When BankAmerica Corp. said in October it would sell its 76 grocery store branches here, some of its competitors boasted that the San Francisco giant couldn't compete for Windy City deposits.
Undaunted, the 4,000 Chicagoans employed by BankAmerica, many of whom worked for predecessor Continental Bank Corp., soldiered on.
Though BankAmerica has been something of an enigma to consumers in Chicago, it has become an aggressive bidder for business among large Midwest corporations and midsize companies since it bought Continental in 1994.
BankAmerica expects to turn over its supermarket branches to TCF Financial Corp. of Minneapolis Friday. While BankAmerica commercial bankers here say a retail presence would be a nice complement and good exposure, they say other things will drive their business.
As the company puts its problems in Southeast Asia behind it-that region produced $218 million of losses in 1997, compared with revenues of $224 million in 1996-its focus will be on other markets, including large U.S. corporate and middle-market businesses.
Among the factors helping its U.S. business expand will be the investment banking capabilities BankAmerica has had since its October acquisition of Robertson Stephens & Co., said Jeremy G. Fair, group executive vice president for large corporate banking clients in the United States and Canada.
Robertson Stephens fills out BankAmerica's corporate and middle-market offerings, Mr. Fair said. As commercial lending has become more competitive, debt and equity underwriting capabilities have become powerful sales tools, he said. Equity underwriting "is the way to a CEO's heart," he said.
The company is also attacking its business plan by specializing in 17 industries, including media, technology, energy, entertainment, and transportation.
On the middle-market front, BankAmerica has gone on sales blitzes in major midwestern cities, including Detroit, Minneapolis, and Cleveland. It has also established satellite offices around the Midwest with one commercial lender in each market.
Today's wholesale strategy grew largely as a result of the Continental acquisition. The $1.9 billion merger was different from many of the large deals made today. There were few cost savings, for example, and BankAmerica looked at the deal primarily as a revenue generator. The acquisition also made Chicago the headquarters for BankAmerica's U.S. corporate group.
"Chicago is more of a financial center than San Francisco. If you want to be (a corporate lender) in the United States, Chicago is the logical place to be," Mr. Fair said. Chicago's central location and its easy access to the Midwest's large number of companies are just a few of its attractions. About 70% of BankAmerica's large corporate customers are based in the Midwest and East, Mr. Fair said.
Faced with a lagging California economy in the early 1990s and slow retail loan growth, BankAmerica saw the Continental deal as an opportunity to enhance its position as one of the biggest U.S. business lenders.
"BankAmerica was trying to build a corporate business, but then it saw it had a chance to buy one lock, stock, and barrel for a song," said Marcus Acheson, a former Continental executive who is now BankAmerica's executive vice president and head of commercial banking in Chicago.
Although about 800 jobs were cut from Continental after the deal, the $23 billion-asset bank was pretty lean to begin with. Continental had already eliminated 8,000 jobs since its near-failure in 1984, when it was hurt by the southwestern energy bust of the early 1980s.
BankAmerica's decision to buy Continental "was all about growth," Mr. Fair said. "There was critical mass. You had 4,000 people here doing nothing but corporate banking."
From an earnings standpoint, Continental contributed immediately. U.S. corporate and international banking income at BankAmerica increased 44% to $829 million in 1995, the first full year it owned Continental. Profits for the group increased another 7.5% in 1996. Corporate and international banking earned $900 million in 1997, up 1% from 1996. The 1997 results were hurt by large losses in Southeast Asia. That cut return on equity to 13.48% in 1997 from 14.43% in 1996.
Middle-market banking revenues increased 23% to $315 million in 1995, thanks to the Continental acquisition. Those revenues increased another 19% in 1996, and 2.4% in 1997, to $383 million.
The bank's $5 billion in Chicago corporate deposits gives it the No. 5 position in total deposit market share in the city, but that figure includes no consumer deposits.
Despite speculation that Bank-America will someday acquire a large retail bank in the Midwest, the company's strategy so far has been to build a business bank. It was former chairman Richard M. Rosenberg who pushed to see the wholesale banking business expanded.
And BankAmerica officials interviewed recently said they still believe more growth on the corporate side is possible. They pin a lot of hope on growth opportunities from commercial lending out of Chicago, although commercial business includes other services, like risk management, investment banking, and private placement.
"One of the keys" of BankAmerica's strategy, according to analyst Joseph Morford of BT Alex. Brown, "is its diversity of business. It does not have significant concentration in one product or geography."
That includes exposure to foreign markets, helpful now because of the turmoil in Southeast Asia, he noted. BankAmerica has said Asia should have a "relatively modest" effect on earnings going forward.
The earlier purchase of Continental clearly was a strategic move on BankAmerica's part, but it also helped redefine the company in many ways. Two of its top executives-vice chairmen Michael E. O'Neill and Michael J. Murray-came from Continental, for example.
Customer profitability, now a major focus for the $260 billion-asset company, was a chief concern of Continental management, especially Mr. O'Neill, BankAmerica's chief financial officer.
Continental had limited capital and was forced to depend on increasing profitability among current customers. Likewise, BankAmerica has focused on wringing the most profits from its existing base.
David Coulter's ascension to chairman and chief executive officer in 1995, following Mr. Rosenberg's retirement, was a clear sign that BankAmerica was heading toward a more aggressive corporate banking focus. Before his promotion, Mr. Coulter had spent five years in charge of U.S. corporate banking.
Long considered a retail bank, BankAmerica re-established its strength as a major commercial lender through the Continental deal. Mr. Murray oversees all commercial businesses.
The pairing of the two companies was also interesting. BankAmerica was founded as the Bank of Italy in 1904-the little guy's bank during San Francisco's years as a growing West Coast city.
Continental began as a business bank, founded by Chicago's most prominent banking and civic leaders in 1857. Continental long considered itself the J.P. Morgan of the Midwest until it hit bottom with its lending problems in the early 1980s.
But Continental's culture continues to contribute to BankAmerica, Mr. Fair said. "What we got in a talent sense was tremendous," he said.
Given all the benefits that have been reaped from the Continental acquisition, bank officials said they were satisfied with BankAmerica's current position in Chicago, even though it has not yet built a successful consumer operation in the city.
In the fall, the company admitted that a two-year experiment opening supermarket branches in Chicago was unprofitable and took a $112 million charge against third-quarter earnings to end its contract with Jewel Food Stores, Chicago's largest grocer. Company officials said it was tough to establish a retail presence without a traditional branch network.
But BankAmerica may try another retail foray in Chicago some time in the future.
Soon after its acquisition of Continental, analysts speculated that BankAmerica was setting up a beachhead in the Windy City that would lead to the purchase of consumer banks. That has not happened yet, but company insiders said such a deal could happen within a year.
