Chemical Picks Branch-Office Merger Czar
Chemical Banking Corp. is about to name a Manufacturers Hanover Corp. veteran to oversee the integration of the two banks' global office and branch systems.
Kent L. Stewart has been senior vice president and director of corporate office services at Hanover since 1975. He will retain the same title in his new job.
Besides putting Mr. Stewart in charge of a key aspect of the giant bank merger, Chemical is enhancing the visibility of an internal real estate post that used to be considered an administrative backwater at many banks. The new Chemical is looking to Mr. Stewart to deliver a substantial chunk of the $650 million in expected cost savings from the merger.
Bank officials hope to wring $100 million a year in savings from more efficient use of real estate.
"We've stopped viewing in-house real estate as a necessary evil, and started viewing it as a profit-and-loss center," Mr. Stewart said.
A monumental task awaits him.
"We start with 22 million square feet of space, including almost 9.5 million square feet in New York City," Mr. Stewart said. The company expects him to reduce that total by at least 15% globally.
Consolidation could raise the real estate management function to a higher level at many banks across the nation.
"All one has to do is look at the magnitude of the numbers. In effect, that goes right to the bottom line," Mr. Stewart said.
The appointment of a high-level executive to coordinate the restructuring of a vast in-house real estate portfolio also represents a trend in banking to centralize decision-making.
"It's important that the organization report up to a very high level" in its buying, leasing, and selling decisions, said Robert J. Alexander, managing director of Edward S. Gordon Co., a New York broker. "There are great cost savings that can be cornered through consolidation."
Top Executives in Charge
Savings on occupancy costs rank second only to personnel savings when banks merge, experts say.
Mr. Stewart, who will report to the chief financial officer, said centralized decision-making enables the bank to "match needs" when it has dealings in more than one market with the same broker, developer, or investors.
While some obvious opportunities exist, including the 1994 expiration of Chemical's lease on 750,000 square feet of office space in its Park Avenue headquarters, a deft touch will be required to make the most of the consolidation.
A Balancing Act
The benefits of subleasing space or breaking leases will have to be weighed carefully against related expenses, including the accounting charges associated with canceling liabilities, Mr. Stewart said.
Mr. Stewart has taken on numerous assignments in the operations division since he joined Hanover 27 years ago.
He is responsible for food services, security and investigations, corporate purchasing, and corporate transportation, among other office-related operations.
Mr. Stewart said most of Chemical's headquarters can be absorbed into the headquarters building across the avenue, owned by Hanover.
He noted that the 750,000 square feet includes facilities, such as corporate cafeterias, that will simply be eliminated.
Responding to a published report, Mr. Stewart denied that the bank has made any commitment to buy air rights from the owners of nearby Grand Central Station, but confirmed that an air rights purchase could enable the bank to expand a building on Madison Avenue by about 350,000 square feet.
Construction of new office space is seen as out of the question in New York for the foreseeable future, however, he said.
Private Bank May Move
A lease in Rockefeller Center, where Chemical's private banking unit is based, is also set to expire in 1994, and the bank will "strongly consider" relocating those offices elsewhere, he added.
In London, he said, the combined bank is likely to consolidate its offices in the Strand into 225,000 square feet of space that Manufacturers has preleased at Canary Wharf, a huge Olympia & York project in the East End.
Although a weak market is often a tenant's market, the lower rental rates afford few opportunities to a bank that is shrinking, Mr. Stewart said.
PHOTO : Kent L. Stewart A 27-year Hanover veteran