As banks nationwide grope for ways to clear the revenue wall, SunTrust Banks Inc. thinks it has found the answer: its very own "Growth Project."
Its three-year plan to boost revenues contradicts the conventional wisdom on Wall Street, where some analysts have been arguing that Atlanta- based SunTrust would be better off joining the current wave of consolidations.
These critics say the best thing SunTrust could do would be to merge with Wachovia Corp.
Combining the two southeastern bank companies, they insist, would mean $300 million in cost savings and unite two of the best franchises in the region.
But in a move that may become a model for banks across the country, particularly those that prize their independence, SunTrust in late 1994 designed a strategy to bolster revenues in six critical business lines.
The SunTrust plan is similar to reengineering efforts at many other U.S. banks, which involve streamlining branch delivery systems and upgrading technology. But SunTrust does it with its own conservative southern twist.
By the time the project is completed in 1997, the bank expects to have hired up to 1,500 employees, 5% of current staff, although total employment should remain stable because of cost cutting in back-office functions.
SunTrust executives are reluctant to release financial targets for the project but have told analysts to expect substantially improved growth rates in some of the six business lines by 1998.
If all goes well, SunTrust may have an easier time fending off pressure to merge with Wachovia, a deal both companies have been resisting because of the heavy job losses that would result and their clashing corporate cultures.
"SunTrust doesn't need to merge with Wachovia in order to have strong earnings growth," says Lehman Brothers analyst Michael L. Mayo. "The merger is clearly an option, but another option is to grow revenues internally - as they're doing now. That is the single most important project SunTrust is undertaking."
The Growth Project has been mostly invisible to outsiders so far. A surge in personnel expense (up 9%) became noticeable in the fourth quarter, but revenue gains won't materialize until 1997 or later this year, at the earliest.
The project's most high-profile initiative is the installation of branches in Publix supermarkets in Atlanta, a radical move for a company that had previously rejected the supermarket banking concept. The first of the in-store branches will open this spring.
"The early ramp-up is honestly slower than I, or anybody else, would like," says SunTrust president L. Phillip Humann. "By the same token, we're going to do this right, and we're going to take whatever time it takes to do this right."
The latter comment is typical both of Mr. Humann and of the conservative SunTrust corporate culture. A career employee of 26 years, Mr. Humann, 50, is considered the heir apparent to chairman and CEO James B. Williams, 62.
Mr. Humann has also been guiding the Growth Project from the beginning. He says it was designed to cope with a loss of momentum, both internally and externally.
SunTrust finished 1995 with record earnings. But skillful financial engineering can be credited for that performance, particularly stock buybacks, tight expense control, and a lower tax rate compared to 1994. The bank's rate of revenue growth, 2.7% in 1995, has actually fallen from the early 1990s, reflecting an inability to develop new lines of business. Revenue growth peaked for the decade at 11.4% in 1992.
Externally, the problem was SunTrust's refusal to undertake a dilutive acquisition, which kept it out of the merger game. "We didn't think the external situation was going to change, so we decided internal growth was the way to keep the bottom line moving in the right direction," Mr. Humann says.
With assistance from consultants at McKinsey & Co., SunTrust's senior managers put together a plan to strengthen the company in trust and investment, credit cards, residential mortgages, small and midsize businesses, large corporations, and retail. The company has invested in personnel and technology for each of these six areas since the middle of last year.
The investment was long overdue. Among its key findings, the study team concluded that SunTrust had fallen behind competitors in terms of manpower and sales management technology allocated to the six business lines.
Much of the problem could be traced to the company's structure. SunTrust remains one of the few large bank firms in the country to maintain separately chartered bank subsidiaries, each with its own president and board. The CEOs of these 29 subsidiaries enjoy a high level of operating autonomy, as long as they meet financial goals set by the holding company.
The system generally works well because the bank CEOs have plenty of incentive to achieve their targets. Unfortunately, high profit margins at the local level do not always serve the interests of the holding company.
"One way to make your profit plan, in a very near-term sense, is underinvest," Mr. Humann says. "We were always making plan. But in doing so, we were sort of squeezing ourselves out of part of our future."
The structure also produced redundancies, for example, 29 different sales management systems spread across the subsidiaries. SunTrust is now testing a single standard system.
The push for standardization is a direct result of the Growth Project. While the 29 subsidiaries remain in place, the six lines of business have been assigned their own managers, whose authority extends companywide.
These managers, in turn, were given the resources to strengthen their units, although they are still held to strict performance goals.
"You, as the business unit manager, are the one really taking the risk," said R. Charles Shufeldt, president and CEO of SunTrust's capital markets unit. "If you wanted to get real cautious, you'd think long and hard about whether you want to accept that extra funding."
Dean Witter analyst Anthony R. Davis says SunTrust needed a change in philosophy to keep up with the two Charlotte, N.C.-based superregionals, NationsBank Corp. and First Union Corp. Both regional giants have expanded their corporate finance capabilities in recent years while increasing their branch networks exponentially.
"The competitive environment in the Southeast has been altered permanently," Mr. Davis says. "The traditional sort of passive approach that SunTrust has taken to growing down there no longer really cuts it. They realize they have to be more aggressive."
Proud and tradition-minded, SunTrust executives don't like to admit to too much change. When a reporter asks Mr. Humann whether the Growth Project has resulted in "more control at the holding company level," the company's second-highest officer looks to his investment relations manager, Jim Armstrong, for guidance.
"I shouldn't try to deny that, should I Jim?" he asks with a laugh.
Turning serious and deliberate, Mr. Humann goes on to argue that SunTrust is trying to achieve "consistency" rather than "control."
The six line of business managers have the authority to make strategy for their respective areas. But the bank CEOs remain responsible for carrying out the strategy at the local level, which means they retain hiring and firing authority and can also decide when or even whether to adopt a marketing program designed in Atlanta.
"At the end of the day, most of this stuff is execution," Mr. Humann says. "You're either going to succeed or fail because of execution, not because of something some smart person thought up in the product development group."
The six line of business managers possess no staff of their own, but they get support from a special unit within SunTrust's corporate marketing group. Referred to inside the bank as "the brain trust," this special unit comprises both longtime bank employees and new hires. It supplies a specialist to each line of business manager.
"It's a dynamic, new, muscular unit of overachieving talent at the holding company level," says senior vice president Donald Stuart Downing, line of business manager for mortgages. "It's an enabling structure to make things happen."
Mr. Downing has made things happen in his own area by standardizing the way SunTrust markets mortgage loans.
In the past, each subsidiary had emphasized its own strength, whether originating loans through the branch system, buying them wholesale, or working with realtors. Now, each subsidiary is pushed to develop capability in all three channels.
The project has also had a big impact on credit cards, which had never been a high-profile business at SunTrust. Two cobranding programs, involving the Professional Golf Association tour and country music stars, helped boost card loans outstanding by $85 million last year, to $775 million. Plans call for reaching $1 billion by 1998, when SunTrust believes it would achieve the economies of scale to survive as a regional bank card player.
Such gradual, carefully calibrated expansion exemplifies SunTrust's Growth Project. "It's not rocket science," Mr. Downing says. "It's just that management's attention is totally focused, like a laser."
