No one questions his intelligence er skill as a banker, but as Paul Hazen takes over as CEO at Wells Fargo, he must prove that he can inspire people as easily as he intimidates them.

After standing offstage for years, it's now Paul Hazen's time to step into the limelight. Wells Fargo & Co.'s new chairman and chief executive was long the understudy to a legend, Carl Reichardt, the hard-boiled CEO who set the standard for high-performance banking. When Reichardt stepped down at the end of December after twelve years at the top, the baton passed to Hazen, the quiet president who had served for nearly three decades as the retiring chief's alter ego and confidant.

Now the 53-year-old Hazen faces the classic test of the second-in-command who replaces a charismatic CEO: he showed he had the right stuff as number-two man, but can he step into Reichardt's big shoes and establish himself as a leader in his own right? Wells watchers are uncertain. As he takes charge at one of the nation's most successful banks, Hazen's profile is notably low, testimony to Reichardt's near-complete domination of Wells.

"Paul is clever, financially astute and disciplined, but he's been in Carl's huge shadow," says a bank analyst who has covered Wells for years. "It's hard to know what he is made of. Whether he has the presence to command respect the way Carl did will be proved over time."

If there are concerns about Hazen, they have nothing to do with his business acumen. Under his command, analysts expect San Francisco-based Wells, the nation's 15th-largest banking company, with $52 billion in assets, to stay among the top of its class. "I don't think the company is going to miss a beat," says analyst Lawrence Vitale of Bear, Steams & Co.

Hazen - slight and rail-thin, with thinning hair, glasses and an angular face that give him the austere look of a 19th-Century missionary - is a man of penetrating intelligence and a firm grasp of banking issues. When it comes to Wells' strategy, he helped write the manual. Although outsiders tended to identify Reichardt as the bank's guiding hand, every big decision of the last 10 years bears Hazen's imprint as well. That includes the pair's signature deal - their 1986 acquisition of crosstown rival Crocker National Corp. Hazen did the financial analysis and handled the negotiations, and as much as anyone was architect of the transaction that remains banking's model for the value-creating merger.

The questions about Wells' new CEO center on personality and management style: Hazen is known as a cold and distant manager, an executive single-mindedly focused on business and liable to treat subordinates harshly. Hazen's own shortcomings may be magnified by his choice of William Zuendt to replace him as president.

Zuendt may be the industry's most brilliant and original thinker. A mathematician and engineer by training, he has revolutionized retail banking by introducing industrial-style process engineering techniques to branch and back office operations. Cerebral and unconventional - how many other senior bankers hike in the Alps and read Wired magazine? - his pairing with Hazen gives Wells an abundance of sheer intellectual horsepower at the top.

[Expanded Picture]But, like Hazen, Zuendt's people skills are weak, and he is prone to forgetting the human dimension. For example, in a telling cogent to a magazine interviewer last year, he described a bank teller as "a manual ATM." Says former real estate chief David Petrone about the Hazen-Zuendt duo, "Neither one of them is a Carl Reichardt kind of person. They're both inward, and they don't socialize much."

There are other views of Hazen, to be sure. Those dose to him tell of a man devoted to family and friends, someone with a wry sense of humor, capable of genuine acts of kindness to those he cares for. The harsh edge, they say, simply reflects his drive to do well. "Paul is not an easy guy to get to know," says Petrone, one of those who best succeeded in doing so. "Underneath it all, he is a very intense guy who wants to succeed."

Still, overcoming his image as an iceman may be Hazen's biggest challenge as CEO. He must show that he has the heart of a leader along with the brains, many of those who have worked with him agree. He must inspire as well as intimidate. If Hazen fails to develop a personal following, the bank's performance inevitably will suffer, those familiar with the bank warn. "Wells has long tended to view people as pieces of equipment," observes one former executive. "I would worry about that. Paul needs to go out and press the flesh of the people who work there."

It's hard to imagine Hazen without Reichardt at his side - just as it would seem unnatural to see the Sundance Kid without Butch Cassidy. "(Reichardt) and I operated interchangeably," Hazen says. "Carl served as a discipline to my thinking and the decisions I was making that can't be replaced."

Their collaboration goes back to 1966, when Hazen, just two years out of the MBA program at the University of California at Berkeley, joined the older man at Union Bank, one of the premiere business banks in the West. They began their partnership inside a trailer in an Orange County beachfront community doling out credit to Southern California developers and learning the art of real estate lending.

In 1970, the two moved to Wells Fargo, where Reichardt headed the bank's real estate investment trust and Hazen served as his deputy. When Reichardt went off to business school, Hazen found himself in charge of the PElT just when the commercial property market was collapsing. Real estate trusts were foundering on all sides, and the stock of the Wells' fund fell 90%, but Hazen showed few signs of stress. "He was very steady," Petrone recalls. "Paul would never say he was scared."

Reichardt became Wells' chairman and CEO in 1983 following the retirement of Richard Cooley. Hazen was named president a year later. Once in command, Reichardt relied on Hazen as he did on no other executive. "My rocket scientist," he affectionately called him. After an auto wreck on the Golden Gate Bridge in 1983 mangled Hazen's leg, Reichardt implored doctors to "save the brain," according to a story, perhaps apocryphal, that Wells' retired chief loves to tell. As president, Hazen would habitually arrive at the bank headquarters before 6 a.m., followed 15 minutes later by the CEO. In those predawn hours, uninterrupted by workday distractions, Reichardt and his deputy tossed business ideas back and forth and worked out Wells' battle plan.

"Paul was very much like Carl's son," recalls a retired Wells executive. "You couldn't separate who was thinking what - Paul could read Carl's mind. He's the only person I know who could convince Carl to do something when Carl was opposed."

Over the years together, they developed a shared concept of a bank run according to simple business principles: an institution that was shareholder-driven; efficient, thanks to strict cost controls; focused on a few business lines; aggressively sales-oriented; and committed to high standards of credit and underwriting. In themselves, the ideas were simple enough. But in an industry still bound by patrician ways and a regulated mentality, they allowed Wells to stand out as a lean, mean competitor unfettered by the industry's conventional wisdom.

Remaking the Bank

Did every respectable regional hank need a London office? Reichardt intuitively felt it was a waste of money, but it was Hazen's meticulous analysis that showed it made financial sense to shutter Wells' European outpost. Similarly, they closed the bank's New York clearinghouse operations and an Edge Act office in Miami. They poured resources into Wells' middle-market, commercial real estate and retail businesses in California, staking the bank's future on the Golden State, a place Reichardt saw as the best banking market in the world.

And they were ready to accept risk if the rewards were high enough. Wells concentrated in commercial real estate, a volatile market the two executives felt confident they understood. Their strategy was not to lend to projects, but to people, picking blue-chip customers with the resources to repay loans no matter what happened to the underlying properties.

While others built banking empires in the 1990s, Reichardt and Hazen kept their powder dry. They complained that acquisition prices were too high. Instead, they used surplus capital to reward shareholders by buying back Wells' stock. Their one big deal of recent years, the $492-million purchase in 1991 of the California branches of Great American Bank, a troubled thrift, was a disappointment, failing to meet expectations for new revenue. A failed bid in 1994 for Los Angeles-based First Interstate Bancorp - the one transaction the two executives felt made sense - was an attempt to recreate on a grander scale the Crocker merger formula of consolidating overlapping operations and sharply slashing expenses.

Reichardt and Hazen lifted Wells from the middle of the pack to the top level of financial performance among bank companies of its size, routinely posting annual returns on equity over 20%. Under their care, Wells' stock price multiplied more than 15 times, and savvy investors like Warren Buffet - now the bank's biggest shareholder with a stake of more than 13%, and permission from the Federal Reserve to go as high as 22% - would become their greatest fans.

The only smudges on their glittering record were 1991-93, when a California recession clobbered the real estate market there, leaving it with an enormous portfolio of suspect loans. While the bank never recorded a full-year loss, the low point occurred in 1992, when the bank's net income fell to $21 million and its ROE was a mere .07%.

But last year, Wells came roaring back from the state's downturn stronger than ever, netting a record $625 million in the first nine months of the year, for a 1.61% annualized return on assets and 21.91% return on equity. What's more, a dramatic drop in credit problems left Wells with hundreds of millions of dollars in unneeded loan-loss reserves, proving it was right in its argument with federal bank regulators about the quality of its real estate portfolio.

While the thinking of Reichardt and Hazen was in harmony, as individuals the two were stark contrasts. "They had a common vision and goals, but the differences in style and personality were dramatic," says a San Francisco executive recruiter.

Loves Country

Hazen was born in Michigan, where his father ran a lumber business, although he grew up in a desert home outside Tucson, AZ, where his parents had moved because of their son's asthma. A neighbor there of singer Linda Ronstadt, Hazen developed an early love for country and western music. While in high school, he started a recording business with Ronstadt's brother. After a year at Amherst College in Massachusetts, Hazen's asthma drove him back to the Grand Canyon State, where he completed his undergraduate degree.

Carl Reichardt hailed from Houston, and is a fireplug of a man with a round, ruddy face and slicked-back hair. At Wells he was loud and gregarious, easy of manner, impatient with formalities and quick with a story delivered in a laid-back Texan style. As a boss, he was tough, merciless to those who delivered unpleasant surprises. But those who dealt with him face-to-face found a man with strong visceral reactions, to whom they felt they could relate on a human level.

Hazen differed in almost every particular. Sparing with words, betraying few signs of emotion, introverted almost to the point of reclusiveness, disciplined and single-minded, Wells' new CEO was a figure that coworkers respected but many found hard to like. "Paul does not show a great deal of warmth for anything or anybody," says one former colleague. Quips another: "There are water-cooled computers that are warmer."

While Reichardt was liable to pop into a subordinate's office at any moment, colleagues were generally summoned by phone when Paul Hazen wished to see them. Making a presentation was an unnerving experience - he clinically dissected any proposal before him, rarely raising his voice or pounding the table, but unrelenting in his demands for precise information. "If you were prepared with answers to five questions, he would ask the sixth," says a Wells executive.

One former Wells corporate banker who needed Hazen's approval for a large and complex leveraged credit some years ago remembers the meeting vividly: "He was very businesslike, very inquisitive and focused on the organization's purposes at all times. He asked the right questions and went for the conceptual issues about risk."

Another departed officer of the corporate unit notes that staff members tried to avoid pitching deals to Hazen, preferring instead an audience with Reichardt. "Hazen would ask tougher questions," the employee recalls. "Cad would ask, 'Is this a good deal?' Paul would ask, 'Why is this a good deal?'"

When an employee had to be fired, Hazen was usually the one who pressed to get it done. Subordinates say he had no tolerance for sloppy work or poor preparation, and especially hated blowhards whose ideas lacked substance. "Paul was constantly judging people as assets to the company," remembers a former Wells corporate banker who ran afoul of Hazen. "There was a feeling that one bad encounter with him could be enough to terminate your relationship with the bank."

Yet some colleagues insist that Hazen's fearsome reputation reflects only one side of a personality with many other dimensions. "Paul appeared to be more clinical than he really was," says former corporate lending chief John Lindstedt. Those like Petrone who came up with him on the real estate side remember an irreverent and sardonic young executive, fiercely competitive, all business on the job but ready for a gin rummy game or some country-and-western tunes when work was done.

Serious, But Not Cold

His friends believe the hatchet-man image is particularly inaccurate. "Paul is a very serious person. He's forthright, direct and not clandestine," explains one former Wells executive. "Nothing is done lightly ff it affects a human being he cares about or respects. But he will not abide foolishness or people who will not deal with him in a straightforward way."

Some Wells insiders note that Hazen's relations have been most strained with the corporate side of the bank, much of whose business, such as financing leveraged buy-outs, is deal-oriented. Hazen didn't fully trust those transactions despite their tremendous profitability, and he pushed hard to scale back the division when the leveraged deal market turned sour in the early 1990s. Hazen is said to have dashed repeatedly with corporate banking chief Ronald Parker, who tried to shield employees whose jobs were on the line. Parker jumped to Security Pacific Corp. early in 1991 after Wells' president gave him an ultimatum to fire two staff members, according to individuals familiar with the incident.

Hazen remained on much better terms with the bank's real estate executives, even when commercial property hit the skids and examiners forced Wells to write down hundreds of millions of dollars in realty loans. David Petrone and chief real estate lender Dale Walker both left in 1992 when Wells' realty portfolio hit bottom, but both remain dose to Hazen. "Paul is a caring individual, and he has continued to be a good friend," Walker says.

In a one-on-one conversation, Hazen seems not at all the bloodless machine as he is sometimes portrayed as. His syntax can be stiff and formal, and he is no natural storyteller, but his words reveal a thoughtful mind. He is not so much remote as just a little bit awkward. Far from being cold, he lets his hair down with visitors he trusts, displaying humor, graciousness and occasional profanity. But the no-nonsense reputation holds - when talk turns to business, Hazen is in complete command of his subject. He responds directly to questions, ticking off without notes such sundry data as the number of branches closed and shares bought back in 1994, the amount of allocated and unallocated loan-loss reserves, and the role of alternative distribution systems in retail product delivery.

Hazen tries to be philosophical about his reputation: "Myths have a way of just growing because that is what people look for. I don't get too excited by, 'Well, he is icy or too detailed or he is asking too many questions.' I am absolutely genuine in running the company in a way that is straightforward, fair and in the best interests of the company. I try to be sensitive to people and [at the same time] I try to be genuine to what the business interests of the company are - all those things that would be worthy of my feeling good about myself."

Those who know Hazen believe he has softened in the last few years. As Wells rebounded in spectacular fashion from California's economic slump, Hazen appeared to lighten up. Colleagues say he has become more relaxed during the transition of power. Several report that he is making special efforts to engage in personal chitchat and get to know colleagues better, and the effort does not seem forced. "Paul is working hard on developing a new persona," says Donaldson, Lufkin & Jenrette analyst Thomas Brown.

Hazen does not explicitly admit that he has worked on developing a kinder, gentler manner. Nevertheless, he admits that "I am introspective enough - and I get enough feedback - to get a clear picture of how I am interacting with people." Hazen also says the demands of management sometimes force him to be abrupt. "I get to spend too little time with people," he complains.

Meanwhile, there is a banking business to run. As Hazen starts his new job, his position is not as enviable as one might expect. On one hand, Wells' hefty pool of capital, excess reserves and huge cash flow from operations give the new CEO great financial flexibility. But given the current lofty state of profitability, it will be tough to improve on Wells' recent past.

On a per-share basis, earnings are getting a lift from Wells' stock repurchases, which are taking place at a rate of roughly 1.6 million shares per quarter. Analysts believe Wells may stop making provisions for loan losses in 1995, providing added capital to keep the share buyback program on track. One-quarter or more of the 52 million shares outstanding as of the end of 1994 could be retired by 1997.

While not flatly predicting a suspension of loan-loss provisions, Hazen says such a move "is the option that is likely to be available to us on a quarter-by-quarter basis." That, he notes, could help Wells "maintain a very aggressive share buyback program." Analysts say that even if revenue is flat in 1995, a combination of a zero provision and hefty share repurchases could boost earnings per share from approximately $15 in 1994 to as much as $19 or more. Says Hazen: "The arithmetic is pretty powerful."

With near-term earnings seemingly in the bag, Hazen has plenty of time to think about the future. And, in Zuendt, he has the right deputy to get him there. While Hazen put himself in charge of relationships with big wholesale customers, Zuendt is responsible for portfolios that can be managed using mass production techniques: branch-based retail accounts, credit cards and small business.

Hazen is enthusiastic about Zuendt's master project - the reengineering of retail delivery systems. The bank is closing traditional branches at the rate of about 30 per year, replacing them with supermarket locations and ATMs. Still in the experimental stage are electronic banking stations in about 30 California grocery stores.

Though locked up in fortress California, Wells is exploring new ways to serve out-of-state customers without paying premiums to buy branch networks. In money management, one of the bank's most important business lines, Wells is selling mutual funds and 401(k) plans nationally. The bank is building its dealer-based auto-leasing portfolio. And Zuendt is exploring ways of acquiring retail customers outside California by telephone, mail and personal computer.

Wells won't be the same without the hearty presence of Carl Reichardt, swapping stories with customers and urging the troops forward. But in an important way the transition from the people-oriented Reichardt regime to the numbers- and process-oriented team of Hazen and Zuendt is timely. Wells' business is turning increasingly into a technology-driven, statistically-based management exercise for which the new leaders are well prepared. "Times have changed," explains Walker, the former chief real estate lender "There is a different income stream today, and it requires different skill sets to manage it."

Paul Hazen agrees, but only in part. "We are going through tremendous transitions in the basic businesses we have," he says. "We have to be mindful of what got us here." Indeed, but others might add that Hazen must remember that Wells is more than a collection of businesses - it's also made up of people, and the "demands of management" demand that you manage them well.

Sam Zuckerman is a free-lance banking writer in Berkeley, CA.

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