VIEWPOINTS : What BankAmerica Can Do to Reverse Its Dangerous Course
BankAmerica, on the heels of a shocking $640-million second-quarter loss, faces possibly the most difficult period in its 82-year history.
The loss, due largely to continuing problems with foreign, real estate, energy and farm loans at the company’s Bank of America unit, was the second largest in banking history and was unexpected, given that many analysts had thought the worst of the bank’s problems were over.
Now, BankAmerica faces a number of wrenching decisions. Should it sell assets and shrink? Should it undertake further cuts in personnel, which could save money but harm customer service? Should it raise new capital, and how? Should it change or restructure top management?
Meanwhile, the company must contend with possible takeover attempts while trying to maintain depositor confidence as observers wonder whether further losses are still ahead.
In an attempt to explore the various options facing BankAmerica, The Times invited bank consultants, investment analysts, academicians and investors to comment on what they think the bank’s management should do to turn the company around. Here are their comments:
BankAmerica, on the heels of a shocking $640-million second-quarter loss, faces possibly the most difficult period in its 82-year history.
The loss, due largely to continuing problems with foreign, real estate, energy and farm loans at the company’s Bank of America unit, was the second largest in banking history and was unexpected, given that many analysts had thought the worst of the bank’s problems were over.
Now, BankAmerica faces a number of wrenching decisions. Should it sell assets and shrink? Should it undertake further cuts in personnel, which could save money but harm customer service? Should it raise new capital, and how? Should it change or restructure top management?
Meanwhile, the company must contend with possible takeover attempts while trying to maintain depositor confidence as observers wonder whether further losses are still ahead.
In an attempt to explore the various options facing BankAmerica, The Times invited bank consultants, investment analysts, academicians and investors to comment on what they think the bank’s management should do to turn the company around. Here are their comments:
The California division is critical to the stability and future success of Bank of America. Many of its corporate and retail loans and credit card and leasing operations are the most profitable areas of the bank. Further, deposits are comprised of tens of thousands of small accounts from ordinary people. They are extremely stable and, compared to deposits acquired from brokers, very inexpensive.
And it is this 900-branch network of offices, bloated with excess staff because of outmoded operations, procedures and communications, which drags performance down on the one hand but which offers the bank one of its greatest opportunities. It is a potential delivery network without par in one of the economically strongest states.
The problems really began in the 1960s when the World Banking division had all of the “fast-track” careers. By 1970, the California division, the core of the bank, was considered the rear echelon, a backwater staffed by non-achievers.
This phenomenon, coupled with prior management’s narcissistic view of the bank’s position in California, led to inaction when the bank should have been upgrading and streamlining its systems and back-office administrative procedures. Also, the aggressive sales and marketing emphasis that should have begun with deregulation was sporadic, narrow and too little, too late.
One of the greatest problems is the attitude of hundreds of managers who have an entire career invested in managing the “old” way. That attitude prevents change as it absorbs and deflects a great deal of senior management’s efforts to pave the way for the division to develop the streamlined, sales-oriented, super-aggressive posture it will need to save its profitable share of the California market and, eventually, enlarge it again.
Not all is lost, however. If senior management will remove the “crust” of old-timers and nay-sayers, replacing them with fewer but better-paid, sales-oriented people; if, through aggressive competition, it can recreate the concept of a fast-track career inside the California division, then Bank of America has a real chance.
The bank did not get into its current conundrum overnight, and it is not going to get healthy again overnight. It took decades to build the problems in the California division. It is going to take at least three to five years for these remedial measures to take effect, assuming they get the top priority they deserve.
These cultural and systems changes required in the California division, though, should lead to a smaller, leaner, tougher and healthier bank along about 1989-90.
Robert O. Metzger is adjunct professor of management at the University of Southern California’s Graduate School of Business Administration. He is a member of the editorial review board of the Journal of Retail Banking and writes a column on bank marketing for Bankers Monthly.
