It's hard to find a bank chief these days who isn't talking incessantly about how they are leading the revolution to push a sales culture into their mausoleum--like branch offices.
But it's rare to find a bank that would hire as head of retail banking, a computer industry sales executive with next to no experience in banking.
Look no further than Magna Group Inc. The $4.3 billion-asset bank holding company based in Brentwood, Mo., a St. Louis suburb, recently named Linda K. Fabel executive vice president for retail banking. Ms. Fabel, a 25-year veteran of International Business Machines Corp., has fewer than three years of banking experience under her belt. She joined Magna in 1992 as executive vice president for management information systems.
The bank's top executives concede it's an unusual move -- but say Ms. Fabel is an excellent match for Magna. William S. Badgley, chairman and chief executive, noted her accomplishments as head of operations at the bank. G. Thomas Andes, president and chief operating officer, said her IBM sales and management experience fit well with the requirements of her new job. Gary D. Hemmer, the executive vice president who handles acquisitions and strategic planning, credits her with quickly overseeing the implementation of a platform automation system, a project the bank had been unable to finish for three years before she came on board.
The promotion of Ms. Fabel is just one of the changes in Magna's top management. Mr. Andes is scheduled to take the CEO reins from Mr. Badgley, who will retire at the end of the year. Mr. Badgley, who has been with the company since it was a one-office bank with $25 million of assets, has been CEO since 1968. (He will remain chairman through the end of 1995.) Magna also has a new chief financial officer, Lucky Maynard, and a new head of management information systems, Robert M. Olson Jr.
The new management team comes in at a time when Magna is beginning to refocus on improving its earnings growth. Managers say they have been devoting much of their energies toward absorbing the 1991 acquisition of troubled Landmark Bancshares. That deal doubled Magna's size and gave the bank a strong presence in the Missouri side of the St. Louis metropolitan area -- but brought with it a large portfolio of bad assets.
But with the ratio of nonperforming assets at 1.79% for the first six months of this year, down from an abysmal 5.03% following the merger, along with the $20 million in costs already carved out, Magna's top managers are looking to rejigger the bank's culture more toward selling to its consumer and small business customers. The bank also wants to spiff up the branch network, and gain further efficiencies in its back office through automation. And as part of its plan to boost fee income, the bank acquired a brokerage firm, MGI Group Inc., at the end of last year. The firm, which previously had marketing ties with Magna, will continue to sell investment products through bank branches.
Magna's goals -- and the bank's acquisition strategy -- are geared toward building on the so-called supercommunity bank model, which involves offering the high level of customer service associated with small banks while gaining the back-office efficiencies of larger institutions.
Magna executives concede they have a lot of work ahead of them. The bank's return on average assets has long trailed the figures posted by peer banks. By yearend 1993, the ratio stood at 1.02%, the first time it topped 1.00% in years. For the first six months of this year, the ROA dipped to 0.96%.
Mr. Andes also highlighted the need to reduce the efficiency ratio, which has been on a downward trend, but has crept up periodically. The ratio of noninterest expense per dollar of revenue was 69.75% for the first six months of 1994, up from 67.98% at yearend 1993.
Mr. Andes noted that in 1993, "We saw our net interest income being impacted because the loan demand was not there. That caused our efficiency ratio to level out."
Mr. Badgley added that the frequency of acquisitions has also adversely impacted the ratio. Magna has grown by buying up community banks in Illinois. Already this year, Magna has bought two small institutions and a third acquisition is pending.
Mr. Andes said they hope the efficiency ratio will reach 60% by the end of next year but added that time frame may be too optimistic. "It's going to depend. We think that as a bank we have to see a greater percentage of our revenue come from non-interest income sources."
"That is probably the greatest opportunity," Mr. Badgley agreed. "Because we really beat the heck out of the expense side."
Analysts agree. Matthew Firm of Burns, Pauli & Co., St. Louis, estimated that Magna has already wrung out about the vast majority of overhead savings to be found.
Frank R. DeSantis Jr., an analyst with Donaldson, Lufkin & Jenrette Securities Corp. in New York, said management knows that "the easy way to remain independent is to improve the performance of the shop."
Independence is always an issue these days for banks with an improving balance sheet but lackluster earnings.
Mr. DeSantis noted that Magna's stock price is trading at about 150% of book value, reflecting "a certain amount of takeover speculation."
But until federal interstate banking laws are changed, the bank will continue to enjoy the protection of a Missouri headquarters. The state allows its banks to be bought only by institutions based in bordering states. Magna moved its headquarters from Belleville, Ill., to Landmark's Brentwood office tower after the merger.
But despite the looming prospect of interstate banking, Mr. DeSantis said he does not expect Magna to be bought any time soon.
Beyond takeover speculation, Mr. DeSantis said that Magna executives "understand the battle" related to improving earnings. But he added that developing a new sales culture and becoming more centrally managed are "uncharted waters" for Magna.
Ms. Fabel is expected to be a key player in navigating those waters. She is pursuing a three-pronged strategy for the network of 105 branches that involves training to refocus personnel to sell bank products, changing how they are paid, and sprucing up branch offices.
And although Magna closed three or four branches over each of the past three years, the bank plans to expand the number of supermarket offices, which officials say do brisk business.
Mr. Finn, the Burns, Pauli analyst, said "I think Linda is going to do well on the branch side. It's a fresh approach."
Mr. DeSantis agreed, noting that the responsibility for the lending side of the business will remain with Daniel W. Jasper, an executive vice president with a long tenure in banking.
Ms. Fabel said that Magna will be conducting classes for customer service representatives to learn the art of selling to the point where they "earn the right to ask [customers] about their most secret financial needs."
She concedes that some of the branch personnel will have to be replaced. "Some of the people will not be able to do the kinds of things that are necessary to engage a customer in the kind of conversation that allows us to reach our strategic goals," said Ms. Fabel.
One way to motivate employees to sell more is to alter the way they are paid. She said the bank plans to cut customer service representatives' salaries by 15%. "If you make 100% of your objectives, you make 100% of your assigned earnings," she said. "If you overachieve your objectives, you can obviously overachieve assigned earnings."
Ms. Fabel is talking about selling up the kind of aggressive sales organization for which IBM became famous. In her nearly quarter century at that company, she prospected for customers, was a sales school instructor, a branch manager, and a regional manager. Her most recent position before joining Magna was as manager of IBM's regional office in St Louis, which had about $1 billion in sales.
"The objectives, obviously, were to achieve revenue targets every year, managing to an expense line, managing to a cost line, delivering to 100% customer satisfaction," she said. "So a lot of what I'm telling you about things we are implementing at Magna are things we have successfully done through the years."
Ms. Fabel also plans to redesign branches to make them more inviting to customers, and more geared to selling. She envisions relocating teller lines so that bank customers will have to pass a kind of gauntlet of sales people before they can make a deposit
"Let's assume you make it to the teller line and you've been there for a few minutes. Somebody will approach you and ask if they can help you if you have a noncash transaction," she said. "If you do, you'll be taken over to a desk in which they will handle that transaction for you and engage you in additional conversation."
She said Magna is planning a pilot for these new initiatives for October.
Ms. Fabel's efforts are to be supported in the back office with technology. The company has already installed a new 24-hour automated voice-response system that handles customer inquiries. A bank study in Illinois found the new system saved $600,000 in personnel costs.
And she herself was instrumental in planning the implementation of platform automation, which has been up and running for about a year.
"In Linda's short tenure, we got the project rolled out in a 12-month period," said Mr. Hemmer. "And we really wrestled with that for a three year period prior to that"
Ms. Fabel is also credited with improving the quality of back-office work during her time as head of operations. The number of error-free statements increased from 93% to 99.99%. The number of proof-of-deposit errors were similarly slashed.
"During my reign in the information systems area, we did a tremendous amount of work on teaching people what it means to deliver 100% customer satisfaction," she said. "I would always tell them, 'Imagine, tomorrow you could be outsourced. If you're not doing the job better than an outsourcer, then you deserve to be outsourced.'"
Executives concede, however, they are still behind on technology. "I agree we're got to play catch-up," said Mr. Badgley. "But somehow you've got to get yourself up in the wave."
Mr. Andes noted that "We don't have a customer information file from a management standpoint that we are comfortable with."
The new head of information systems, Mr. Olson, is a Security Pacific Corp. veteran who most recently has been a consultant with J.D. Carreker & Associates Inc. in Dallas. By early 1995, he'll be working in a new data processing center Magna is building in Illinois, across the Mississippi River from St. Louis. Some 17 functions are to be consolidated into the new location.
Up until this point in time," he said, "we have been unable to take advantage of having everybody in one place, and having a state-of-the-art facility provides for some of those things."
Mr. Andes said that the new center is expected to reduce overhead by $400,000 when all factors are considered.
This year, Magna's non-operational technology budget is $8 million, up from $6 million last year.
"I would expect that our budget will [still] be heading north in 1995," Mr. Olson said.
Mr. Olson is also in the process of hammering out a technology blue-print to support the bank's five-year strategic plan.
Among the steps being considered are automating signature cards and buying additional hardware, such as check reader-sorters and reject equipment.
"Are we going to fundamentally apply a brand new technology that we go in the door with? No. Are we going to be enhancing the systems and adding some of the peripheral devices? Yes," Mr. Olson said.
Mr. Olson is also looking at ways to reengineer back-office processes to gain efficiencies.
The bank expects to gain a good deal of improvement through technology in the loan area. The bank has been rolling out a document preparation system from CFI ProServices Inc., Portland, Ore., said Mr. Jasper, head of credit administration.
The company is also using new systems to speed up the turnaround time for its indirect auto lending, an area the bank has been aggressively been promoting for two years. The effort has shown some success: last year the loan volume increased by nearly $60 million dollars.
"Technology is one of the reasons we hired Linda Fabel and Bob Olson," said Mr. Badgley. "We think that the banks that are ahead on technology are the most profitable banks, and the banks that are going to survive." At a Glance MAGNA GROUP INC. Headquarters Brentwood, MO.Assets $4.3 billionEmployees 2,451Return on average assets 1994 0.96%* 1993 1.02%Efficiency ratio 1994 69.75%* 1993 67.98% 1992 68.23% 1991 67.17%* Six months ended June 30.
