Armacost Quits at BofA; Clausen May Get Post
Samuel H. Armacost resigned Friday as president and chief executive of BankAmerica Corp., saying he wanted to help restore confidence in the troubled banking company.
The company’s board of directors will meet Sunday in San Francisco to name his replacement, who reliable sources said is likely to be former BankAmerica President A. W. (Tom) Clausen, 63, the man who chose Armacost to succeed him 5 1/2 years ago. Clausen stepped down as president of the World Bank in June.
Clausen, in Hot Springs, Va., Friday for a meeting of the Business Council, refused to comment on the reports that he would return to BankAmerica.
Chairman to Retire
BankAmerica Chairman Leland S. Prussia, 57, is expected to announce Sunday that he is taking early retirement, bank sources said. Despite his title, Prussia has not played a central role at the bank during the last several years.
The sources added that Prussia’s retirement, in contrast to Armacost’s, will be wholly voluntary.
Armacost’s departure comes as BankAmerica, parent firm of San Francisco’s Bank of America, struggles to stem growing losses and respond to an unsolicited takeover offer from First Interstate Bancorp of Los Angeles.
When Armacost, 47, became chief executive in 1981, Bank of America was the nation’s largest bank and a model of growth and profitability in the industry. Since then, it has fallen to No. 2 in size, closed hundreds of branches here and abroad and become the country’s leading problem bank, and in the last year has suffered nearly $1 billion in losses.
Investors have lost confidence in the bank and rumors have circulated in financial circles that BankAmerica was on the brink of bankruptcy or about to be rescued by federal authorities.
“External perceptions about the bank have been so eroded by rumor and speculation that a change in management is necessary to help restore confidence in this organization’s capabilities and future,” Armacost said in a statement announcing his resignation.
“The best interests of our shareholders, customers and employees have always been my principal concern, and if my stepping aside serves that purpose, I do so willingly.”
Armacost’s departure has been expected since the bank reported a stunning $640-million loss for the three-month period ended June 30. However, Clausen’s expected return to the bank he helped lead to prominence is a shock.
“Bizarre,” one bank analyst said. “It’s the strangest thing I ever heard. This is the guy who created the problems.”
Bad Loans Cited
Some BankAmerica managers who moved into top positions after Clausen left to head the World Bank blame him for leaving them with billions of dollars in bad loans and outmoded computer and other systems. They say that he caused the bank to grow too big too fast, venturing recklessly into every aspect of finance and every corner of the globe in search of profits and a grandiose image for the bank.
But Clausen supporters say he is a figure of stature who will provide stability and leadership at a time the bank needs it most. Thousands of BankAmerica employees remain loyal to Clausen as a man who brought the bank respect.
“I think the issue of credibility is a critical one for the organization,” said James McDermott, head of research at the Wall Street investment firm of Keefe, Bruyette & Woods, which specializes in banks. “The resignation of Armacost and possible naming of Clausen to run the show is a step toward restoring that credibility, even though Clausen’s name has been linked with the difficulties current management is coping with.
‘Cuts Two Ways
“Clausen’s nomination cuts two ways. On the one hand, there’s the taint of prior problems, but also he gets high marks for management and stability, qualities which are desperately needed today at B of A.”
In recent months, Armacost clearly lost the support of the bank’s board of directors, which grew increasingly impatient with his upbeat forecasts and the bank’s miserable results. The board has seen unreleased third-quarter financial results for the company that reportedly show continued substantial operating losses--perhaps $100 million or more--only partially offset by the recent sale of the bank’s Los Angeles headquarters building and other assets.
At previous board meetings, Armacost had offered informally to resign but was persuaded to stay, according to Armacost’s brother, Peter Armacost, a Florida college president. He was “surprised and disappointed” when the board this time accepted his offer to leave, Peter Armacost said.
‘Golden Parachute’
BankAmerica spokesman John Keane said the board will decide Sunday on the terms of Armacost’s severance agreement. In August the directors approved a “golden parachute” severance plan for Armacost and several other top executives in the event of a change in management under an unfriendly takeover.
Under terms of the plan, which may be adapted to apply to this resignation, Armacost would be eligible to receive about $1.7 million, three times his current salary of $575,000 a year.
Sources said the board’s key executive committee was instrumental in engineering Armacost’s ouster and the probable return of Clausen. The committee includes retired Transamerica Corp. Chairman John R. Beckett and retired Chevron Corp. President John R. Grey, pillars of the San Francisco business community and longtime friends and allies of Clausen.
‘Historic Weakness’
“What we’re seeing here is a historic weakness at Bank of America,” one critical Wall Street analyst said. “There’s a tremendous xenophobia; this organization has never accepted outsiders. Rather than look around for somebody who can really solve your problems, instead they huddle and pick one of their own.”
Sources close to First Interstate said Beckett and Grey also have had informal contacts with First Interstate Chairman Joseph J. Pinola about the desirability of the proposed merger. Pinola spent 25 years at Bank of America, leaving in 1975 to join the California banking company now known as First Interstate.
First Interstate last week offered to acquire BankAmerica in a stock swap worth about $2.8 billion. That offer, disclosed Monday by BankAmerica, remains to be acted on by BankAmerica directors.
Seen as Buying Time
The appointment of Clausen, if it occurs, is being seen inside and outside the bank as buying time to devise a strategy to either resist the First Interstate offer or negotiate for a higher price. Sources said it may well signal a strengthened resolve to fight the offer.
A First Interstate official, however, said the change in leadership at BankAmerica does not change the rationale for the merger or its terms.
“The offer is still on the table,” a First Interstate executive said. “We don’t think there’s a lot of time.”
Paradoxically, Armacost leaves at a time when the bank is finally beginning to show some limited progress in reducing overhead costs and identifying problem loans, systemic problems that he inherited from Clausen, his sponsor and predecessor. Armacost will take a lot of the blame for painful cost-cutting and layoffs, while his successor will enjoy the benefits.
“I had very high hopes for Armacost when he first got in there,” said Donald K. Crowley, a former Bank of America executive and now a San Francisco bank analyst. “He’s still an excellent banker. But he was the wrong guy in the wrong place at the wrong time. He’s not blameless in the situation.
“There’s no easy way to explain what happened here. It was a combination of the man and the times.”
