A Year into the Job, CEO Emphasizing Sales at Hibernia

NEW ORLEANS — Next to J. Herbert Boydstun’s office in Hibernia Corp.’s headquarters is what the 55-year-old chief executive calls his “jungle room,” a former reception area now draped with mosquito nets, filled with tropical foliage, and cooled by a ceiling fan.

It is an unexpected setting for a banking company, even a southern one just a few blocks from Bourbon Street. But beyond the playful decor lies a serious purpose: For the past several months this is where Mr. Boydstun has been holding weekly sales meetings with senior executives, setting targets and assessing results as he tries to foster a sales culture and tighten the company’s grip on the Louisiana market.

The former head of a northern Louisiana community bank acquired by Hibernia in 1994, Mr. Boydstun ascended to the chief executive post a little more than a year ago. Before he could focus on sales he had to deal with a problem inherited from his predecessor, Stephen A. Hansel, who left under pressure in December 2000, after Hibernia’s participation in syndicated loans started leading to big losses.

Shortly after Mr. Boydstun was handed the reins, the $16.6 billion-asset company took a $70 million charge to increase loan-loss reserves. It has since adopted a more conservative approach to syndicated lending, selling off some loans and becoming pickier about those in which it participates.

Now Mr. Boydstun is free to tackle a different and in some ways harder challenge: transforming Hibernia into a modern financial services company that sells more of its products to a wider customer base.

“It’s not because our people do not want to sell, it’s because traditionally we’ve never asked our people to sell,” he said in an interview.

Hibernia has 259 branches in all of Louisiana’s major markets, from New Orleans to Baton Rouge to Shreveport in northwest Louisiana and Monroe in the northeast. It also extends to Texarkana and other areas in east Texas, and to two counties in Mississippi.

Sales are increasingly important at Hibernia and its peers because consumer and business customers have a range of choices for financial services. To be more profitable, banks need to build loyalty among their customers and win more — if not all — of their business, Mr. Boydstun said. “If we’re going to succeed in the markets we serve, we’ve got to sell to the needs of our customers. We must have a larger share of their wallet.”

That’s where the jungle room comes in.

Mr. Boydstun meets there every week with top executives from the company’s retail, commercial, and investment banks, as well as from its insurance operations. They review sales figures, identify top producers and laggards, and plot strategies.

To help instill a sales mentality, Mr. Boydstun has begun recognizing top employees with weekly awards in three categories that he believes are essential: a 4-inch silver giraffe sculpture is given for sales, a silver elephant for customer service, and a silver heart for caring — given for demonstrated effort toward fellow workers or customers, or in the community.

“If we will care for our customers and our communities, everything else will fall into place. If we care, we’ll serve well. If we serve well, we’ll be able to sell well,” he said.

In the past year the company has also begun to tie compensation to results, using a new computer program to track accounts opened, referrals made between divisions, mortgages closed, and even the calls employees make to key customers.

“We didn’t have any of this a year ago, and our people have done a wonderful job,” Mr. Boydstun said.

The results are beginning to trickle in.

In the past two years Hibernia has reclaimed the largest deposit share in Louisiana from Chicago’s Bank One Corp., which became No. 1 after its 1998 purchase of First Commerce Corp. in New Orleans.

Hibernia’s deposits have grown 19% since 1998, to $13 billion, thanks to both internal growth and branch acquisitions, according to its financial statements. It has also maintained a lock on its status as the largest mortgage lender in Louisiana.

Just as important as those figures — and perhaps more important to Mr. Boydstun — is the company’s perceived value on Wall Street. Things are better, but he still has some wood to chop.

Hibernia’s loan troubles in the past three years, like similar problems a decade earlier, weakened the company. A year ago its price/earnings ratio was about 10.3, well below the 14.85 average among other midsize banking companies, Mr. Boydstun said.

In the topsy-turvy market year of 2001, however, when some in the group did fairly well, Hibernia still managed to gain ground against them. Its stock price rose 39.5%, to $17.79. But despite closing the valuation gap, its price/earnings ratio lagged slightly — 13.18 versus 15.35 among its peers, Mr. Boydstun said.

“You gain faster sometimes because you start off lower,” he said. “But I think we’ve made some good progress in improving and building the value back in this great company.”

Analysts are beginning to agree with that assessment.

“By and large I think the new administration there, particularly Herb Boydstun, has made some significant strides in restoring Hibernia’s credibility with investors on the Street,” said Brock Vandervliet, a Lehman Brothers analyst who follows the company.

In late January Hibernia reported that its profit grew 28% last year, to $18.8 million. Earnings per share rose 30%, to $1.35, and provisions for loan losses fell. Revenues rose 15%, to $1 billion, helped by a strong mortgage business and a 25% increase in fee income.

After the report came out, some analysts raised their 2002 earnings projections and reiterated “buy” ratings on Hibernia’s stock. One of them, Robert Patten of UBS Warburg in New York, said in a Jan. 17 research note that he believed the shares were undervalued and that they deserved “to trade in line with the regional bank group rather than at the current 17% discount.”

Mr. Patten said he was projecting earnings growth of about 10% in 2002 for Hibernia, citing predicted loan growth of 5% and improved cost controls. He said earnings could expand even faster if credit costs continue to drop or the company repurchases stock, something executives have said they would consider.

With the company’s credit problems now mostly in the past, Mr. Boydstun’s focus on sales and accountability are critical to its success, and Mr. Vandervliet believes the changes are more than cosmetic. At a lot of midsize regional banks, he said, the sales culture is “kind of a smoke-and-mirrors concept, with not really a lot underneath it. These guys are pretty serious about building it.”

For Mr. Boydstun, a plain-spoken Mississippian who learned the business running First Bancorp in Monroe, in northeast Louisiana, selling is a banking fundamental.

“This is all such common sense and so basic that it seems like it should be easy to do. Whether it’s community banking, commercial banking, investment banking, insurance, brokerage, mortgage banking — everybody has to be a salesperson. It’s something that I’ve felt is very important throughout my career,” he said.

Jefferson Harralson at SunTrust Robinson Humphrey in Atlanta said Mr. Boydstun has made “substantial progress” in the past year, lifting sales and reducing credit risks. Hibernia is also getting a bigger percentage of its revenues from fees, he noted.

As the picture keeps improving, Hibernia’s name could resurface in banks’ conversations about takeover targets, Mr. Harralson said in a Jan. 17 research note. That could boost Hibernia’s shares, even if it is not actively being courted.

Mr. Boydstun has openly said that he would consider selling the company if the right offer came along, and he has not backed away from that stance. He expects it to remain independent for now but said, “I do know that if someone came in and made us a tremendous offer that benefited our shareholders in the long run, hey, I’ve got to raise my hand and be the first person to vote for it.”

But Hibernia may not be near the top of many potential buyers’ lists. Louisiana’s economy is hurting, and the recent ups and downs in tourism, New Orleans’ main industry, make it less attractive than other companies, according to analysts.

Mr. Harralson said Hibernia probably won’t be entertaining suitors in the near future.

“Few logical acquirers come to mind, so the idea of a change in control should not be the prime motivation behind the shares. Indeed, [Hibernia] shareholders’ fate lies in the hands of a successful turnaround,” he wrote in his note.

Mr. Boydstun said: “What we’ve got to do every day is stay focused on things we can control. We can control what we do here every day, and that’s the way we’ll create value.”