BankAmerica Directors Appoint Clausen to Lead Firm in Bid for Stability

BankAmerica on Sunday named former President and Chief Executive A. W. (Tom) Clausen to head the banking firm in a drastic bid to restore stability and profitability to the floundering company.

Clausen, 63, replaces Samuel H. Armacost, 47, the man Clausen chose to succeed him 5 1/2 years ago when Clausen left the San Francisco bank to become president of the World Bank in Washington.

Also leaving is BankAmerica Chairman Leland S. Prussia, 57, who has not played a central role in bank management over the past several years. His retirement was voluntary, bank sources said. The board asked Armacost to step down.

Thomas A. Cooper, 50, president of the company’s Bank of America unit, who has grown increasingly powerful in recent months as Armacost lost the support of the board of directors, was named to the additional post of president of the bank holding company, BankAmerica.

Clausen immediately confronts a $2.8-billion takeover bid from First Interstate Bancorp of Los Angeles and a crisis of confidence among the bank’s shareholders, customers and employees. Knowledgeable bank officials said the appointment of Clausen almost certainly means BankAmerica will turn down the First Interstate bid.

BankAmerica, the nation’s second-largest banking firm, has been in turmoil for more than a year. It has posted huge losses, lost numerous key executives and board members, eliminated its dividend, seen its stock price collapse and been the subject of persistent rumors that it was about to be rescued by federal authorities.

‘Extremely Volatile’ Atmosphere

Former Transamerica Chairman John R. Beckett, chairman of the BankAmerica board’s executive committee, was instrumental in Armacost’s departure and Clausen’s return. He said in a statement issued Sunday afternoon that “given the extremely volatile external atmosphere currently surrounding the bank, and the uncertainties and concerns present in a number of the bank’s principal constituencies, the board concluded a change in top management was necessary.”

The Sunday special meeting of the board lasted an hour. It was opened by Armacost, who tendered his resignation and then turned the meeting over to Beckett. Clausen was present and the management change was the only matter discussed, sources said.

Clausen, Beckett said, “will bring the authoritative and calming management direction that is necessary to the bank’s success.” And in a signal that the board intends to take a more active role in overseeing the company, Beckett added that Clausen “with the active advice and consent of the board” is charged with returning the company to profitability and restoring the common stock dividend, which was suspended in January after the bank announced a $337-million loss for 1985.

The bank has posted net losses of $577 million so far this year and appears likely to announce next week that it lost money in the quarter ended Sept. 30.

Ran Bank in Glory Days

It is not clear how long the board expects Clausen, who will be 65 in less than 18 months, to stay in the job. The bank has no mandatory retirement age, but it is traditional for employees to leave at age 65.

Clausen ran BankAmerica from 1970 to 1981, its glory days when the bank was the nation’s largest and most profitable. He left in 1981 to take the World Bank post, turning over the top job to his protege, Armacost.

As head of BankAmerica, Armacost proved unable to cope with the changing environment in the banking industry, which demanded massive cost reductions and modernization steps that the bank took too timidly and too late. He was also saddled with a loan portfolio heavily exposed in agriculture, commercial real estate and the Third World, all of which went sour at the same time.

In announcing his departure to employees, Armacost said: “The atmosphere of speculation and concern that has been so prevalent over the past several months was building to such a point that we agreed only a change at the top could dispel it. . . . I want you to know I am very proud of what we achieved together. I only regret that time ran out before we had a chance to finish the job.”

Until word of his likely return leaked out late last week, the appointment of Clausen was a surprise to nearly everyone inside and outside the bank. But it is said that the board of directors did not seriously consider any other candidates. Clausen is a longtime friend and ally of Beckett and several other board members.

Many of the bank’s current top managers blame Clausen for leaving them with bloated overhead costs and billions of dollars worth of bad loans, written in the bank’s headlong rush to expand into every aspect of finance and every corner of the globe in the 1970s. Clausen, who is aware of and deeply resents the criticism, said he would not dwell on the past.

“I am proud to have been asked by the board of directors to take up this responsibility again,” Clausen said in a statement issued by the bank. “I am also quite aware of the challenge it presents. I am eager to get at the job. I don’t intend to waste time looking back.”

Bank officials said Clausen would be paid the same salary as Armacost, who received $575,000 last year.

Aside from the difficult tasks of restoring damaged employee morale and calming a jittery investment community, Clausen faces the First Interstate takeover bid, which is being pursued by his former employee, First Interstate Chairman Joseph J. Pinola.

Pinola, who left a 25-year BankAmerica career in 1975 as an executive vice president under Clausen, departed knowing he was not Clausen’s choice to replace him.

Clausen’s return almost certainly means the board of directors intends to resist the First Interstate offer, banking sources said. Clausen “didn’t come back here to work for Joe Pinola,” one top BankAmerica executive said.

First Interstate officials, however, insisted over the weekend that the offer stands and must be acted upon, regardless of the change in management.

Cooper, who now is No. 2 at both the holding company and at Bank of America, came out well in the executive shuffle. Cooper joined the bank last year from Pittsburgh’s Mellon Bank, where he was vice chairman. He was charged with carrying out many of the unpleasant tasks needed to cut B of A expenses, including a layoff program that will reduce bank employment by about 5,000 workers this year.

Armacost, a hard-charging executive who nevertheless could not turn around the bureaucratic BankAmerica culture, will receive a severance package worth three times his current salary, or $1.7 million. He gave no indication of what he plans to do now.

Prussia’s severance package will be twice his current salary of $420,000.

Armacost and Prussia also are giving up their seats on the board of directors.

Clausen’s five years at the World Bank were generally acknowledged as competent but not distinguished. The World Bank was created after World War II to finance reconstruction of war-ravaged nations and help promote development in poor countries. It is funded by contributions from its 151 member nations.

Clausen helped streamline procedures and slow staff and expense growth at the institution, but during his tenure the bank did not play a key role in the Third World debt crisis, the central problem facing many of its members. Critics said Clausen was not a forceful advocate for the bank when it came under fire from the Reagan Administration for supporting development projects in left-wing regimes.

It is widely believed in Bank of America that a sizable number of top executives who rose under Armacost will resign or be fired under Clausen. One bank official close to Armacost, commenting on his former boss’s severance package, said: “If I could get three years severance pay, I’d sever myself now.”

Clausen brings with him a style of management that is far more autocratic than Armacost’s collaborative and consensual approach. “There will be a strong sense of central authority. He knows what he wants and doesn’t hesitate to make a decision for himself,” said Donald K. Crowley, a former Bank of America official and now a bank analyst with the San Francisco office of Keefe, Bruyette & Woods. “He’ll also be more involved than Armacost in day-to-day operations.”

Still, while Crowley predicted that Clausen will boost BankAmerica’s sagging credibility, “this is not going to be an easy job for anybody.”

Analysts noted that BankAmerica stock rose only slightly on Friday, when news of Armacost’s departure and rumors of Clausen’s return spread through Wall Street.

“I don’t think the removal of Armacost per se gets B of A anything in terms of fending off First Interstate,” said Lawrence W. Cohn, chief bank analyst for Merrill Lynch in New York. “The reality is that Sam moved too slowly initially in addressing the company’s problems. Anyone coming in from inside or outside is not going to be able to push the company any faster. Changing the senior guy at this point is not the issue. It’s irrelevant.”

The executive changes finally normalized the titles of the bank’s top officers. Before the change, Armacost was president and chief executive of BankAmerica and chairman and chief executive of the Bank of America unit. Prussia was chairman of BankAmerica, and Cooper was president and chief operating officer of Bank of America.

Now, Clausen is chairman and chief executive of BankAmerica and Bank of America. Cooper is president of both.

Prussia has worked in the shadow of Armacost since the younger executive bested Prussia in the race for BankAmerica’s top job--that of president and chief executive.

Like Armacost, Prussia has spent his entire career at BankAmerica, joining its Bank of America unit as an economist in 1956 after picking up a master’s degree in economics from Stanford University.

An avid environmentalist and a Democrat, Prussia is something of a rarity in top corporate echelons. Associates say he has long coveted a political appointment in Washington.

In the statement announcing his retirement, Prussia said he expects to pursue interests he’s been unable to develop during his banking career, including politics, government and education.

Despite his status as No. 2, Prussia has had some influence over the years. Even before the bank got into trouble and needed to raise cash, the economist advocated selling off BankAmerica’s headquarters tower because he believed that disinflation was the dominant financial trend of the Eighties.

In March, Prussia’s power was further eroded by the appointment of Thomas A. Cooper as president and chief operating officer of Bank of America.