Security Pacific Bank to Close 40 to 60 Branches

Security Pacific National Bank executives said Wednesday that the bank will close 40 to 60 branches across the state over the next three to six months, most of them in Southern California.

Executives of the Los Angeles-based bank said the closings will involve a mixture of layoffs, transfers and not filling jobs as they become vacant. The executives declined to say how many employees will be affected by the closings.

Industry sources said, however, that the average branch in the Security Pacific system employs 14 or 15 people, which means the closings could affect between 560 and 900 of the bank’s 10,000 employees.

Security Pacific is the state’s second-largest bank behind Bank of America, and in Southern California it rivals B of A in the number of customers. Its 600 branches are concentrated in Southern California, which is why officials said the closings will be heaviest in that part of the state.

Some closings have already begun, and Jerry A. Grundhofer, the bank’s head of consumer banking, said in an interview that the task will be completed over the next 90 to 150 days.

The closings follow a trend among California banks to cut operating expenses by reducing the number of branches and consolidating operations in nearby branches. The trick, however, is keeping customers whose accounts are transferred to a new branch.

“We are trying to make this as easy as possible for our customers,” Grundhofer said. “The customer falloff is very small if you handle this smoothly.” The bank will automatically transfer accounts, maintain the same account numbers and give ample advance notice, he said.

Grundhofer and Robert H. Smith, president and chief executive of the bank, said the closings are a key part of the bank’s overall strategy to control expenses and become more efficient.

Security Pacific has closed a few branches and laid off some employees in the last several months. But officials acknowledged that the closings have been accelerated dramatically to improve the bank’s profitability. Problems with Third World loans gave the bank a loss for 1987.

In addition to the branch closings, the bank is moving data processing and other so-called “back shop” operations to central locations to take advantage of cost reductions made possible by $300 million to $400 million spent on new technology in recent years. That process led to about 100 layoffs earlier this year.

The bank is the chief subsidiary of Security Pacific Corp., a Los Angeles-based bank holding company that also operates banks in Oregon, Washington and Arizona and a merchant bank.

Need to Cut Expenses

The holding company has made no secret of its critical need to cut expenses, which have been rising faster than assets. Operating expenses in 1987 were $2.8 billion, up 22% over the previous year, while assets rose only 1%. There was a marked improvement in the first three months of this year, however, as expenses dropped 2.6% from the fourth quarter of 1987.

When it comes to cutting expenses, jobs are often the first and fattest target because costs such as salaries and benefits compose more than half of a bank’s operating expenses.

Word of coming layoffs and closings was passed to Security Pacific managers last Friday in a memo from Smith, who exhorted them to be more cost-conscious and vowed to cap expense growth at 5% for the year. The memo did not contain specific figures for closings or job losses.

As expected, Grundhofer has emerged as point man for cost-cutting, an unpopular task he assumed from Smith after being hired away from Wells Fargo Bank last December.

Grundhofer came to Security Pacific as a vice chairman of the bank, the highest position ever filled by a someone outside the organization. His mandate clearly was to recast Security Pacific’s consumer banking division in the leaner, more profitable image of Wells Fargo, its San Francisco-based rival.

Key Role in Consolidation

Wells Fargo has been praised in the investment community for the efficiency of its merger with Crocker National Bank in May, 1986. Grundhofer played a key role in consolidating branches and reducing staff at Wells Fargo from about 25,000 immediately after the merger to slightly under 20,000 by the end of 1987.

Wells Fargo had 621 branches immediately following the merger. The number was chopped by 107 in 1986 and another 77 last year. Much of the reduction came from consolidating duplicate Wells and Crocker offices, but the bank continues to weed out unprofitable branches.

Total employment at the Security Pacific holding company grew 5% in 1987 to 43,260, with about 10,000 of those employees in the Security Pacific National Bank division.

The other two big California banks, Bank of America and First Interstate, are also engaged in substantial cost-cutting programs.

Bank of America’s parent company cut 1,500 jobs in the first three months of 1988, and the total may reach 5,000 by the end of year. First Interstate announced cost-cutting moves last fall that are expected to trim 1,000 jobs by the end of 1988. So far, about 200 jobs have been eliminated.

Security Pacific officials declined to provide a list of the branches to be closed, but Grundhofer said Security Pacific will not leave a market in Southern California uncovered.

“We are closing branches where we have a larger, stronger branch nearby,” he said.

At the same time, the bank plans to install 200 new automated teller machines in the coming months and will open three new branches--one in northern San Diego County, one in Santa Margarita in southern Orange County and one in Blackhawk in Contra Costa County.

The bank will also expand in Northern California later this year when its $160-million acquisition of San Francisco-based Hibernia Bank, with 34 branches, is completed near the end of July.