It is impossible to pick the right person for a top job until the job has been properly defined, which is no small task for a banking company trying to decide on a chief executive officer in the middle of a full-blown financial crisis.
What Wachovia Corp. needs from its CEO has changed drastically in the past two years, and the person at the top of the board's short list for the search it began in early June reflected that reality.
Robert K. Steel will take over a company in crisis with the directive to assure its immediate survival. Other priorities — running a retail bank, learning its commercial-bank roots, deciding what businesses are of strategic importance, preserving culture — have become almost trivialities as the company confronts massive credit losses and writedowns on structured products that, however remarkably, have managed to cast doubt on the company's long-term independence and viability.
"If I were a board member at Wachovia, I would much rather have a world-class crisis manager than a guy who happens to know all the ropes, hoops, and loops of the commercial-banking business," said John Oros, a managing director at J.C. Flowers & Co. who spent 20 years at Goldman Sachs & Co. "Let's assume this was General Electric going into bankruptcy. Would you bring in a guy who manufactured light bulbs for the past 25 years or someone who has been through massive, ugly, complicated financial restructurings, and has his finger on the policy and economic issues?"
Market observers had wondered whether Wachovia could attract substantial talent as it tries to right its ship, but the company caught Mr. Steel at a good time. He is in the last months of an administration that has struggled to bring meaningful reform to the financial services industry.
Some of Mr. Steel's most notable efforts have been sidetracked between initiation and completion, including a master commercial-paper conduit that was to have stabilized pricing but ultimately fell apart and a Treasury Department-sponsored initiative to spur lenders to help struggling borrowers that has had only modest impact.
Mr. Steel faces no easy task at Wachovia. His appointment as chief executive and president of the $809 billion-asset company was paired with an announcement that Wachovia expects to report a second-quarter loss of $2.6 billion to $2.8 billion — thanks to $4.2 billion of provisions, with $3.3 billion specifically for the recently discontinued pick-a-payment mortgage product.
The company also said it would have an unspecified impairment charge for goodwill tied to its October 2006 purchase of Golden West Financial Corp., which first exposed it to the risky option adjustable-rate mortgage product and contributed to the June ouster of G. Kennedy Thompson as CEO.
However, on Thursday Mr. Steel told investors and the media that they would have to wait until the company reports its full results on July 22 for details of his vision for the Charlotte company. "It is too early to get into the weeds on specific strategies. This is day one," Mr. Steel said on a call with reporters Thursday morning.
Day one did not go so well in the market, where investors sent the company's shares down 8.1%.
Robert F. Voth, a partner at the executive recruiting firm CTPartners, called Mr. Steel "a solid hire" who meets the personality and professional criteria for the role. "But what is his vision?" he asked. "Having never run a commercial bank, there is no track record for guidance. No one really knows except for him. He probably doesn't know yet. It's not necessarily a negative, but he will have to work his way through it."
Almost in recognition of the importance of confidence in financial markets and companies — and the importance of Wachovia to the country's financial system — a number of people with experience in public policy and in the private sector offered testimonials about Mr. Steel's ability to lead Wachovia.
Robert Rubin, a former Treasury secretary and chairman of the executive committee at Citigroup Inc., said Mr. Steel's "intensity and presence" will serve him well, as will his experiences at Goldman and the Treasury Department.
"I think that having someone with an understanding of markets, risk, and reward, and discipline, is particularly valuable in this environment," said Mr. Rubin. "He'll bring a very good head and a lot of problem-solving ability."
The differences between running a commercial bank and an investment bank are "less than they used to be," he said.
John D. Hawke Jr., a partner in the Arnold & Porter law firm and a former comptroller of the currency, said Wachovia's main challenge "is not running the day-to-day operations." Rather, he said in an interview Thursday, the new chief executive's goal must be "getting the company back on track and dealing with the regulators and investment community, and I think he is highly qualified for that."
Eugene Ludwig, the CEO of Promontory Financial Group, a global financial services consulting firm based in Washington and comptroller of the currency from 1993 to 1998, echoed that notion.
"There should be a recognition on the part of all financial companies, but particularly banking companies, that understanding government and the regulatory environment in which they exist is of enormous importance — and it is going to get more important," Mr. Ludwig said in an interview. "Let's face it: Going through this storm, for every financial institution, the regulatory climate has got to become more a part of its day-to-day focus than it is even today."
Speaking on the same conference call Thursday, Lanty Smith, Wachovia's chairman, said the company had specifically looked for the ability to manage and navigate risk in picking a CEO. Though he would not say whether Wachovia specifically wanted someone with regulatory credentials, Mr. Smith said regulators "were pleased" when told of the company's selection. Mr. Smith himself was elevated to the role of chairman in May when the board stripped Mr. Thompson of that role. Weeks later amid mounting criticism, Mr. Thompson was ousted as CEO.
On Thursday, commenting on the company's efforts to correct the balance sheet, Mr. Smith said, "We feel strongly that all along we were taking aggressive actions. We have made very significant progress over the past five weeks."
Mr. Steel's hands-on regulatory experience and contacts may have been the key differentiator with Alvaro G. de Molina, the chief executive of GMAC LLC and a former chief financial officer at Bank of America Corp., who also was reportedly a finalist for the job. A source familiar with the process said that Mr. de Molina, who still lives in Charlotte, "very much wanted the job." He was also interested in competing against B of A, which he left in December 2006.
Meanwhile, former Wachovia executives backed the board's choice Thursday.
Wallace Malone, a former Wachovia vice chairman who reportedly sent letters to Wachovia's board criticizing Mr. Thompson, gave tentative support to the selection. "He has a wonderful resume and should bring a lot of credibility to the job," he said in an interview. "As a significant shareholder, I am hoping that he will do a fantastic job." Mr. Malone would not discuss Mr. Steel's lack of commercial banking experience or whether he had any say in the selection process.
Robert P. Kelly, the chief executive officer of Bank of New York Mellon and a former Wachovia chief financial officer, said he had personally contacted Mr. Steel Thursday morning.
"I sent Bob an e-mail this morning to say that he's going to find that Wachovia is in some great businesses in terrific markets. It's a company with outstanding people, and they will quickly discover that Bob is a superb leader. He is a fantastic choice. I know he will quickly come to grips with the issues. He's incredibly bright, quick, talented, and really understands the industry and the global financial markets."
To the extent his move to Wachovia is a risky move for Mr. Steel, he will reap the rewards. The company said in a regulatory filing Thursday morning that his annual compensation package is targeted at roughly $22 million.