Deal Caps History-Making Comeback Effort

BankAmerica's planned acquisition of Security Pacific is the capstone in one of the most dramatic turnarounds in U.S. banking annals.

In the mid-1980s, BankAmerica Corp. recorded billions in losses from bad loans before retreating from many businesses, shedding assets, and trimming its work force under the direction of A.W. Clausen.

With its latest merger announcement, BankAmerica becomes the banking powerhouse on the West Coast, bolstered by one of the strongest capital positions in the industry and an enviable retail franchise.

Learning from Mistakes

Ironically, the problems of the last decade may have prepared it to take a leadership role in the 1990s. Because it spent the late 1980s returning to its roots as a retail bank, BankAmerica shunned many of the risky loans that have weakened its competitors.

BankAmerica was "a precursor to what many banks are going through now," said Donald Crowley, associate director of research at Keefe, Bruyette & Woods Inc., New York. The bank's officials "changed their corporate culture as it relates to credit quality."

The venerable San Francisco institution began the 1980s with more than $100 billion in assets. Its market capitalization was the largest of any U.S. bank.

But the value of the assets backing many of its loans started to decline. In addition, its massive portfolio of loans to lesser-developed countries went sour. The bank posted losses, and its credit rating fell. In 1987, Moody's Investors Service gave BankAmerica's senior debt a junk rating.

Chief executive Samuel H. Armacost resigned under pressure from the board in late 1986 and was replaced by Mr. Clausen, who had led the bank until resigning in 1980 for a position with the World Bank.

With Mr. Clausen again at the helm, BankAmerica shrank its balance sheet to $93 billion and sharply reduced its overseas presence.

It revamped its lending practices, adopting bank regulators' standards for evaluating loans and centralizing responsibility for credit evaluation. At a time when competitors were rushing to make loans for real estate developments and leveraged buyouts, BankAmerica shied away.

"When your wounds are knitting as [BankAmerica's] were in 1987 and 1988, you're not out there making loans," Mr. Crowley said.

Mr. Clausen who was blamed for much of the trouble that emerged at BankAmerica in the mid-1980s, would up taking much of the credit for the company's survival.

"Clausen was one of the engines in the sickness, but he turned into an engine of repair," said David Cates, president of W.C. Ferguson & Co. "He used his immense authority within the bank to lead the corrective steps necessary."

Richard Rosenberg, the current chief executive officer and the man who will head the new $190 billion BankAmerica, also deserves a share of the credit, observers said. Like chief financial officer Frank Newman, Mr. Rosenberg came from Wells Fargo & Co. and helped instill a no-nonsense, retail-oriented culture.

"BankAmerica's numbers are very strong," said Christopher Mahoney, an associate director at Moody's. "They're the second strongest [after Wells Fargo & Co.] by far in California. They're not Banc One, but they're very strong."

PHOTO : Oversaw dramatic turnaround

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