network. Other banks spent steadily on such cost-saving systems through the 1970s and were much better prepared for the fierce competition brought on by banking deregulation when it arrived in 1980.
Clausen, acknowledging that, as the bank’s chief executive, he was consumed with concern about short-term results, said the World Bank job has radically altered his outlook.
“In commercial banking, if you’re not thinking about this quarter or the next, you’re thinking about next year. Your horizons are much shorter. Now I think in terms of what you can accomplish in 10 years, 15 years or 20 years.”
Clausen, asked if he followed the painful progress of his former employer as it reports one piece of bad news after another, answered: “I bleed a little with each story.”
