Wells Fargo Veteran Back to Challenge State’s Giants
Ten years ago, John F. “Jack” Grundhofer was one of California’s most prominent bankers, but he packed his bags when it became clear he’d been passed over for the top job at Wells Fargo Bank. The Los Angeles native moved to frosty Minnesota in the middle of winter to take command of a smaller, ailing bank.
But ever since, the hyper-competitive Grundhofer has been fighting to get back home.
He made an unsuccessful bid for Los Angeles-based First Interstate Bancorp in 1995. Three years later he tried to buy San Francisco-based Wells Fargo but was rebuffed.
Now, undeterred, the 61-year-old chairman of Minneapolis-based U.S. Bancorp is gobbling up small California institutions in a bid to cobble together a third major franchise to take on the state’s leaders, Bank of America and Wells Fargo.
In the last six months, Grundhofer has bought two San Diego banks--Bank of Commerce and Peninsula Bank--and Newport Beach-based Western Bancorp, which operates Santa Monica Bank and Southern California Bank. The purchases boosted U.S. Bancorp’s deposits in California to nearly $6 billion and catapulted it from the state’s 13th-biggest bank to No. 6.
“This is a bit like a homecoming for me,” Grundhofer said in a recent interview, during one of his increasingly frequent California trips to schmooze with potential customers, oversee branch integration and reestablish old business ties.
A 30-year banking veteran, Grundhofer is respected and feared as a persistent, scrappy businessman who has been toughened by personal tragedies, including his kidnapping and his daughter’s near-fatal shooting. He began his career as a repo man at Union Bank, but hopped on the management track after an angry car owner shot at him.
His California gambit has not gone undetected by the state’s top banks, especially not by his former colleagues at Wells Fargo.
At a recent Wells Fargo management meeting in Southern California, Grundhofer was declared one of the bank’s top enemies. Executives worry he will poach their employees and lure away high-end customers. A slide-show presentation jokingly depicted him as the red-eyed Darth Maul from “Star Wars: Episode I The Phantom Menace.”
Upon hearing this, Grundhofer laughed heartily: “Really? I’m flattered. I didn’t realize I was that big of a threat.”
But such modesty falls a bit flat for a man who is known for his strong competitive streak and a confidence bordering on cockiness. Aggressive and blunt, his fondness for salty language once led an observer to quip: “He’s the only guy I know who can parse the f-word.”
Friends say Grundhofer is the kind of guy who will push his hunting partner out of the way to get a better shot and who insists on driving the golf cart and keeping score.
“He’s a pretty crappy golfer, but he always wins,” said Matthew Wagner, a former U.S. Bancorp executive who later ran Western Bancorp until it was bought by Grundhofer last year. “I’m not saying he cheats, but he’s creative.”
Grundhofer admitted his competitive nature can sometimes get the best of him. He said he had to give up skiing after showing off in Aspen one day, which ended with him being carried down from the advanced run by the ski patrol.
Minnesotans and the media dubbed him “Jack the Ripper” after he slashed thousands of jobs upon taking the helm at ailing Minneapolis-based First Bank Systems. The strong medicine worked and the bank not only recovered, it bought Portland, Ore.-based U.S. Bancorp in 1997, took its name and grew into the 12th-biggest U.S. bank.
But the nickname has continued to haunt him. “I’ll never be able to shake that, no matter how many jobs I create or how much money I give to the community,” he said. “It’s very offensive to me.”
Still, he said, a string of personal challenges has enabled him to develop a tougher skin and resilience for such criticism.
In late 1990, his college-aged daughter Karen was shot seven times by a man who randomly opened fire in a Berkeley hotel bar. Barely six weeks later, Grundhofer was kidnapped on his way to work by a man demanding money. Taken at gunpoint from the parking garage of his bank, Grundhofer was driven to the woods and left tied up. He said he untied himself and escaped to a nearby farmhouse. Grundhofer identified a suspect, but the man was never charged.
Today, Grundhofer says the incidents have given him a new perspective on life.
“People tell me I have nine lives and I’ve used up six,” he said. “I’ve lived through too many ups and downs in my life to let anyone or anything get to me. I didn’t survive a kidnapping, my daughter’s shooting . . . and a lot of other things in life by being a quitter.”
He says it took two years of therapy to resolve his security fears after the kidnapping. Today, he and his wife, Beverly, both carry guns, and Grundhofer travels with a bodyguard almost everywhere he goes. “Armed,” he adds.
Grundhofer’s long, often-frustrating attempt to build a California franchise is well-known in the industry. Through his repeated attempts to break back into California, he has remained a powerful--if less recognized--force in the state’s banking industry.
Besides his two ill-fated efforts to buy large California banks, Grundhofer has openly pined after mid-sized California banks such as San Francisco-based Union Bank of California, Los Angeles-based Sanwa Bank of California and Beverly Hills-based City National Bank. He says none have expressed an interest in selling, at least not right now.
In the meantime, Grundhofer’s U.S. Bancorp has quietly bought small stakes in several California banks, including City National and Los Angeles-based Imperial Bancorp, which could make future acquisitions of those institutions cheaper. If Grundhofer pulls off his California dream of becoming a top-ranked California bank, it could become his crowning career accomplishment, analysts say.
“That would really put him on the map,” said Bert Ely, a longtime banking industry consultant and president of Alexandria, Va.-based Ely & Co.
He has a long way to go. The recent deals put the U.S. Bancorp logo on about 140 branches statewide, with total deposits of about $5.8 billion. That doesn’t even rank U.S. Bancorp among California’s top five banks, and it is far behind rivals Bank of America, with $96 billion in California deposits, and Wells Fargo, with $55 billion.
And recently, a new wrinkle developed that threatens to delay, and possibly derail, Grundhofer’s expansion plans in California.
After announcing last month that U.S. Bancorp’s fourth-quarter earnings would miss its mark, the company’s stock lost about a third of its value and has not bounced back. It closed Friday at $21, down $1.13, on the New York Stock Exchange.
The lower stock price has deprived Grundhofer of the currency he needs--U.S. Bancorp shares--to buy banks and build his California franchise.
“This has caught him at an awkward point,” Ely said. “He has to grow the franchise to improve his operating efficiencies in the state, but now that’s harder. . . . It’s going to be a challenge.”
Indeed, Wall Street has grown increasingly impatient with the indigestion suffered by many U.S. banks after an unprecedented wave of consolidation. Heads have rolled in the executive suites of some large players. There are industry rumors that with U.S. Bancorp’s recent problems, it may be acquired, possibly by Milwaukee-based Firstar Bank, which is run by Grundhofer’s younger brother, Jerry.
Jack Grundhofer sees no reason to worry. He blames the market for overreacting to his bank’s earnings shortfall, which was attributed to sagging deposit levels and a need to reinvest income in new technology.
Analysts say Grundhofer will need to hold off on acquisitions and get the bank back on track during the next six months. But even with the recent stumble, U.S. Bancorp still outperforms the industry, with a higher return on equity and return on assets than comparable banks.
“It’s almost as if U.S. Bancorp is held to a higher standard,” said Diana Yates, analyst at A.G. Edwards in St. Louis. “Grundhofer has done so well in the past that we’ve come to expect more.”
If Grundhofer can restore his bank’s stock price, most are confident he’ll be back shopping in California. Grundhofer confirms he’s not finished.
“We are interested in all parts of California,” he said. “Anyplace we’re not, we want to be.”
Even before the recent acquisitions, U.S. Bancorp had a sizable business in California, primarily thanks to Grundhofer’s old ties from his days as a corporate lender in Southern California. “He’s pretty attuned to the California market,” said former First Interstate Chairman William Siart, now chairman of fund-raising for L.A.'s proposed Disney Concert Hall. “Those contacts don’t go away.”
In 1993, billionaire Orange County developer Donald Bren turned to Grundhofer when putting together a board for his real estate investment trust. Los Angeles Mayor Richard Riordan stood shoulder-to-shoulder with Grundhofer to support Grundhofer’s ill-fated bid for First Interstate.
Grundhofer probably won’t be able to match the giant consumer banking business of BofA or Wells Fargo, but analysts say he could elbow his way into more-profitable business lines, such as corporate lending and private banking for wealthy clients.
Why is Grundhofer so keen on California?
There are the obvious personal ties. Born in downtown Los Angeles on New Year’s Day 1939, Grundhofer is California to the core. His parents were working class--his father tended bar, his mother cleaned houses. As a teenager, Grundhofer rode the old Red Car line from his Glendale home to Loyola High School, west of downtown L.A.
Grundhofer keeps two homes in California, one in Indian Wells near Palm Springs, and another along the coast south of Santa Barbara. His wife spends most of the winter in California, and Grundhofer tries to visit three weekends each month.
When he steps down from U.S. Bancorp (which he says he will do in four years when he reaches mandatory retirement age), California will be the place he calls home.
“I miss the sun,” he said.
Observers have speculated that Grundhofer’s California ambitions stem from a desire to relocate his headquarters to the sunny state or are partly driven by a desire to show up old rivals, particularly Wells Fargo Chairman Paul Hazen, who got the top job Grundhofer once wanted so badly.
The rivalry between Grundhofer and Hazen--who met in the 1970s as management trainees at Union Bank--is classic. At Union and Wells Fargo, Grundhofer and Hazen mentored under Carl Reichardt, the legendary California banker known for his tough business style, streamlining techniques and devotion to the bottom line. Grundhofer hoped to succeed Reichardt, but Reichardt settled on Hazen instead.
In 1995, Hazen and Grundhofer clashed again during the tug-of-war for First Interstate. Hazen won and Wells Fargo bought First Interstate. But in the end, Hazen wasn’t able to deliver the promised savings, and integration foul-ups drove thousands of customers away.
Three years later, Grundhofer returned for another round, prowling around a weakened Wells Fargo. Hazen promptly sold the bank to Norwest Corp., a Minneapolis rival of U.S. Bancorp.
Of his relationship with Hazen, Grundhofer says he holds no grudges and considers Hazen an acquaintance, though not a friend. “Look,” he said, “Paul and I are different, but there’s no big rivalry. I’ve known Paul for 30 years. We’ve all grown a lot. He’s a tough guy. A survivor. I have a lot of admiration for him.”
Hazen, through a spokeswoman, declined to comment.
Grundhofer insists his pursuit of California is strictly business.
“This market is growing faster than any other market we have,” he said, citing California’s strong economic growth, low unemployment and giant deposit base. “The market in California is larger than all of our other 15 states combined. That’s the economics. It’s not my personal bias. It’s the opportunity here.”
Consolidation has left California with only two giant banks, and Grundhofer says he believes there is room for another large competitor. Already, the state is U.S. Bancorp’s fourth-largest market in terms of deposits.
Colleagues such as Wagner say they wouldn’t bet against Grundhofer, or his California expansion.
Wagner got an unexpected reminder recently in how influential his old boss still is in Southern California while applying to join the Bel Air Country Club. Wagner had to submit his resume and appear before a membership committee.
“When they saw that I had worked at U.S. Bancorp, two-thirds of the questions I got were about Jack Grundhofer,” Wagner recalled. “Here, this guy has been gone for 10 years and these people are still saying, ‘You worked for Jack? Oh, you must be OK.’ ”
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John F. “Jack” Grundhofer
* Born: Jan. 1, 1939, in Los Angeles
* Home: Minneapolis
* Education: Bachelor of arts degree, Loyola Marymount University; master’s in business administration, USC
* Current position: Chairman, U.S. Bancorp
* Family: Wife, Beverly; two daughters; two grandchildren
* Hobbies: Bird hunting, fly-fishing, golf
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U.S. Bancorp at a Glance
* Headquarters: Minneapolis
* Leadership: John F. “Jack” Grundhofer, chairman; Philip C. Heasley, president; Richard A. Zona and Gary T. Duim, vice chairmen
* Business: Consumer banking, trust services and private banking; investment services through U.S. Bancorp Piper Jaffray.
* 1999 assets: $82 billion
* Rank: 12th-largest U.S. bank
* 1999 profit: $1.5 billion
* Market: Operates in 16 Midwestern and Western states.
* California holdings: 140 branches, Los Angeles-based U.S. Bancorp Libra (an investment bank).