COLUMN ONE : Banking Industry Implodes : Thousands of jobs have vanished in a wave of restructuring.
Louis G. Laughlin’s 21-year banking career came to an abrupt end one Friday afternoon in 1985.
“My whole division was lined up and shot,” said Laughlin, who was earning $70,000 a year as deputy administrator of government relations at Security Pacific Bank at the time he was laid off. “Anybody who wasn’t bringing in revenue was vulnerable.”
Laughlin searched in vain for three years for a comparable job in Southern California. “I tried to market myself as an administrator or an economist, but people would look at my resume and see ‘banker,’ ” the 53-year-old Laughlin said. “In most people’s eyes, that’s not much better than ‘civil servant.’ ”
Laughlin moved to Houston in 1988 after selling his home for more than $400,000 and invested the money in income property. He earns $30,000 a year from rent and a personal-computer consulting business he started. “It’s very catch-as-catch-can, and the benefits are nonexistent,” he said. “I’d much rather be employed.”
Laughlin considers himself “an early victim” of restructuring in the banking industry, a process that began with little fanfare in 1980, when interest rate ceilings on deposits were lifted, but has gained momentum in recent weeks with a wave of megamerger announcements among competing banking companies.
Just last week, the two largest banking companies in the West, San Francisco-based BankAmerica and Security Pacific of Los Angeles, said they would merge. The announcement sent shivers throughout the companies’ combined work force of 93,000--from which 15,000 to 20,000 jobs are likely to be cut--and prompted wags to redub the institution that is slated to disappear “Insecurity Pacific.”
Indeed, when Security Pacific was negotiating a merger with Wells Fargo, whose management is known for its ruthless cost-cutting, the gallows humor at Security Pacific was so thick that a popular joke went: “How many Security Pacific vice presidents does it take to drive the Wells Fargo stagecoach? None.”
Security Pacific is far from the only bank where fear and insecurity are the watchwords. Citicorp, having shrunk its payroll by 5,000, is planning to shed another 10,000 workers by 1993. Chemical Bank’s announced merger with Manufacturers Hanover Trust Co. in New York will cost at least 6,200 jobs and 70 branches. At least that many will disappear in NCNB Corp.’s proposed deal to create a Sunbelt powerhouse called NationsBank through the acquisition of C&S; / Sovran.
Closer to home, Security Pacific already has cut its payroll by 2,900; Wells Fargo eliminated 4,000 jobs and closed 168 branches when it acquired Crocker National five years ago, and First Interstate is retrenching and is expected to be sold.
“The industry is imploding at a rapidly accelerating pace,” said Charles Hinkle, president of the Southwestern Graduate School of Banking at Southern Methodist University in Dallas, whose enrollment is down nearly 40% from a decade ago. “For most of these mergers to work, we’re looking at mass firings, wholesale human sacrifice. . . . The future prospects for bankers are grim.”
So much for the much-vaunted service economy. White-collar service workers are finding themselves every bit as vulnerable to industry upheaval as their blue-collar counterparts. “In a way,” Hinkle said, “the banker is the auto worker or steelworker of the ‘90s.” He noted that wages and benefits make up 60% to 70% of banks’ expenses other than interest, and they remain prime targets for cost-cutters.
The consolidation wave comes against a backdrop of sharply rising loan losses for banks and savings and loans, and the highest number of bank and S & L failures since the Great Depression. Since it was created in 1989, the federal Resolution Trust Corp. has liquidated 75 thrifts and has taken over and sold another 414 ailing institutions to healthier suitors.
In addition, one of every six commercial banks surveyed by Grant Thornton, an accounting firm, expects to be bought out in the next few years, which would reduce the number of commercial banks--already down to 12,250 from 14,000 five years ago--to 10,000 or fewer. Other observers, such as consultant McKinsey & Co., predict that the industry will be dominated by no more than a dozen huge national banking companies within five years.
Banking industry employment is off 260,000 from its 1984 peak, according to the American Bankers Assn. More cutbacks are coming. McKinsey & Co. forecasts that total banking industry employment will shrink by 300,000--to 1.2 million--by 2000, with the pain spread among everyone from tellers and back-office workers to lending officers and top executives.
Steel, which has lost about half of its 560,000 workers since 1978, is only expected to shed another 25,000 employees over the next decade. Motor vehicle employment, down 25% from 1 million workers in 1978, is actually expected to rise.
A more apt comparison may be the airline industry, another service industry that is rapidly consolidating as a result of deregulation. Just as deregulation freed airlines to compete on the basis of price, so too did the lifting of interest rate ceilings that banks could pay to depositors. No longer subsidized by cheap deposits, banks are being forced to pare operating expenses and seek efficiencies through mergers.
Banking has also been hurt by sluggish loan demand as large corporations bypass the middlemen and borrow directly from investors. McKinsey calculates that mergers and employment cutbacks, along with savings on real estate and other expenses, should allow the industry to save a staggering $10 billion a year.
“When you merge two banks in the same market, you don’t need two top human resources executives. You don’t need two top data-processing people. And you certainly don’t need as many computer centers, branches, branch managers and tellers,” said Win Priem, a New York-based managing director of Korn / Ferry International, an executive search firm.
“Although the stock market is applauding these transactions, people tend to ignore the human side,” said Stephen T. McLin, a former BankAmerica executive vice president for strategic planning who is president of America First Financial Corp. in San Francisco.
Some observers predict that the economic impact of so many job losses will be compounded by social consequences. “You have to remember that banking jobs have been important sources of upward mobility for minorities and, especially, for women,” said Samuel M. Ehrenhalt, New York-based regional commissioner of the U.S. Bureau of Labor Statistics.
Ehrenhalt predicted that more than half of the 6,200 jobs to be eliminated by the merger of Chemical Bank and Manufacturers Hanover will be clerical positions. Other observers noted that low-level bank positions such as tellers have such high turnover--typically, around 50% a year--that attrition will account for much of the contraction in their ranks.
“The tellers, the support people, the back-office and data-processing people should be able to find jobs,” said Randall W. Hill, a partner with the Los Angeles office of Heidrick & Struggles, an executive search firm. “They’ll be in demand by other businesses with large transaction volumes.”
Lending officers and middle- and upper-management types will have a much harder time finding work. In many cases, they will go to smaller banks, “which will have access to experience, seasoning and talent they never could have touched before,” Hill said.
The adjustment will be a shock to bankers who grew up in an industry in which job security was the rule, and in which top officers could routinely expect annual bonuses of 50% to 100% of their salaries. “Banks used to be the archetype of the paternalistic employer,” said John Mazzei, an administrator for A-L Associates, an executive search firm in New York.
“Today, it’s every person for him or herself,” Mazzei said. “We’ve all been cast adrift. There is no such thing as security. People in banking--and most other industries for that matter--can’t count on organizations to plan their careers; the individual is now responsible.”
Consider William K. Sacks, 38, whose fast-track career landed him a six-figure compensation package and a “challenging, exciting” job with much overseas travel as chief financial officer of Security Pacific’s merchant banking operation--until the unit was disbanded earlier this year.
“Let’s face it--I want to get back to work. But as long as I’m out of work, I’m going to make the most of it,” Sacks said.
“I can view this negatively, or I can view it as a chance to step off the treadmill and catch my breath. I’m getting to spend more time with my kids. The more time I spend with my family, the more I realize what I was missing.”
Now, he said, he has an opportunity to decide how to spend the rest of his life. In addition to looking for a job, “I’ve got a whole list of potential entrepreneurial ideas,” he said. Some of those ideas involve the bank branches that will become vacant as the industry consolidates.
Indeed, many once-cosseted bank employees are spreading their entrepreneurial wings. Jim Kridel, 50, who lost two banking jobs in five years--one when Crocker National was acquired by Wells Fargo and a second when GlenFed Inc. was forced to shrink to meet capital requirements--is now part-owner of a restaurant near Aspen, Colo. A former Bank of America computer engineer bought a share in a Los Angeles taxi company and drives a cab.
In Portland, former Orbanco Corp. President Joseph H. Johnson, 46, figures the trend toward huge mega-banks has created a market niche for him to open his own bank for small businesses fed up with the impersonal banking giants.
“As the banks have gotten bigger, they’ve created layers of bureaucracy in the credit approval process,” said Johnson, who is trying to raise $10 million from investors to open his bank. “They are good at making standardized, cookie-cutter loans, but not much else.”
Still, for those used to corporate support staffs--and lush employee benefits--entrepreneurship can be a rude awakening. “I’ve had to learn a whole set of new skills, like changing the paper in the fax machine,” said an out-of-work Connecticut banker who is running a consulting business from his home.
For a 40-year-old senior vice president of a Florida bank who will be out of a job in two weeks, the big shocker came when he priced health insurance premiums for himself, his wife and their two children.
“They wanted $430 a month--$5,000 a year!--for the policy we had at the bank, so I shopped around and found a new plan,” he said. “It’s got a very high deductible, but at least we won’t be ruined financially if someone has to go into the hospital.”
“I would consider just about anything at this point,” added the banker, who has been looking for a new job for a year as he helped wind down the loan portfolio of the institution. “I’m making $59,000 a year and I expect to make less when I get another job.”
Charlotte A. Chamberlain, who was unemployed briefly in 1989 after losing her job as executive vice president for strategic planning for the then-shrinking GlenFed, said the best advice she has for people facing the prospect of layoffs is “dust off your resume and your Rolodex.”
For Chamberlain, the change was a fortuitous one. She said she is earning much more money doing consulting and economic analysis for National Economic Research Associates in Los Angeles.
But what worked for Chamberlain--networking--may not be as effective in today’s far-bloodier climate. “The typical kind of networking you’re supposed to do doesn’t work when the ax is about to fall on all your contacts too,” Laughlin said. “Face it: Banking is an industry in convulsions.”
“The first thing I tell my clients facing layoffs is not to panic,” said John Snodgrass, a South Pasadena career adviser. “The next thing I advise them is not to take it personally. A situation like this can be emotionally devastating.”
One of his clients, a vice president at First Interstate Bank of Los Angeles, said the stress level is so high that she might actually welcome a layoff. “Everyone here is just trying to hang on,” she said. “My hope is to get out.”
Shrinking Opportunities After climbing in the early ‘80s, employment in the banking industry began to fall as new technology and mergers began taking a toll. Some forecast banking will be the auto or steel industry of the ‘90s. 1991 Figures are for first quarter only. Sources: American Bankers Assn., Bureau of Labor Statistics; Banking projection by McKinney & Co.
Double Trouble Charge-offs on bad loans tend to double during recessions. For the past three recessions, the problems have been concentrated in 20% of the banking industry. Net Charge-Offs In billions of dollars Source: McKinsey & Co.
