Skeptics Weigh In on Ouster Of Card Chief at Bank One

make sense of Bank One Corp.'s latest moves to confront a profitability shortfall.

Bank One's share price eked out a gain of 31.25 cents, to $33.1875, after hitting a three-year low the previous day. On Tuesday, after the official market close, Chicago-based Bank One announced the resignation of Richard Vague as head of its credit card subsidiary, and a reshuffling of titles and responsibilities between chairman John B. McCoy and president Verne G. Istock.

"The current management setup does not appear to have months of thought behind it," said Michael Mayo, an analyst for Credit Suisse First Boston in New York. "The loss of Dick Vague could cause some strain at First USA."

Mr. Vague had been in charge of the First USA division and other consumer credit activities that were primarily responsible for a 12% earnings decline in the third quarter.

His departure and the shake-up were the latest in a series of events that have buffeted Bank One shareholders in various ways.

The company was still in the midst of post-merger integration with First Chicago NBD Corp. when the August bombshell about First USA hit. Also during the summer, Bank One made its splashy introduction of WingspanBank.com, its attempt at a "pure Internet play."

Mr. McCoy is now telling the investment community to expect an airing of "several strategic initiatives regarding corporate direction" in November.

Mr. Vague had been a rising star at Bank One. The company had touted First USA, which it acquired in 1997, as a growth machine.

First USA stumbled in part because large numbers of customers left, outraged by new policies regarding fees. Mr. McCoy, as chairman and chief executive officer, will be focusing much of his energies on reviving First USA.

It is not clear to what degree Mr. Vague was directly responsible for what went wrong at First USA, or whether he was under pressure from senior management to raise revenues at any cost.

"Dick Vague really knew how to build a credit card operation," said Kate Blecher, an analyst for Brown Brothers Harriman in New York. "Getting First USA turned around is going to be more than a full-time job."

David Ellison, portfolio fund manager at FBR Fund Advisors in Boston, suggested that Bank One may have been pushing too hard to meet Wall Street expectations.

That may have happened in the credit card division, Mr. Ellison said, by trimming grace periods and bumping up late-payment fees, only to alienate many customers. "Bank One got caught trying to beat the number," Mr. Ellison said. "That's why they did things in the credit card area they shouldn't have."

"This is a disaster," said one analyst, who requested anonymity. Despite "the mistakes at First USA, Dick Vague knew a lot" about the credit card business. "He clearly mastered many elements of the marketing and behavioral characteristics of customers. I actually think the loss is not to be disregarded."

Two other senior officials have recently said they plan to leave.

Richard Lehmann, vice chairman in charge of the commercial banking and asset management business, announced Oct. 15 that he would retire at yearend. David Vitale another vice chairman, announced his retirement in July, effective Nov. 1.

Another theme voiced by analysts was that Bank One has lost credibility with the investment community with its earnings surprises.

The problems go beyond credit cards to encompass rebuilding confidence, said Michael Laliberte, co-adviser at Providence, R.I.-based Retirement Planning Co. for the Imperial Bank Fund. "It's not just about the company earning money. It is the credibility we are concerned about."

Much will depend on the November analysts meeting that Mr. McCoy referred to.

"We are looking for the meat," said Mr. Laliberte. In press releases, Mr. McCoy did "a great job drawing a skeletal diagram, but we are looking for something to chew on."

Mr. Mayo said, "It's a matter of the company being more realistic about the earnings outlook and refocusing on meeting revised expectations in 2000 and ensuring long-term plans for success."

Market watchers said the Bank One announcement follows a similar pattern of First Union Corp., which made management changes in the face of performance problems but left chairman and CEO Edward E. Crutchfield in charge.

"You have to ask yourself whether they got the right fall guy," one analyst said. "You can pick a fall guy and ask yourself, is it really worth the management setback to sort of pin this on someone? I'm not sure if the Street thinks that way."

The exits of Mr. Vague and Mr. Lehmann leave "a lack of crystal-clear accountability at the top," Mr. Mayo said.

On Wednesday the American Banker index of the 50 largest U.S. banks rose 2.2% and the American Banker 225 rose 2.4%.

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