SAN FRANCISCO -- During BankAmerica Corp.'s financial crisis of the mid-1980s, the corporate banking portfolio was a disaster zone. Bad loans to big U.S. borrowers cost the San Francisco company hundreds of millions.

Just a decade later, business with major corporate customers has quietly become one of the biggest money-makers at the nation's second-biggest bank company. Gains from domestic wholesale banking topped the earnings list when BankAmerica disclosed its most important profit centers earlier this year.

Though trading gains were an important factor, relationships with big companies also played a big part.

Restoring the Luster

Conventional wisdom holds that wholesale banking is plagued by too much competition, too much risk, and too-thin margins. Indeed, that outlook prompted some of BankAmerica's competitors, such as hometown rival Wells Fargo & Co.. to exit corporate banking.

BankAmerica officials, however, say that some major changes in corporate banking have restored luster to the business. Specifically, a shift from a focus on credit to fee-based products and services has added great revenue opportunities.

"The lending side of corporate banking has not really increased in profitability," said vice chairman and chief financial officer Lewis W. Coleman,

"But a lot of other products have been introduced, such as trading products, derivatives, and cash management services. Corporate banking has gone from a loan-centered business to a business in which credit provides just 25% of revenue."

Results Hard to Interpret

Analysts caution that it is hard to interpret BankAmerica's claims of success because the company has provided only sketchy data about its wholesale banking results.

"We don't know enough about the size of the business in terms of assets and capital to be able to talk about the rate of profitability," said Thomas K. Brown, who follows the company for Donaldson, Lufkin & Jenrette. "That's more important than absolute profits."

Nevertheless, Mr. Brown believes BankAmerica has made big strides. "They've been able to do what everybody has been trying to do: cross-sell products and services," he said.

BankAmerica serves corporate customers from its U.S. division, which is housed in its flagship California banking unit. Also using offices in New York, Atlanta, Chicago, and Houston, the division targets companies with yearly sales of roughly $250 million or more.

A Focus on Relationships

Smaller firms are generally handled by separate middle-market commercial groups within BankAmerica's state banking subsidiaries.

U.S. division bankers focus on overall relationships with customers rather than income generated by individual transactions. "We don't measure each deal. We look at relationship profitability," said group executive vice president Timothy R. Bottoms, who was named the division's chief in March.

"There are very few customers we can afford to deal with on a single-product basis," said vice chairman David A. Coulter, who supervises domestic and international wholesale banking.

Some customers understand, McKesson Corp. chose BankAmerica as co-agent on a $200 million revolving credit line, but also tries to steer other business the bank's way.

"Banks are making it on the fee businesses," said Jon W. d'Alessio. treasurer of the San Francisco-based drug and consumer products manufacturer. "On the credit side, they are not making any money on us."

Mr. Coulter said that is typical of the kind of customer relationships the division tries to build.

Steady Revenue Stream

In addition to credit, such as a working capital line, a customer may buy cash management services, trading, and capital markets products. Credit needs ebb and flow, but products such as cash management provide a steady revenue stream.

Capital markets functions, including underwriting, bridge the gap between commercial banking and investment banking.

Advanced Micro Devices Inc., a Sunnyvale, Calif.-based computer chip maker that BankAmerica helped launch with venture capital money in 1969, selected the company as co-agent with Bank of Boston Corp. for a $105 million revolving credit facility earlier this year.

Today, it uses BankAmerica's international payments and foreign exchange services for its worldwide operations. In addition, BankAmerica has managed private placements for the firm.

"We've used credit and cash management as door openers," said Mr. Bottoms.

Rebuilding corporate banking at BankAmerica has required some major repairs. Aggressive lending got the company into trouble in the late 1970s and early 1980s. When Mr. Coulter organized the U.S. division three years ago, he focused on credit quality and cross-sales.

Although the company had already begun to weed out marginal credits, the new U.S. division chief reviewed the corporate customer base again to ensure that returns reflected the riskiness of each relationship.

A Radical Move

"Credit quality in the corporate area, with the exception of Federated Department Stores [a leveraged buyout financed in part by BankAmerica], has been excellent," said Salomon Brothers analyst John D. Leonard.

To boost the sale of fee-based products, Mr. Coulter made a radical move: He took management of customer relationships out of the hands of loan officers.

An entirely separate unit was set up to serve as the contact point with customers. Lenders became product specialists rather than relationship-managers.

Noncredit Products Took Off

The reorganization created a new class of account officers who saw their job not as making loans, but as filling a broader range of customer financial needs. Sales of noncredit products took off.

BankAmerica's takeover last year of Security Pacific Corp., one of the nation's leading wholesale banks, added new resources in the corporate area. BankAmerica officials praise the technical and marketing skills of the Los Angeles bank's investment banking, trading, and derivative operations.

But the integration has not been without friction.

Eliminating the Competition

BankAmerica executives complained that Security Pacific had inadequate control over many credit and processing functions.

Of course, the acquisition had one very important strategic benefit: It eliminated BankAmerica's most formidable West Coast competitor. "We're sitting in a relatively large home, market without a lot of homemarket players," Mr. Coleman said.

That regional dominance is an advantage in competing for paper-intensive businesses, such as retailers, who benefit from BankAmerica's extensive West Coast branch network.

Corporate banking, however, remains fundamentally a nationals business, and BankAmerica's main rivals are revenue-hungry New York and regional banks eager to expand in the West.

For example, Clorox Co., the Oakland-based consumer products manufacturer, uses J. P. Morgan & Co. and North Carolina-based Wachovia Corp. as its lead banks. BankAmerica is just one of many participants in the company's revolving credit.

"Banking with a local institution just doesn't make much difference at all," said Clorox assistant treasurer Susan Charters.

BankAmerica, for its part, has the size and clout to compete head to head with East Coast and Midwest giants nationally.

Wachovia and NationsBank may be scouting for customers in the West, Mr. Bottoms says, but "we are continually trying to take business in the Southeast."

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