Wells Fargo Is Ready to Crack Whip at Crocker : Chairman Noted for His Relentless Drive to Cut Costs
A former colleague describes Wells Fargo & Co. Chairman Carl E. Reichardt as “like John Wayne, only shorter. Sort of a sawed-off John Wayne.”
Perfect. Just the right Western flavor, an image of swagger and blunt power overlaying a sense of frontier justice.
Reichardt, who cleaned up Wells Fargo and placed it among the best-run and most profitable of the nation’s major banks, is charging into unknown territory. He is going to try to pull off the biggest merger in U.S. banking history.
Wells Fargo, parent of San Francisco-based Wells Fargo Bank, announced 10 days ago that it would pay $1.08 billion to buy Crocker National Corp. from its British parent, Midland Bank. The move will catapult Wells Fargo from a strong but not dominant position in California into the nation’s top 10 list of commercial banks, with 626 branches and more than $40 billion in assets.
Reichardt appears to have the tools for the daunting task: a steadfast corps of lieutenants, a tightly focused organization, a healthy balance sheet and a ready-made consumer market.
He also has a reputation for unyielding (his staff hates the word “ruthless”) dedication to slashing costs and making money for shareholders. Reichardt says the success of the Crocker deal hinges on Wells Fargo’s ability to eliminate unneeded and overlapping operations at the two banks as Crocker is absorbed.
Satisfied With Risk
“We’re fairly satisfied with the financial risk,” Reichardt said in an interview the day the acquisition was announced. “We think the systems can be rationalized with substantial savings.”
And that’s why Crocker employees are contemplating the merger with all the enthusiasm of a man headed for the guillotine. Anxiety and speculation are so rife at Crocker that its information department is starting a twice-weekly newsletter to still the rumor-mongering and to inform employees of progress in merger talks with Wells Fargo executives.
There is also some wishful thinking at Crocker. A press spokeswoman sharply corrected a reporter who posed a question beginning, “when the deal goes through . . . “ by saying, “ if the deal goes through.”
From all indications, regulators and the Justice Department are unlikely to oppose the transaction. Wells shareholders, who have seen their stock value rise more than 20% since the merger was announced, probably will approve the plan overwhelmingly. Midland’s shareholders, who complained about the Crocker acquisition almost from the day it began in 1981, are expected to happily accept the sale of the troubled American subsidiary.
Crocker lost $334 million in 1983 and 1984, primarily because of bad real estate, agriculture and Third World loans. Its $38-million 1985 profit came in part from tax credits and asset sales.
Wells would remain California’s third-largest bank (after Bank of America and Security Pacific National Bank) and the acquisition would return ownership of Crocker and its $19 billion in assets to American hands. Wells has a strong capital base, adequate standing in securities markets and an acceptable level of bad loans, despite a relatively heavy exposure in Latin America.
Worked His Way Up
Reichardt, 54, took the reins of Wells Fargo’s trademark stagecoach on Jan. 1, 1983, after 13 years with the bank--first in its real estate investment unit and then in a succession of top executive posts.
Almost immediately, the bank’s culture changed.
Under former Chief Executive Richard Cooley, now chairman of Seafirst Corp., a Seattle bank holding company and subsidiary of BankAmerica, Wells Fargo’s top brass on the 11th and 12th floors of the bank’s unpretentious San Francisco headquarters would customarily take a casual mid-morning coffee break.
“Cooley or (former Chairman) Ernie Arbuckle would come in and you’d sit down with your colleagues and talk things over,” said a former executive who participated. “It was a nice friendly sort of place, with an emphasis on working and playing well with your peers. Now, the coffee shop is out of business.”
This former manager said Reichardt, as he strides across the executive floor, “reminds me of the Marine Corps mascot, the bulldog.
“It’s a lot less contemplative there now. He runs a slam-bam type of operation. The only thing that worries me is that if they’re wrong, they all go through the wall together.”
The colder corporate climate, and Reichardt’s clear grip on the top job, have led a sizable number of high-level Wells Fargo executives to seek work elsewhere.
High Executive Turnover
One who left estimated that only 10 of the bank’s top 50 officers in 1980 remain. Some departed because they knew they would never wrest the chairmanship from Reichardt; others because they felt stifled working beneath him.
“There’s been tremendous turnover at the highest level,” one former executive said. “Even some of the Reichardt people have left, who grew up with him in the subsidiaries. Some were just pushed out. The bank is very rewarding if you can hold onto your job. But it’s a tough, cold environment.”
One who stayed and prospered is Paul Hazen, the 44-year-old Wells Fargo president who is credited with piecing together the Crocker merger that Reichardt conceived.
Hazen was paid $473,334 in salary and bonus in 1984. Reichardt made $775,000, in league with his peers at the nation’s top banks.
Both declined to be interviewed last week. Too busy working on the Crocker deal, they said through a spokeswoman.
Hazen presents a fascinating foil to the hard-bitten Reichardt. He looks like a well-washed junior loan officer trying to impress the old man on a branch visit. He wears preppy tweeds to Reichardt’s worsteds. He’s usually happy to relax and chat for a few minutes, as if the bank were running itself.
That’s the public Hazen, though. He helped design and carry out Reichardt’s relentless drive to shrink the bank and drive down expenses. He participated in decisions that led to the closing of nearly 100 branches and the elimination of 4,000 Wells Fargo jobs over the past four years.
Played Key Role
And he played a key part in the negotiations over Crocker’s sale. The deal, with all its implications for Crocker and its workers, was kept secret by Wells Fargo and Midland until three days before it was announced to the public. Even Crocker Chairman Frank V. Cahouet, an astute and respected pillar of California banking, was not told.
Wells and Midland officials said the talks concerned only buyer and seller and that secrecy was maintained to save Cahouet “embarrassment.”
Many observers expressed belief that the way Crocker was handled will have lasting effects. Cahouet was invited to join the Wells Fargo board of directors but was not offered an executive position. He has not yet decided on the board seat.
“The Crocker people must be very upset. Mr. Cahouet certainly has to be, and that will permeate the organization, making it more difficult to bring in,” said J. J. Pinola, chairman of First Interstate Bancorp, a major Los Angeles-based competitor of Wells Fargo.
Pinola noted that First Interstate has absorbed 22 independent banks under its holding-company umbrella. He described the process as painful and time-consuming.
“I’m not sure people understand how hard it is until they’ve done it. You can’t just wish to it happen.”
If and when it happens, Reichardt has indicated that he intends to apply to Crocker the same circle-the-wagons strategy that has proved successful at Wells Fargo.
A Simple Plan
The plan is simple: Wring out excess costs, concentrate on the local market, close offices that are not meeting profit goals, lend selectively to middle-sized companies, automate quickly and market credit cards aggressively.
Reichardt halted the bank’s lending to Latin America begun under Cooley and took loan-making authority out of the branches and centralized it in San Francisco
Through this strategy, and single-minded devotion to it, Wells Fargo has been able to reduce its costs dramatically. In three years, it has lowered its expense-to-asset ratio, a key measure of bank efficiency, from 3.9% to 3.2%, well below the level of its California peers.
It sold its mortgage-servicing unit and its stock-transfer department. It closed offices in London, Madrid, Miami, Manila, Taipei, Bangkok, Jakarta and Kuala Lumpur. It continued to close California branches and replace them with electronic teller machines. One new branch, in Mission Viejo, opened last January with no human tellers at all.
Reichardt told bank analysts last week that proven cost-reduction methods should be able to squeeze at least $200 million in annual costs from Crocker’s operations. He also said he planned to reduce Crocker’s assets by about $8 billion by selling real estate, cutting ties to foreign banks, not renewing existing loans and closing branches that overlap with Wells Fargo’s.
Could Shut 100 Branches
Salvatore Serrantino, a Santa Monica consultant to banks and savings and loans, said his analysis shows that Wells Fargo potentially could eliminate as many as 100 of the combined banks’ 626 branches. The duplicate branches are found mainly in Northern California.
“This is the deal of the year that they’ve made at book value, but it could be the acquisition of the decade if they are able to take maximum advantage of some elements that Crocker had that they didn’t have,” Serrantino said.
Crocker brings more than 100 Southern California branches to the deal, with their consumer deposits and business lending relationships, Serrantino said. It also has developed--by necessity--an expertise in dealing with troubled real estate and agriculture loans.
Other bankers and analysts, however, noted potential pitfalls.
One top executive of a major California bank said Wells Fargo had been able to reduce costs and improve earnings by getting out of foreign operations. But now, with Wells Fargo moving into the ranks of the megabanks, it may not have the global network it needs to compete.
“The short-term strategy of eliminating the international presence, while it appears good now, later may damage the company’s ability to handle the middle-market companies as they grow. The world is shrinking. How are you truly going to serve that market?”
This executive also noted that Wells Fargo now will become a prime target for its California competitors, especially First Interstate and Security Pacific. In addition, the Crocker acquisition will take Wells Fargo out of the merger game for the next couple of years at least, costing it some opportunities in California or neighboring states, he said.
People Problems
More immediate, however, are the people problems.
Bank analyst George Salem of the Wall Street brokerage house Donaldson, Lufkin & Jenrette said bank mergers have grown common, but this one is different.
“This isn’t a merger or an acquisition. It’s a dismemberment,” Salem said. “It’s something that’s never been tried before anywhere on this scale in the history of banking. I see it as a large experiment by people who are very adept at what they’re about to do.
“But what’s going to happen at Crocker? Where would you be working--with the headhunter, or on your job? Cultivating client relationships, or looking after your own career? This is an unfriendly takeover. There’s going to be quite a bit of anguish.”
In the initial shock of the merger announcement, Crocker employees, somewhat surprisingly, said the one thing that gives them the most pain is the disappearance of the Crocker name after more than 100 years, according to a Crocker survey of its workers the day the deal was revealed.
“The name on the building changes. That’s what’s bothering people most,” said Crocker spokesman Dave Sanson. The heavier considerations--office closings, job losses, possible relocation--come later, he said.
The most touching reply to the survey came from one low-level supervisor in a Northern California branch, a woman who has been with Crocker nearly 30 years.
“We’re going to try to figure out a way to buy our branch out of the deal,” she said. “We can be a one-office bank again.”
Even The Duke would have had trouble dealing with such sentiment.
