Few things are more painful for a bank -- and more important -- than doggedly cutting costs to the bone.
And while many people would like to avoid that pain as much as possible, one former McKinsey & Co. consultant, Chandrika Tandon of New York-based Tandon Capital Associates Inc., is thriving on it.
"It's almost a crusade for us," Ms. Tandon said of her firm. Ms. Tandon has made a name for herself with an intensely grueling but, thus far, extremely successful regimen for making banks lean.
Fresh Start, Heavy Layoffs
In her highest-profile jobs since starting her firm in 1990, Ms. Tandon helped Midlantic Corp. of Edison, N.J., cut noninterest expenses last year by a third and this year helped Riggs National Bank, Washington, D.C., cut its costs by a fifth.
Both projects gave a fresh lease on life to institutions in precarious financial condition, at the cost of thousands of layoffs.
In the summer, Ms. Tandon launched her third high-profile project, with Fleet Financial Group of Providence, R.I. Her goal: Generate enough cost-cutting ideas by February to boost the bank's annual profits by more than $125 million, and reduce the percentage of revenues eaten up by noninterest expenses from 67%
now to under 60% within two years.
Stock analysts and investment bankers at Goldman Sachs & Co. and Merrill Lynch & Co. have praised Ms. Tandon's approach.
Investors have also praised Ms. Tandon. Among them: Thomas Tisch, a son of CBS chief executive Laurence Tisch. The Tisch family likes to invest in banks that work with Ms. Tandon.
Praise from CEOs
In the course of her work, Ms. Tandon has won admiration and thanks from bank chief executives who say she has brought vital new discipline to their institutions.
"We've reduced [annual] expenses by $100 million and position count by 2,000," said Midlantic chairman Garry Scheuring.
"We returned to profitability at a time far earlier than we otherwise could have," he added. "I don't think we would have been successful without Chandrika."
the technique that Ms. Tandon employs is not new to consulting. It's a bottoms-up approach to cost cutting in which bank employees are asked to come up with enough cost-cutting and revenue-generating ideas to boost profits by 50%.
Dozens of bank managers work part time or full time for four to eight months to compile and refine the ideas, under the close supervision of Ms. Tandon and her staff of seven.
At the end of the process, the bank's chairman, and the executives that report directly to him, sift through the suggestions, with the goal of implementing enough to them to boost profits by 20% to 30% within a few months.
Long Weeks
It's a grueling process. The banks' rank and file are asked to submit ideas that could cost them their jobs. The managers who sift through the ideas have to work 60 to 80 hours a week to organize and refine the suggestions.
"I would not want to go through the process again," said Louis Cozens, a Midlantic senior vice president who helped supervise the bank's cost-cutting work with Ms. Tandon.
A 36-year veteran of banking, Mr. Cozens said that "in my career it's probably the most intensive process I've ever gone through. It placces a lot of physical stresses on people. It also has emotional stresses."
Entrenched Inefficiencies
But Ms. Tandon is convinced that any bank that goes through the process -- even healthy, well-managed banks -- can cut its noninterest expenses by at least a fifth.
The reason has as much to do with human nature as with anything else. It is Ms. Tandon's contention that over years and years, organizations build up little inefficiencies that become so entrenched nobody notices.
these inefficiencies include little things, like printing reports on one side of paper instead of on two sides, using three-ply paper for deposit slips, instead of two-ply, and giving people computer systems that are so complex or clumsy that no one uses them.
The fat also includes organizational problems, like handling the administration of loans from each branch of a bank, rather than using a more efficient, centralized approach.
Ms. Tandon's theory proved true at Riggs. By working with Tandon Associates, the bank was able to come up with 2,400 money-saving ideas by April, 1,300 of which will be put into effect by the middle of next year.
Savings of $40 Million
The savings are expected to total $40 million annually, much of which will come from the elimination of 550 jobs from the bank's work force of 2,060, said spokesman David Palombi, one of 12 bank "apostles" selected to work full time with Tandon Associates on the project.
With nearly four years of experience in branch operations for Citicorp in India, and another 11 years as a consultant at McKinsey, Ms. Tandon believes she has gotten a deep understanding the myriad ways that banks waste money.
Bankers that have worked with her agreed.
"She brought in a terrific knowledge of banking processes," said Fleet chief financial officer Eugene M. McQuade.
Ms. Tandon gets the commitment she needs from her clients because she has several banks bidding to work with her. So she can pick and choose who she works with.
"This was very much a mating dance," Mr. McQuade said. "We had to very much convince her that we had the commitment she needed."
But, when the deal is consumated, banks get every ounce of energy Ms. Tandon and her team can muster.
And, while she is coy about the details, Ms. Tandon said that her pay is contingent upon her firm's success. She added that her firm is "very much headed in the direction" of taking equity stakes in the banks it works with.
Tough job assignments are nothing new to Ms. Tandon, a native of Madras, India. She got her first after graduating from business school in India in 1975 at the tender age of 20, and taking a branch operations jobs with Citicorp in Calcutta.
Rapid Rise
There, among other duties, she was assigned to persuade men between the ages of 50 and 60 in a patriarchal culture to buy into the bank's early retirement program.
"I learned a lot about what to do, and what not to do, in terms of managing people," Ms. Tandon said.
By age 23, she had become Citicorp's financial controller for south Asia before leaving the bank to take a job with McKinsey in New York.
Now, at age the age of 39, Ms. Tandon thrown herself into a job that forces her to spend most of her time away from her husband and five year old daughter in New York.
"It's a tough lifestyle," Ms. Tandon said. "If I felt less passion about this I wouldn't do it."
