BankBoston Corp., making its first formal presentation to Wall Street in nearly a decade, has outlined some financial goals to ensure its independence.
At a Dec. 4 presentation in Boston for analysts, senior executives at the $65.8 billion-asset bank said they aimed to achieve an 18% return on equity and double-digit growth in earnings in the next 18 months.
To do that, they said, they were relying heavily on investments in Latin American operations and corporate banking services. Latin America alone is expected to contribute 30% of the bank's revenues by yearend 1999.
It was BankBoston's first face-off with analysts since 1989, well before its 1996 merger with BayBanks Inc. and Charles K. Gifford's ascension to chief executive officer in 1995.
The conference's objectives-to review business results and outline BankBoston's growth strategy for the next few years-emphasized Mr. Gifford's goal of keeping the bank independent.
"Can a $65 billion bank survive at a time of rapid expansion?" Mr. Gifford asked at a press briefing after the analysts' meeting. If the bank doesn't achieve its objectives, it will have to consider other alternatives, like a sale, Mr. Gifford acknowledged. But "as we see our business right now, that's not the case," he added.
The chief executive said the bank is figuring out its next move, which will probably include acquiring a niche business. "We'll be buying some things to build and invest in the businesses we have now," Mr. Gifford said. Acquisitions would most likely be made to bolster BankBoston's capital markets and asset management capabilities, he added.
Analysts said they were generally pleased with what they heard. "I think the targets are very doable," said Anthony Polini, an analyst at Advest Inc. Despite concern about current turmoil in emerging markets, "the comfort level is there for Latin America as the principal driver of earnings," Mr. Polini said.
For return on equity, BankBoston has already achieved its objective. That measure has improved from 12.5% in 1993 to 19.6% at the end of this year's third quarter. Suzannah Swihart, BankBoston's chief financial officer, said the bank should end the year with an ROE of 18%.
BankBoston has been shedding underperforming units-auto lending, consumer finance, and factoring, for example-and plans to use $1.1 billion in freed-up capital to invest heavily. That money will be used to expand in Latin America, to build the company's capital markets unit, and to upgrade its computer systems, bank officials said.
Over the next year BankBoston will spend $100 million in Latin America, mostly to open de novo branches in Brazil and Argentina. Thirty-two new branches are slated for Brazil, and 70 new branches will open in Argentina. In 1997 the bank spent $70 million in the region.
But achieving the goal of making Latin America responsible for 30% of overall revenues is still far off. Revenues equaled $968 million on Sept. 30.
In 1997, BankBoston's expected earnings mix will probably be dominated by corporate banking, accounting for some 46% of total profits.
Retail banking in New England is expected to account for 20% of total earnings. Latin America, led by Argentina, is projected to contribute 19%.
President and chief operating officer Henrique de Campos Meirelles said Latin America would provide BankBoston with a hedge against slow growth in the bank's core New England franchise. "It provides us with the right level of diversification," he said.
Analysts said the expansion in Latin America could become the catalyst for the bank's sale to a larger regional bank. "It makes them even more attractive," Mr. Polini said.
Meanwhile, an unspecified amount has been slated for investments in capital markets, a unit that BankBoston spent $47 million this year to bolster underwriting and advisory capabilities.
The bank has also hired New York-based Aston Associates to help it reengineer its retail business in New England.
While Mr. Gifford acknowledged that these are "rosy times in banking," he said that it is also a challenging time for the industry. "Revenue growth is critical," he added.