BankAmerica Corp. has retained the prominent consulting firm Marakon Associates to conduct a companywide review of business unit performance, well-placed sources said.
The consulting firm has begun initial reviews of BankAmerica's Europe, Middle East, Africa division, and a San Diego-based mobile-home lending unit, that will take several months. Other reviews are expected to begin once these initial studies have been completed.
Marakon, based in Stamford, Conn., is supposed to help the $234 billion- asset banking company devise a more sophisticated model for measuring business-unit performance. BankAmerica chairman David A. Coulter would use the model in pruning or restructuring underperforming divisions, a senior executive said.
"They're doing the whole bank," said the executive, who asked not to be named. "It just so happens that they've started with these two businesses."
Well-placed sources said BankAmerica has spent much of the past two years devising models for measuring the risk-adjusted return on capital at the bank's business units. Marakon is supposed to take these analyses a step further and figure out how much a premium the stock market would put on the units if they were independent.
The resulting changes could be substantial. Observers said it is virtually certain that the $20.5 billion-asset Europe, Middle East, Africa division, which had a 1995 return on assets of only 0.58%, will be drastically shrunk.
The bank is also considering a partial spinoff of its $8 billion-asset mobile-home lending division.
A well-placed source said the mobile-home unit, BankAmerica Housing Services, is unprofitable under one internal BankAmerica gauging system but profitable under a second system, which measures risk-adjusted return on capital.
A second source close to the mobile-home unit said changes suggested by Marakon and BankAmerica executives could help make the unit nearly as profitable as its top competitor, Green Tree Financial Corp.
New strategies could include securitizing the unit's new loans. This would eliminate the drag on BankAmerica housing services' earnings from its conservative loan-loss provisioning and its small capital base. Such changes could bring the unit's return on equity to 25%, more in line with industry norms.
The second source added that a partial spinoff of the mobile-home lending unit may persuade Wall Street to give it a higher valuation, boosting BankAmerica's stock price.
BankAmerica representatives declined to comment on the relationship with Marakon, or on any changes that could come from reviews of the European and mobile-home operations. As a matter of policy, Marakon president Peter W. Kontes declined to comment on current or potential clients.
Marakon recruitment materials say the consulting firm's "client relationships are substantial, multiyear, high-impact partnerships that produce improved strategic and organizational decision making at all levels of the corporation."
Joel Stern, managing partner of Stern Stewart & Co., a New York-based consulting firm often compared to Marakon, said he would be surprised if Marakon charges less than $2 million to $3 million a year for its services.
Mr. Kontes said Mr. Stern's estimate was inaccurate, although he declined to elaborate on how much BankAmerica would pay for Marakon's services.
Mr. Kontes, a former executive in Wells Fargo Bank's private placements division, said he founded Marakon in 1978 with two other Wells associates and a former University of Washington professor.
Marakon has 150 consultants and 20 partners.
Mr. Kontes and Marakon chairman James M. McTaggart are authors of The Value Imperative, a management book published in 1994 by Simon & Schuster Inc.