The chief executive of the nation's third-largest banking company has once again sounded an alarm against technology firms making inroads into the financial services industry.
David Coulter, chairman and chief executive officer of BankAmerica Corp., said his company has become increasingly concerned over what types of companies will ultimately control the nation's payment systems.
"You can bet that Microsoft and a lot of other technology companies are also looking at this issue," he said in an address this week at Robert Morris Associates' annual conference in San Antonio.
In an interview after his remarks, Mr. Coulter said he fears going head- to-head with software companies like Microsoft more than he fears competing against commercial and investment banks.
"That's not to say that there aren't lots of good bank competitors," he said.
"It is to say that a number of new providers-telecommunications companies, high-technology companies like Microsoft-are all looking at the electronic payment systems and saying, 'Hey, we can play a role in that.'"
Concern about Microsoft Corp. and other potential technology interlopers prompted the Washington-based Bankers Roundtable last year to form the Banking Industry Technology Secretariat.
Mr. Coulter and several other CEOs of top U.S. bank holding companies are directors of the secretariat, which is charged with retaining banking industry control over payments and related technologies.
In addition, at a recent BankAmerica analyst conference, Mr. Coulter told attendees that if he had a single silver bullet to use on a competitor, he would use it on Microsoft.
John Keane, BankAmerica's director of corporate public relations, explained that Mr. Coulter's remark to analysts, which was reported in the San Francisco Business Times, was a reference to the book "Only the Paranoid Survive" by Intel Corp. CEO Andy Grove.
In that book, Mr. Grove urges companies to take the "silver bullet test" to determine their key competitors.
"BankAmerica considers Microsoft a potentially serious competitor in delivering financial services, but BankAmerica has the utmost respect for that organization," Mr. Keane said.
To Robert Morris Associates, a group of lending and credit risk professionals, Mr. Coulter said he does not view banking as the traditional taking of deposits and making of loans.
"I see banks primarily as payments facilitators. At BofA we've been paying a great deal of attention to the issue of who will ultimately control the payment system," he said.
The emergence of high-tech companies is one of the four main forces affecting "our efforts at disciplined capital management and risk management," Mr. Coulter said.
Capital and risk management are increasingly intertwined, he added, noting that the decision to invest in a new product delivery channel is a capital allocation question that also requires a risk assessment.
"There is also considerable risk that you'll spend a lot of money on these alternative delivery channels, only to find out that you've wasted your money. But somebody is going to get it right, and that somebody will certainly be after your business," he said.
The rapid globalization of business and capital markets; technology, in particular the systemic risks associated with the year 2000; and the banking industry's overcapacity are the other three risk areas Mr. Coulter cited.
"In the past, you might choose to run a financial services business with either a low-risk or a high-risk strategy. Now I would propose that in some areas the only choices we have are among a variety of high-risk strategies, especially in an industry going through fundamental strategic and structural change," said Mr. Coulter.
Overcapacity and the intense competition it drives are beginning to affect credit decisions, said Mr. Coulter.
"Because the industry is overcapitalized, too many banks are chasing too few deals. There is a lot of pressure to do things that may not be wise from a risk management standpoint."
The experiences of bankers during the credit-quality crises of the 1980s are important to making risk management a core competency.
"Those days were a painful but highly meaningful lesson, and having gone through those times, we don't want to do it again. That makes most of us careful about risk-taking. It makes me highly value the advice of grizzled veterans," said Mr. Coulter.
Tying managements' compensation to performance by including equities and stock options is a growing trend that can help focus on making sound risk management decisions.
The use of credit derivatives and other portfolio management techniques and tools should also be an important part of banks' risk management, said Mr. Coulter.
