AS GERRY B. CAMERON oversees a major overhaul of U.S. Bancorp, he sometimes ponders a nagging question.
"I ask myself, 'Why didn't you do this before? Why didn't you get started on this?'" said the Oregon bank's chief executive. "Well, I can't turn back the clock."
Like many bank chiefs before him, Mr. Cameron is leading a reengineering meant to cut costs, improve efficiency, and boost revenues in order to keep his company competitive -- and independent.
The Portland-based bank has already announced it will cut the work force by 10%, and it took a $100 million charge in the first quarter to cover expenses related to the reengineering. Consultants continue to help evaluate each line of business to see if it fits with the bank's emerging strategic plan.
And while the $21 billion-asset bank is working to shed about $100 million in overhead, executives are investing a huge chunk of that anticipated savings in new technology. For example, the price tag of a sophisticated customer information file and platform now being installed could approach $60 million.
And in February, the bank became the first of three U.S. institutions to offer a PC-based home banking service using financial software developed by Microsoft Corp.
Industry analysts -- and some bank executives -- say Mr. Cameron still faces a formidable challenge. The bank's efficiency ratio, or noninterest expense per dollar of revenue, was 65.75% at yearned 1993 -- considerably higher than at many other regional banks.
What's more, for four years the overhead ratio has been heading in the wrong direction. In the first quarter this year, it jumped to 74.5%.
And juggling cost-cutting with technology spending is made more difficult because there are few easy ways to reap big savings through consolidations of back office operations, as many other banks have done. U.S. Bancorp, for example, has already centralized its data processing and customer service functions.
As if that weren't enough, U.S. Bancorp has been the subject of persistent rumors that it will be acquired. Mr. Cameron declines to talk about the speculation.
To be sure, U.S. Bancorp can point to some solid -- and improving -- numbers. Last year, the return on assets was 1.25%, up from 1.07% in 1992. Earnings jumped 74% to $258 million, a record. And the ratio of problem assets fell from 2.13% to 1.77%.
But some analysts are looking for bolder moves than have been announced. Indeed, the stated aim of the reengineering effort -- to bring the efficiency ratio down to 59% by the end of 1996 -- is modest by industry standards.
"I'd like to see more than this. They are behind the curve," said Andrew O. Brown, a Salomon Brothers analyst in New York, referring to U.S. Bancorp's "Focus 59," the name given to the restructuring.
Though Mr. Brown said the downsizing plans already announced are good as far as they go, he's waiting for U.S. Bancorp to make more aggressive moves, such as selling off a line of business. "A lot of investors are taking a show-me attitude."
And, he added, "My biggest concern is their ability to generate revenue growth."
Others are more sanguine about the bank's prospects. J. Richard Fredericks with Montgomery Securities in San Francisco is one. "You haven't seen all of it yet," he said.
Thomas F. Theurkauf Jr., an analyst with Keefe, Bruyette & Woods in New York, agreed, adding that "U.S. Bancorp in the past has not done a fabulous job of meeting or exceeding goals." He said the 59% goal mostly reflects a desire to build credibility on Wall Street.
And even Salomon Brothers' Mr. Brown said that management is committed to taking the necessary steps to improve earnings growth. "An important question: Is Gerry Cameron a capable enough man to pull them through?" he said. "I think the answer is yes."
Mr. Cameron, a 38-year U.S. Bancorp veteran, is a respected and well-liked figure at the company. He had led U.S. Bancorp's growing Washington State unit and is credited with turning a hodgepodge of acquisitions into a highly profitable operation.
Last year, Mr. Cameron was named chief executive when Roger L. Breezley -- the chairman and CEO who had led the expansion from Oregon into four other states -- decided to divide responsibilities. When Mr. Breezley resigned as chairman, in April of this year, Mr. Cameron took on that role as well.
Mr. Cameron expresses confidence that the target for improved efficiency can be met -- perhaps ahead of schedule.
"If you are at 65.75% at the end of the year and ... 74.5% at the end of the first quarter, 59% probably seems like a long way to go," he said. People tend to disbelieve ambitious targets, he noted. But "probably well before we get to 59%" the bank will have set an even lower number.
U.S. Bancorp hired First Manhattan Consulting Group to assist in the restructuring.
The First Manhattan treatment involves dissecting how every task is completed in the bank to identify ways to do them more efficiently. It also involves looking at lines of business to see how they stack up against those at peer banks. The idea is that if a unit can't compete, it will be sold off.
The bank is in the midst of the process. Mr. Cameron said a lot of decisions remain to be made, such as the number of branches that will be closed and lines of business -- if any -- to be abandoned.
But the bank has already said 1,400 of its 14,000 jobs will be eliminated, mostly through attrition and early-retirement incentives.
And managers are looking everywhere for expenses to shed. "I don't know of any managers who haven't already identified ways that they can make their operations more efficient," said Mr. Cameron. "It's really across the board."
Still, officials say there are no real opportunities to get large savings through back-office consolidations. In 1992, the bank opened a shiny, state-of-the-art, earthquake-proof data processing center in a Portland suburb. A single telephone center handles 85% of calls from five states automatically.
Instead of looking for a few places to save big, U.S. Bancorp executives say they're searching for lots of smaller cuts. For example, the 1993 annual report is half as long as 1992's, for a saving of $100,000.
The bank also eliminated buying title insurance on home equity loans of less than $50,000, saving $750,000 a year. It may also extend the life of automated teller machine and debit cards to reduce mailing and production costs.
U.S. Bancorp had been working on cutting costs even before First Manhattan was brought in. In Oregon, for example, the bank closed about 17 branches in recent years. And in 1993, it sold its corporate trust business in Oregon and Washington to First Bank System Inc., Minneapolis.
While analysts applaud these efforts, some doubt they are enough. Mr. Brown said, "Clearly, this is the right direction -- but plenty more needs to be done."
But Mr. Cameron said much improvement in efficiency will come from enhancing revenue. "There are two sides to the overhead ratio," he noted. "One side is expenses; it is every bit as important to focus on the revenue side."
To build revenue, the bank is turning to technology. "One of the things that [First Manhattan] pointed out to us is that we haven't invested quite as much in information systems as our peer banks," said Mr. Cameron.
To catch up, U.S. Bancorp is installing a key piece of customer information software developed by Electronic Data Systems Corp., Plano, Tex.; Banc One Corp., Columbus, Ohio; and Norwest Corp., Minneapolis.
The software, part of the joint venture's Strategic Banking System, is designed to track customer relationships and measure profitability.
This software, which U.S. Bancorp calls Integrated Client Access Network, or ICAN, is scheduled to be up and running throughout all 438 branches during the third quarter.
U.S. Bancorp executives stress they are buying the customer information file software -- and not the Strategic Banking System deposit software, which has been beset by delays at Banc One.
"The key thing about the EDS customer system is it has an extremely rich set of capabilities, richer than any other customer information systems," said Tim Meier, senior vice president, information systems for U.S. Bancorp. "It's basically going to be the repository for all data about customers and prospects. I emphasize the word all."
He said, for example, the customer software will include the birth dates of customers' children -- not to send greeting cards but to enhance cross-selling opportunities. When a child reaches a given age, the bank can then try to sell him a savings account or a student loan.
The ICAN project also includes an in-house system to prompt customer service representatives to sell products on the basis of the file data. U.S. Bancorp is building a PC-based system using Microsoft's Windows software.
ICAN will also help U.S. Bancorp segment its customer by behavior, not demographic characteristics. According to Jack Irwin, an executive vice president and manager or retail banking, the bank has identified four types of customers: those who want the convenience of ATMs and PC banking, traditionalists who regularly visit branches, value-conscious customers, and the more affluent.
Mr. Meier said the bank is also supporting the new technology with training and incentive pay to create a stronger sales culture.
The total cost for the ICAN project? Officials say it will be at least $50 million -- and maybe as much as $59 million.
"Almost the entire case for ICAN is built upon increasing revenue and retaining customers," said Mr. Meier.
U.S. Bancorp is also looking to boost revenue by creating more convenient ways for customers to do their banking.
"Our real driving force for technology is something we call the five A's: We want any person at any place to be able to get at any data through any device at any time of the day," said Mr. Meier.
In February, the bank began to take consumer loan applications over the phone. Now, officials say, about 27% of those loans are sold that way. Customers can also pay bills by phone.
And the bank's network of 1,130 ATMs was recently upgraded with eight new functions, including printouts of the most recent deposits or ATM transactions.
U.S. Bancorp has also introduced a sophisticated home banking service that runs on Microsoft's Money financial-management software. The service allows customers to pay bills, make banking transactions, and tap into stock quotes electronically from home with a personal computer.
First Chicago Corp. and Michigan National Corp. have also allied themselves with the Microsoft system.
The U.S. Bancorp service, called U-Bank Online, provides a direct link to the bank for customers with PCs and modems. Bill-payment processing services are provided by National Payment Clearinghouse Inc.
Since U-Bank Online was launched in mid-February, U.S. Bancorp has signed up more than 1,500 customers, said Linda Parker, a vice president.
Though that number might seem small, the early results have exceeded the banks expectations, she said. On a recent weekend, there were more than 1,700 online sessions with bank customers.
U.S. Bancorp sees great potential for U-Bank Online. "We believe it is a significant number -- in the range of say, 20,000 [customers] in a three-year period," Mr. Irwin said.
Ms. Parker said the potential market for home banking is higher in the Northwest than elsewhere in the country. In Oregon and Washington, about 40% of homeowners have PCs, compared with about 25% in the rest of the country.
U.S. Bancorp is also awaiting software upgrades from Microsoft. The service will become more attractive when it can do more, Mr. Irwin said. He expects that within a year customers sitting at their PCs will be able to make stock trades through his bank.
"People are going to be able to actively manage money from their home," he said.
But U.S. Bancorp executives say it will be hard to move to more advanced technology while the bank is in a cost-cutting mode.
"I think what I'm saying is: We're going to have a rough year. We're a cost-cutting company, and we're going to have a lot of demands placed on us," said Mr. Meier, the data systems senior vice president.
"We're struggling with that. We really are."
To boost the revenue stream, he said, the bank must spend more on systems. In the last year, the technology staff has increased 15% to 580 people.
"Gerry [Cameron] might disagree," said Mr. Meier. "But in order to fund a number of these cost-cutting initiatives, we're probably going to have to be willing to invest more in technology -- as long as we ensure we get the payback."
For his part, CEO Cameron said some extra technology spending may be necessary, but the payback potential will have to be clear.
How will he manage the re-engineering while investing in new technology? "I am the sponsor?" of Focus 59, he said. "We don't have to go through a lot of debate about what we're going to do. We make a decision and we go on."
Meanwhile, he also has to mind the bank's core businesses. "There are great opportunities to expand in Washington, Nevada, Northern California, and Idaho, too," he said. "We fully expect to expand in and do fill-ins in areas where we are currently not well positioned."
In recent years, U.S. Bancorp moved into Idaho by building new branches, not by acquisition. Although analysts say the booming state is a good market, they saw the de novo growth as too costly.
Mr. Cameron concedes the point. "It's very expensive, and probably not the best way to get into Idaho."
U.S. Bancorp's story is also complicated by rumors that it will be put up for sale. That speculation was fueled by the departure of three top executives in recent months.
Mr. Cameron dismissed the significance of the management changes. He said Mr. Breezley, who had led the bank since 1987, left in part to pursue a passion for auto racing. And Edmund P. Jensen, he noted, left his job as vice chairman to become chief executive of Visa International. "We're singularly proud of him," Mr. Cameron said.
He noted that Kevin R. Kelly, the former president, had made "no secret of the fact that he would like to do something else." Mr. Kelly had spoken publicly about his restlessness at the company.
Furthermore, Mr. Cameron noted, there remain a number of executives with long tenures at the bank.
He also recently recruited Robert D. Sznewajs from his job as chief of Bank of America's credit card group. "He brings great experience to us," said Mr. Cameron.
Mr. Sznewajs will be responsible for credit cards, the mortgage company, corporate planning, and information systems, among other things.
Despite the takeover talk, analysts say that U.S. Bancorp's moves to restructure and invest in technology are not those of an institution about to be put up for sale.
"I think this puts a lot of [the talk] to rest," said Mr. Fredericks, the Montgomery Securities analyst.
And from where he sits, Mr. Cameron said, morale at the bank seems high.
"The people here understand why we have to do this," he said. They can see that the bank can't operate with a high efficiency ratio "and remain an independent organization."
As for the 1996 target for 59% efficiency, "I'd really like to see us there sooner," he said.
"I know it's not possible to do it overnight. But I hope very much we won't disappoint anyone."
