Nothing is small about the lanky, six-foot-four Walter B. Wriston - especially his dreams. They became reality and wrenched the entire banking system into the current era -and in some ways beyond it.
Aspects of industry structure and technology now taken for granted, are Mr. Wriston's legacy Eighty years old and as sharp and caustic as ever, Mr. Wriston occupies a Park Avenue office suite blocks from Citigroup Inc.'s headquarters.
In the 17 years through 1984 that he was Citibanks chief executive officer, Mr. Wriston played a key role in changing an entire industry's reputation. What had been a low-profit, labor-intensive, service business turned into a bottom-line- driven, technological, money-making endeavor (at least most of the time).
Banking today is about three times more profitable than it was in the 1960s. when Mr. Wriston took the helm of First National City Bank. That institution subsequently became Citibank, the principal subsidiary of the holding company Citicorp, which in turn, following the 1998 merger with Travelers Group, became Citigroup.
A laissez-faire ideologue, Mr. Wriston devised "loophole banking" to circumvent laws and regulations that interfered with his objectives. He pushed for deregulation, and though there remains some mopping up to do, it has become a reality.
The changes he wrought and promoted have been good for bankers as well as banks. Mr. Wriston was among the first to argue that top bankers should receive the same kind of compensation earned by executives of industrial companies, rather than salaries equivalent to those of civil servants.
In his last full year at the bank, 1983, Mr. Wriston earned $726,667 in salary and bonus. Today, even bank chief executive officers who preside over the destruction of shareholder value, if not whole banks, can walk away with tens of millions of dollars in compensation.
Although some restrictions remain on what banks may do, the fact is that almost any financial business is open to them. The Glass-Steagall Act of 1933, for example, which prohibit- ed banks from underwriting corporate securities, has been totally defanged.
So have civil usury laws, thanks again to Mr. Wriston's heavy lobbying and astute legal strategy. Mr. Wriston's lawyers took advantage of a 1978 Supreme Court ruling that a federally chartered bank, when operating across state lines, could choose to abide by either the rules of its home state or those of the host state.
At the time, New York had stiff interest rate ceilings -no fees on credit cards, a 12% limit on consumer loans of $500 or more, and 18%on balances of less than $500. Considering New York's political realities, eliminating the state usury laws was impossible.
So Mr. Wriston lobbied the South Dakota legislature, promising to create thousands of jobs there if they did away with their usury laws. The South Dakotans agreed, and Citibank formed a federally chartered banking subsidiary in Sioux Falls. That became Citibank's credit card and consumer lending arm, and it changed the arithmetic of banking.
On the other side of the balance sheet, Mr, Wriston lobbied vigorously to eliminate the Federal Reserve's Regulation Q. which limited the interest that banks paid on deposits. "I stormed against Reg Q as being anticompetitive," he said in a recent interview.
Above all. Mr. Wriston changed bankers from the equivalent of passive pillars of the community into high-powered marketers, selling their wares rather than just making loans or taking deposits.
Mr. Wriston chuckled about an incident early in his career, a debate within his bank over whether "we should open our branches before 10 and stay open after 3."
The bankers spoke about "when we can receive customers," he said. As Mr. Wriston pointed out, such a perspective has no place in today's sales-oriented cultures. Banks no Longer wait for customers to arrive, but aggressively go after them.
"It's a sea change," said Mr, Wriston.
Until he came along, banks were not particularly interested in profitability and none were listed on stock exchanges until the early 1970s. Bank stocks were cast in the same category as public utilities, appropriate investments for widows and orphans. Most bank-stock investors cared little about capital gains, focusing instead on dividends.
Mr. Wriston succeeded in changing that. In the late 1960s. he stunned the markets by setting an annual earnings growth target of 15%. The late Arthur Burns, then chairman of the Federal Reserve Board, severely criticized Mr. Wriston for making the statement, Mr. Wriston recalled.
Burns thought such talk was "unseemly" and warned that a strong focus on profitability could lead to unhealthy competition among banks, causing them to make imprudent loans. And, to a degree, he turned out to be right.
Years later, after leaving the Fed, Burns was appointed ambassador to West Germany. One day he and Mr. Wriston both happened to be in Cannes, France. The retired Citibanker gratifyingly recalled Burns' saying: "You know, Walt, you were right."
Until the mid-1970s. leading bankers often were more statesmen than businessmen. David Rockefeller- who headed the old Chase Manhattan Bank (before its merger with Chemical Bank),was a prime example, often speaking out on grand issues such as free trade and international monetary reform. Today, bankers rarely step into that role. Those at the top of the industry exhibit much more concern about their own companies' bottom lines.
Bankers also had a paternal attitude toward their longtime corporate customers. John F. McGillicuddy, chairman of the old Manufacturers Hanover Trust So. (now part of Chase), went to great lengths to keep Chrysler Corp. out of bankruptcy. All the nation's biggest banks and the U.S. government eventually joined the rescue. The one exception: First National City.
Mr. Wriston set the scene for today's prevailing attitudes. Bankers coldly calculate whether they would be better off forcing a client into bankruptcy or helping it through a crisis.
The changes associated with Mr. Wriston have been good for most bank CEOs and bank earnings, but painful for many others. As the industry restructured and got lean, tens of thousands of bank employees were laid off. Companies that once could depend on their banks for support when times were tough found support harder to come by. Consumers who had regarded banks as refuges from high fees and interest rates and hard selling came to associate those qualities with many financial institutions, which took their images down a notch.
On the other hand, Mr. Wriston's meritocracy opened the once blue-blooded, all-male bastion of banking to women and members of minority groups, such as Jews and Italians, who had previously been unable to rise to high levels. Mr. Wriston also helped expand equal employment opportunity. To meet the competition from Citibank, other large banks began hiring and promoting based on merit rather than on the old-boy network.
Mr, Wriston's accomplishments stemmed not only from his ideology, but also from perspicacity, He realized before most that banks were losing their bread-and-butter business from the largest corporations, which could bypass banks to fulfill credit needs. They began borrowing and lending among them- selves and moved their business for a fraction of a percentage point. Mr. Wriston was among the first to fully acknowledge that failure to respond to these challenges could put banks out of business.
Worsening the problem for banks was that they were not allowed to pay interest on deposits of less than 30 days. Meanwhile, corporations were making loans to each other with no such restrictions. To make it possible for banks to compete, Mr. Wriston invented the .negotiable certificate of deposit. It was not redeemable in less than 70 days, but it could be traded in the secondary market. If a corporation invested in a negotiable CD and wanted to cash out within days, it could sell the CD to another investor. The net effect was to put banks back into short-term deposit taking.
Like many visionaries, Mr. Wriston was better at seeing the future than at the day-to-day running of his bank. Despite the importance he placed on earnings, Citicorp's profitability - compared with, say, J.P Morgan & Co. - was never particularly good in his years. During the early 1980% return on assets typically ranged between 45 and 60 basis points, compared with 150 for well-run banks today.
At times, Citicorp's capital dropped as low as 3.4% of total assets, and the bank was assailed by critics. But Mr. Wriston retorted that capital is unnecessary because a bank could depend on its earnings stream.
Under Mr. Wriston, Citibank was one of the most aggressive lenders to developing countries. Despite evidence to the contrary, he continued to proclaim that "countries don't go bankrupt."
With billions of dollars of bad loans to developing coun- tries, and with its relatively thin capitalization, Citi came close to failure.
It was left to John Reed, the next and still-serving chairman and chief executive officer (jointly with Sanford Weill at Citigroup), to strengthen the balance sheet and restore solid profitability. But Mr. Reed was able to do that only because of the groundwork laid by Mr. Wriston.
Mr. Wriston called the shots that enabled Mr. Reed and others to build the consumer bank into a well-oiled global money machine, operating in some ways more like a consumer prod- uct company than a conventional financial institution.
Mr. Wriston was among the first to recognize the importance of automated teller machines. "Citibank was the first bank that bet the ranch on it," he said. At the time, "other banks were running big ad campaigns saying human tellers are better," and the technological edge allowed Citibank to boost its New York-area market share substantially.
Mr. Wriston's gift as a visionary could work against him. He also laid the groundwork for a brand of "hubris" - a word used by former Citicorp chief technology officerColin Crook to describe a legacy that the company may still be trying to live down.
Citibank plowed millions of dollars into designing and actually building its own ATMs, hoping to sell them to other banks. But Citicorp was so disliked that other institutions refused to buy them, preferring less nifty models from regular vendors. Not until years later did Mr. Reed get the bank out of the manufacture and sale of ATMs. They turned out to be a drain on profits, but Citibank innovations such as touch-screen commands and card-dipping (as opposed to having the machines "ear cards) became commonplace.
Also thanks to that hubris, Citibank tookyears longer than the rest of the industry to open its ATMs to sharing with other banks. And just as it developed its own ATMs, Citibank owned an encoding technology for plastic cards, called Magic Middle, that executives quixotically and vainly hoped would supersede magnetic stripes as an industry standard.
There weren't many limits imposed on imperial thinking. Mr. Wriston at one point tried to convince Citicorp that it should acquire Verifone, the company that first commercial- ized inexpensive credit card terminals for points of sale.
Today, walking down the corridor to Mr. Wriston's office brings back the past. Along the way are offices of other past senior Citibankers, their nameplates on the walls: William Spencer, former president, "Billy" to Mr. Wriston; James Stillman Rockefeller, a former chairman, now 97 years old; and George Moore, the sprightly, ever-young ex-president.
The hall is lined with Mr. Spencer's hunting trophies, including African antelope heads, buffalo horns, and elephant ivories. Except for Mr. Wriston, no other former executive uses his office on a regular basis, making the area a bit lonely. Mr. Wriston refers to the suite as "Heritage Village."
Mr, Wriston straddles the new and the old, today's technology and what banking used to be. Looking younger than his years and still an avid tennis player, he keeps busy making speeches, working for conservative think tanks, and serving on corporate boards. His current office is reminiscent of the one of his past. He works from a round table rather than a desk, and it is piled high with books, manila envelopes, and yellow legal pads.
Fortune magazine called him "one wired dude;' yet he exudes much of the old people-to-people collegiality, a throwback. CEOs seldom refer to their colleagues any more as affectionately as Mr. Wriston does to Billy and George.
A year ago, Mr. Wriston said, "Billy Spencer, [my wife] Kathy, and I went to a restaurant and three other Citibankers were there." They looked at Mr. Wriston's party with amazement, and one said: "You guys are still talking to each other?"
