BankAmerica Corp., taking a hard look at underperforming units, is weighing a sharp reduction of its European operations, according to well-placed sources.
The $234-billion asset company is also considering cutbacks in its Texas branch network, and may sell or spin off a mobile home lending unit, the sources said.
The moves, which could affect more than 3,500 employees, show how new chairman David A. Coulter is starting to put his mark on the company. Mr. Coulter, who became chief executive on Jan 1. and chairman last Month, is reviewing units throughout the company, with an eye to pruning.
Analysts are applauding the effort.
"These guys are just relentless in their pursuit of greater shareholder value through more effective capital management," said Morgan Stanley analyst Arthur P. Soter.
The review of the Europe, Middle East, and Africa division will take "several months," bank spokesman James Mitchell said. Sources said it is almost a foregone conclusion that the unit's operations will be drastically shrunk.
The division is one of the bank's biggest underperformers. It had assets of $20.5 billion at yearend, but full-year profits of only $119 million. Its return on assets are a thin 0.58%, well below the corporatewide 1.17%.
The division employs 2,500 and has offices in 12 European countries, as well as Dubai, Pakistan, and South Africa. It is a combination of overseas operations acquired along with Continental Bank Corp. and Security Pacific Corp., and those that BankAmerica already owned.
The company enjoys strong positions in some European wholesale markets, observers say. They cite its government securities dealing operations in Spain, Italy, and Greece, its London foreign exchange trading desk, and in its pan-European cash management capabilities.
But Bank America is said to be an also-ran in lending to European-based companies. This market is dominated by local banks, which have close historical and equity ties to local companies, and which accept much lower margins than American banks.
As a result, sources said they expect BankAmerica to exit or greatly reduce lending in industrialized Europe, and to emphasize other businesses instead. Bear, Stearns & Co. analyst Lawrence Vitale predicted a reduction in the division's assets of $5 billion to $10 billion, and also a substantial reduction in BankAmerica's network of European offices.
Mr. Soter said he believes that BankAmerica could cut as much as $500 million of its estimated $1 billion of equity capital in the unit.
Mr. Soter said he also expects BankAmerica will sell or close 60 of its nearly 250 branches in its underperforming Texas subsidiary, and to sell its underperforming subsidiary in Hawaii. If it makes these changes, Mr. Soter said BofA's growth in earnings per share during the next three years could increase from the 12% annual average he now expects, to 15%.
Kai S. Nargolwala, who resigned last year as head of BankAmerica's Asian wholesale operations, said he expects much of the capital freed up in Europe to be reinvested in Asia, which Mr. Coulter has singled out as an area of great strategic importance.
Separately, the company is said to be scrutinizing its San Diego-based mobile home lending unit, a major player in the field. The goal of this review is to make sure the value of the unit is reflected in BankAmerica's stock, according to a senior executive of the parent company.
The unit, which BankAmerica inherited when it acquired Security Pacific in 1992, has been a growth machine, more than doubling in size since the merger, to a $6 billion loan portfolio, with servicing of another $2 billion.
It has 38 offices and works through mobile home dealers to originate about 21% of all mobile home loans made nationwide. It is the No. 2 mobile home lender after Green Tree Financial of St. Paul.
The BankAmerica executive said the company is considering selling the unit or spinning it off to shareholders. But one industry source, who said he would like to buy the unit, said he was told by BankAmerica that a sale is unlikely. Instead, he expects the mobile home unit to be restructured to boost profits and reduce portfolio risk, with increased loan securitizations a likely result.
