Major Cutbacks, Layoffs Planned at 1st Interstate : Effort to ‘Trim Fat’ Will Include Closing of Some Branches in Several States
First Interstate executives disclosed Thursday that the Los Angeles banking company plans substantial layoffs and other cutbacks that could reduce costs by up to $200 million a year.
The cost cutting will include widespread layoffs among the company’s 38,000 employees and some branch closings in 13 states. Two executives said internal discussions have placed the layoffs as high as 10% of the work force, which includes about 10,000 people in California.
Joseph J. Pinola, chairman and chief executive of the nation’s eighth-largest bank holding company, acknowledged in a telephone interview that every manager in the company has been instructed to come up with a list of potential cuts.
“We are sitting down and saying, ‘Let’s get the fat out of our system,’ ” Pinola said. “We’re doing what every bank in America is doing right now. We have asked every one of our chief executives to look at his or her own posture in the current economic environment.”
Second Big Bank to Cut Back
Pinola refused to estimate how deep the cuts will go, but he said the figures of $200 million in savings and 10% in layoffs were “off base.”
“There is no set number,” he said. “Ten percent would be too big a bite. But we are not doing it in a meaningless way. And absolutely nothing is sacred.”
He said the final details will not be ready for about a month and that he hopes to begin implementing the cost-saving measures in the third quarter and to complete them before the end of the year.
First Interstate is the second big Los Angeles banking company to unveil widespread cost-cutting measures. Security Pacific National Bank executives said in April that they would close 40 to 60 branches across California in the coming months.
Richard A. Warner, an executive vice president at Security Pacific, said Thursday that 50 branches have been closed so far in 1988 and that five to 15 additional closings are expected in the coming weeks. Warner declined to say how many jobs have been cut, but industry averages would indicate that at least 700 employees have been affected.
Many of the nation’s big banks have been cutting costs, but the California institutions are under extra pressure because of the approaching onset of full interstate banking here.
In 1991, banks from outside California, led by the big East Coast institutions, will be able to compete directly in the state. Some of the out-of-state banks are also expected to attempt to acquire California banks. By improving their financial condition, First Interstate and Security Pacific hope to be able to compete effectively and stave off unfriendly takeover attempts in 1991.
First Interstate’s management is also sharply focused on increasing the returns of the company in order to boost its stock price. The shares have lagged in value partly because of difficulties in controlling expenses at the far-flung company, which lost $556 million in 1987.
Most Cuts Will Be Layoffs
The bank’s stock closed at $50.75 Thursday on the New York Stock Exchange, an increase over its $47 price at the end of last year but still well below the $60-a-share target set by Pinola and the board of directors.
Last fall, First Interstate put about $6 billion worth of assets on the block in an aggressive attempt to get rid of units that were losing money or were only marginally profitable. Its government securities trading unit was sold earlier this year and 300 jobs were transferred to the new owners. The company has been unable to sell its money-losing mortgage banking operation, which has about 700 employees.
The new round of cutbacks will be different, however, because the company plans to actually eliminate jobs, not transfer them to someone else by selling units.
While a number of branch closings is likely, one executive said, the cuts will be heaviest in layoffs. “People are the fastest way to cut overhead,” said the executive, who asked that his name not be used.
First Interstate owns 22 banks with 1,100 branches in 13 Western states, which gives it the greatest geographic reach of any American banking company. In addition, the company has a roughly equal number of subsidiaries, such as its merchant banking and credit card operations.
The chief executive of each subsidiary has been instructed to find ways to trim costs by making their operations more efficient. The subsidiaries will be judged against the most efficient operations within the banking system.
For instance, if one of First Interstate’s banks operates with only 10 auditors and another of roughly equal size has 20 auditors, the executive for the fatter unit will have to justify the extra staff or cut it back, one executive said.
The chief executives are reporting directly to Edward M. Carson, president of the holding company, and two other executives. They will make the final recommendations on where to make the cuts.
The process began earlier in the year, with an analysis of bank operations by outside consulting firms. Simon Barker-Benfield, the bank’s chief spokesman, said the cutbacks are not related to the fire at First Interstate headquarters in May.
Pinola said the cuts will be concentrated on banks where opportunities for profits and growth are weak. The company’s most successful banks are in California, Oregon, Washington, Nevada and Arizona.
“Why would you cut where things are going well?” asked Pinola, who said a series of economic factors motivated the cost cutting, including the potential for a nationwide recession, increased competition within and from outside the banking industry and the failure of Congress to grant new powers to banking companies.
“This is a very hostile Congress, which has absolutely refused to give us new powers to make some additional money,” he said.
Congress has been unable to pass legislation sought by the nation’s banks that would allow them to move into the securities arena.
