Joe Pinola’s Giant Leap Forward : Strives for Role on Global Stage With B of A Deal

Joe Pinola blew through this Rocky Mountain town last week on an eight-hour visit to speak to Colorado State University students and show the First Interstate flag in one of the small western cities where the Los Angeles banking firm operates.

The First Interstate chairman is a big man in places such as Fort Collins, and Riverton, Wyo., and Kalispell, Mont., and Roswell, N.M., western towns where his company owns the local bank. Butyou don’t have to spend much time with the man to realize that his ambitions extend far beyond what he calls “The Territory.”

He yearns to strut upon a global stage.

And, at age 61, Pinola doesn’t believe that he has time to achieve that goal by hopscotching across the country, buying small banks and franchising the First Interstate name, as he has during his eight successful years as First Interstate chairman. He wants to do it in one giant leap, by buying his foundering former employer, the company he’s code-named “Snowflake”--Bank of America.

“Bank of America is power,” Pinola said as he flew toward Fort Collins in his corporate jet, a 550-mile-an-hour, four-engine Lockheed JetStar with transcontinental range. “When

Bank of America calls, nobody hangs up.”

Although Pinola refused to discuss his $2.8-billion Bank of America bid in detail last week, citing ongoing negotiations, he made clear the thrust of his thinking--and

his ambition--in comments to shareholders last spring. Within a very few years, he said, American finance will be dominated by a handful of giant institutions with global reach. And, with the Bank of America acquisition, he intends to run one of them.

“The troubles besetting Bank of America have been well publicized. However, the information available to us . . . leads us to believe that our two companies could be forged into a banking organization with presence and power such to assure a position of banking prominence, not only throughout the West, but throughout all of the United States, and, in fact, the world.”

First Interstate is the nation’s ninth-largest banking company, less than half the size of BankAmerica, parent of Bank of America. BankAmerica, with $113 billion in assets and branches and subsidiaries around the world, is the country’s second-largest banking firm.

Pinola’s merger offer is a bold and hazardous gambit, one that threatens to transform the $50-billion First Interstate from a healthy collection of small and medium-sized regional banks into a wobbly $150-billion colossus. Some long-time First Interstate shareholders and customers worry that Pinola may be using their investment to satisfy his extravagant ego and his grand ambitions.

Pinola is sensitive to such charges, acknowledging that “there’s a hell of a big downside risk.” But, he adds: “There’s a huge upside potential. If I did not believe I have the management team to do it, and do it well, I would not subjectthe shareholders to that liability.”

Pinola believes that he brings two key elements to the deal

that Bank of America cannot produce on its own: fresh capital and competent management. The new capital would be created by use of accounting rules not currently available to Bank of America that would allow the San Francisco bank to write off nearly $2 billion in worthless assets while offsetting that with a sharp upward reappraisal of several billion dollars worth of other assets. The new executive corps would come from Pinola’s team and, presumably, from the best of rest of the banking industry.

Pinola considers Bank of America’s current management incapable of solving the bank’s considerable problems. And he believes that the bank’s worsening reputation makes it unable to attract the talent it needs to recover.

Pinola’s management team consists of a hand-picked collection of younger mirror images of himself: self-confident, demanding, impatient executives who are trying to create a premier banking organization from a grab-bag of 23 banks in 12 western states. These younger bankers are well-paid and given wide latitude to run their operations.

In return, Pinola demands unswerving loyalty to First Interstate--and to Joe Pinola.

“He starts with the philosophy that it’s my bank to run. He doesn’t call me to tell me what to do, or expect me to call him and ask what to do,” said Bruce G. Willison, 37, the recently named chairman of First Interstate Bank of Oregon, the system’s third-largest bank with $5.5 billion in assets.

“A lot of people talk about Joe’s tough, demanding personality, but those of us who have worked closely with him are motivated not so much by fear of retribution, but fear of not performing, of disappointing him.”

Willison, like several other rising young First Interstate stars, is a Bank of America alumnus who joined Pinola for the freedom and responsibility he gives them. Others include William E. B. Siart, 39, chairman of the flagship bank, First Interstate Bank of California, and Don M. Griffith, 42, executive vice president and chief financial officer of the holding company, First Interstate Bancorp. Griffith is the nuts-and-bolts guy who put together the complex financial details of the Bank of America bid.

Other Key Executives

Other key First Interstate executives are Edward M. Carson, 56, who is president and chief operating officer of the holding company; William S. Randall, 46, chairman of First Interstate Bank of Washington, and Harold Meyerman, 47, an urbane recent arrival from New York’s Bankers Trust who runs First Interstate Bank Ltd., the company’s corporate and capital markets unit.

These underlings are encouraged to speak their minds. During a private meeting last week in Fort Collins, Robert Malone, chief executive of First Interstate’s Denver bank, respectfully but firmly disagreed with Pinola about a personnel matter. Malone will probably lose, but at least he got his say.

“When the time comes, they know who the boss is,” Pinola said after the incident.

“He’s wise enough and secure enough to surround himself with the best people he can find,” said G. Robert Truex Jr., chairman of Seattle’s Rainier National Bank and a former boss of Pinola’s at Bank of America. “I always thought it was his wish to be carried through the goal posts on the shoulders of those people. He selects them, nurtures them. He lets them run with the ball. But he replaces them if they don’t score.”

Pinola and his associates seem to slip naturally into these tiresome gridiron metaphors. Pinola played end on his high school football team in his hometown of West Pittston, Pa., near Wilkes-Barre in Pennsylvania’s coal country.

Pinola, one of two children of an Italian-American machinist, left home to serve in the Navy during World War II. He returned to Pennsylvania to study economics at Bucknell University, then did another stint in the Navy during the Korean War. One of his great disappointments was being turned down for submarine service.

Wanted to Be Lawyer

After his military service, he hoped to study law but couldn’t afford it under the G.I. Bill. With his flair for the dramatic and his aggressive salesman’s style, he had dreams of being a celebrated trial lawyer in the Clarence Darrow mold.

Instead, in 1952, he answered a newspaper advertisement and entered Bank of America’s management trainee program. Over the ensuing 23 years, he rose rapidly, from assistant branch manager in Long Beach to head of North American corporate lending in 1975, one of the half-dozen top officers in what was then the nation’s largest bank.

Bank of America’s chief executive that year was A. W. Clausen, the aloof autocrat who ruled the bank during its glory years from 1970 to 1981. Clausen, who was recalled earlier this month to try to lead B of A out of its current problems, was on cordial terms with Pinola, but the two men were not and are not close. There is only two years’ difference in the men’s ages, and in 1975 it was clear that Pinola would not succeed Clausen as president of Bank of America.

Clausen chose a much younger man, Samuel H. Armacost, to succeed him as B of A president and chief executive. Armacost, who at one point during his quick advancement reported to Pinola, was forced out of the B of A job earlier this month in what the bank’s board of directors called an effort to restore stability and profitability.

Although Pinola insists that he did not leave B of A because of thwarted ambitions, he was receptive at the time to repeated offers from Ralph Voss, then chairman of Western Bancorporation, the company now known as First Interstate. Voss needed someone to turn around the company’s lead bank, United California Bank, which today is First Interstate Bank of California.

Fired Many Executives

In early 1976, Pinola made his move to UCB, where he quickly fired a number of top executives and instituted drastic cost-saving measures. Two years later, Voss named him chairman of the parent company, vaulting him over several internal candidates.

Pinola, in a 1978 interview, said he didn’t view his departure from B of A as a step down, even though he would be managing a much smaller loan portfolio. “I just turned right instead of left when I got off the freeway, and I had a nice little $10-billion bank of my own. Besides, Clausen is only two years older than I am.”

Last year, Pinola was paid $919,000. Armacost, who presided over Bank of America’s first money-losing year since the Depression, saw his salary fall 10% to $575,000.

Voss, now retired and living in Portland, said in an interview last week: “UCB had an earning problem, and Joe was able to come in and put some economies into effect and develop a more profitable unit. If he hadn’t done that, he wouldn’t have headed up Western Bancorporation.”

Voss said he believed that Pinola’s effort to buy Bank of America was driven by frustration by the poor performance of a bank for which he retains great affection.

“You have to remember, employees at that time (the mid-1970s) had a loyalty you couldn’t believe to their bank,” Voss said. “Anyone who came up through the B of A organization would simply have a great desire to run the bank he previously was a part of.

“I don’t see any revenge in it at all. He sees the possibility of putting two banks together and making them more profitable.”

Pinola won’t talk about what he’ll do if B of A rejects his offer, as all signs indicate it will. But sources close to First Interstate suggest that he’ll put together a sweetened offer and keep it in reserve, biding his time while B of A struggles to stem its massive losses. If the bank’s problems persist under Clausen, as Pinola expects, the First Interstate offer will look much more attractive to B of A directors and shareholders.

Will Buy Other Banks

Meanwhile, he’ll continue his strategy of bottom-feeding, buying up troubled banks on the cheap and extending First Interstate’s territory at little or no risk. The company made such a move into Oklahoma this summer, getting First National Bank & Trust of Oklahoma City, with its $1.6 billion in assets, for a paltry $72 million. And that was after the Federal Deposit Insurance Corp. assumed $412 million of the Oklahoma bank’s worst loans.

“If we lose a deal, we’ll be on another one 20 minutes later,” Pinola said last week. He said he was looking at a number of ailing Texas bank companies to see if he could pick up another bargain with federal assistance.

But as Pinola pursues his grandiose plans, his subordinates must wrestle with more mundane matters at home. The bank, because it serves a primarily consumer-oriented market through more than 1,000 branches across a huge geographical area, has one of the most expensive delivery systems among major U.S. banks. Its level of bad loans is uncomfortably high. Even though it has relatively little exposure among troubled Third World borrowers such as Mexico, Argentina and Venezuela, it suffers from losses in energy, real estate, agriculture and consumer lending. The bank’s managers are finding it more and more difficult to meet Pinola’s tough profit goals.

And First Interstate still hasn’t defined what kind of a bank it is. Pinola dreams of running a global powerhouse, but the reality today is that he’s got to manage a hodgepodge of smaller banks, many of which are in the economically depressed Rocky Mountain region.

“It’s not quite clear what First Interstate is. Are they a wholesale, retail, individual or corporate bank?” said Anthony M. Frank, chairman of First Nationwide Bank, a major savings institution based in San Francisco. “It’s difficult for me as an outsider to know what it is they want to be when they grow up. I think he’s done a good job with that bank, but the true focus of that bank hasn’t come through.”

Aware of Difficulties

Pinola is aware of the difficulties of competing in multiple markets against specialized opposition. First Interstate’s California bank is in a tough competitive bind, with only 8% of the state’s commercial bank deposits and three formidable rivals--B of A, Wells Fargo and Security Pacific.

He sees the Bank of America deal as the answer to the bank’s problems. It immediately makes the company the biggest bank in California, the leading nationwide network of consumer banks and a major player in international markets.

First Interstate has come a long way in Pinola’s eight years at the helm. And it may be on the verge of catapulting into the very highest ranks of global finance. If only Pinola has time.

A few years ago, Pinola invited the chief executives of First Interstate’s large banks on a cruise up to British Columbia for a three-day planning meeting. In mid-afternoon one day, the meetings broke up and the men clambered into small outboard-motor boats to do some salmon fishing.

“He could only stand that for an hour and a half,” one of his companions recalled. “Just to be sitting in a boat waiting for a fish to bite on the line just about drove him up the wall.”

It’s more Pinola’s style to jump in and bite the fish.