Robert H. Smith has carved a place for himself in business history as one of the architects of Security Pacific Corp.'s merger with BankAmerica Corp., the largest combination ever in U.S. banking.

As the extent of Security Pacific's troubles become more evident, Mr. Smith's deal increasingly looks like a triumph for his company's shareholders.

Mr. Smith, who joined Security Pacific in 1961 as a management trainee, rose to become chief executive officer in 1990 and chairman a year later. Two months after the merger closed in 1992, he abruptly resigned as president of the combined company.

The Glendale, Calif., native is widely praised for his wisdom in pursuing the merger and his tenacity in negotiating an excellent deal. But critics say he bears some responsibility for Security Pacific's troubles. As a senior executive, he developed a reputation for an inconsistent, shoot-from-the-hip management style.

Today, Mr. Smith, 58, has launched a new career, as an investment banker at a boutique he recently formed. He remains intensely proud of the merger and is clearly wounded by criticism leveled against his former company. He recently sat down in San Francisco for his first wide-ranging interview on the merger and his years at Security Pacific.

Q.: How does the merger of BankAmerica and Security Pacific look to you now?

SMITH: It's got to be considered one of the great mergers of all time, from the point of view of the shareholders.

Q.: Why did you present it as a merger of equals when BankAmerica obviously was in the driver's seat?

SMITH: Clearly [BankAmerica CEO] Dick Rosenberg and I as well as both boards intended it to be a merger of equals. In any merger of equals, one side always comes out stronger. We obviously were the weaker. In addition, it was decided right from the start that Dick would be CEO.

Q.: What led you to conclude a merger was the best option for Security Pacific.

SMITH: We felt the 1990s were going to be a period of consolidation in the industry. I believed that a merger in the California marketplace was a strategy that would be in the best interest of shareholders, employees, and all parties concerned.

From our point of view, the California economy did not look strong. We had entered the 1990s with a low level of capital and reserves. We were beginning to show signs of credit problems. And we didn't have our stock valued at a level that would allow us to be an aggressive builder.

Q.: So where did that leave you?

SMITH: We had three alternatives.

One was to attempt to remain independent and fight our way through whatever difficulties the future might hold. To do that, we would have to very confident that the California economy was headed in the right direction, and we had to be very comfortable that our credit problems would not materially increase.

The second alternative would have been to sell the company. But there weren't a lot of potential acquirers.

The third alternative was to seek a merger partner that was a strong, well-capitalized institution. We had conversations with Wells Fargo in 1990. Those conversations did not lead to anything. We began to hold conversations in the beginning of 1991 with BankAmerica.

Q.: Did BankAmerica understand the depth of Security Pacific's problems?

SMITH: One of BankAmerica's strong suits is the expertise of the individuals who are responsible for credit. They had complete access to all of our accounts and records.

They did a very thorough review. But the economy, particularly in California, showed greater signs of decay than either of us expected.

Q.: What do you think of the complaints of some Security Pacific people that they have been treated like second-class citizens at BankAmerica?

SMITH: Senior management treated Security Pacific people very fairly. However as Security Pacific began to look weaker, there was a general condemnation at some levels of the organization.

If there is anyone to blame for the weakness at Security Pacific, management has to accept that -- and that's me.

Q.: Certainly you would agree that many Security Pacific employees have had a tough time adapting?

SMITH: The problems Security Pacific people have had are more reflection of culture than any attitude BankAmerica people might have. BankAmerica is very control oriented, very staff oriented. Security Pacific people were very entrelpreneurial, creative -- they had much greater latitude in dealing with customers and developing strategies.

Q.: Why did you leave so soon after the merger closed?

SMITH: When the transaction was completed I had very little responsibility. I didn't want to sit back while contributing very little to the organization.

I had been the CEO. I was personally pleased with what I had accomplished. I think I could have added an entrepreneurial dimension to BankAmerica that would have been beneficial. But if the organization didn't want all I had to offer, that was fine. I understood that.

Q.: At what point did you realize that you would never be selected to succeed Dick Rosenberg as CEO?

SMITH: After the merger was completed, there were concerns expressed by the regulators about the provision of the merger agreement that suggested that I might be CEO. That expression, coupled with the lack of meaningful responsibilities for me, was the genesis of my request to leave early.

Q.: You've been criticized for negotiating rich "golden parachutes" for yourself and two other executives when you should have focused exclusively on the larger issues of the merger. Why did you give yourselves the right to quit voluntarily and collect millions of dollars?

SMITH: Obviously, it turned out to be in my best interest that those provisions were there.

Those provisions were designed to ensure that in completing the transaction I would not be focused on my own future, but on the transaction itself. The shareholders received a substantial benefit, in that they had three executives who were focused on the right decision for the shareholders.

We also tried to ensure that our employees were fairly dealt with. Many have careers at BankAmerica. Others have gone to better careers.

Q.: What was the condition of Security Pacific when you became CEO at the beginning of 1990?

SMITH: We had completed a 10-year cycle in which we had quadrupled in asset size. Capital had grown five times. We had had a year in which we made $740 million.

In a negative vein, we had begun to experience asset-quality problems in Arizona, Australia, and England. We had very low levels of capital and reserves. We had a merchant banking activity that had not performed up to our expectations.

It was our initial charge in 1990 to improve our levels of capital and reserves, to improve our funding, and to be willing to critically review and restructure our company by evaluating the returns on the capital we employed in our businesses.

Q.: Why did your merger discussions with Wells Fargo break down?

SMITH: [Wells Fargo chief executive] Carl Reichardt runs an outstanding, very focused business. On the other hand, we were a very diverse organization, with a lot of different activities in a lot of different markets that were apart from the Wells Fargo strategy. Those differences, it's my belief, were what led to the decision not to go forward.

Q.: Was it Mr. Reichardt who called off the talks?

SMITH: Let's just say we mutually decided not to go forward. He and I subsequently agreed that was a good decision given the three-year recession in California.

Q.: Who leaked word of the talks to press?

SMITH: It wasn't me. The good side of that was that the appearance of that story was what prompted Dick Rosenberg to call me.

Q.: Would Security Pacific have failed if the BankAmerican merger hadn't occurred?

SMITH: If we had been unable to reach an agreement with Bank-America Security Pacific would have continued to exist. But we would have been a much narrower institution, probably doing business only in California.

More than likely, we would have had to sell the non-California bank subsidiaries, the finance company, and most activities that were not related to our core California banking business.

Q.: What got Security Pacific in such hot water?

SMITH: The principal difficulty was that we were overexposed in the real estate lending market. We had real estate activities in Australia, Europe. Arizona, the East Coast, and of course here in California. There isn't one of those markets that didn't have a recession.

Q.: Doesn't the extent of your real estate problems suggest that your controls were inadequate?

SMITH: I don't think we were a poor operational or control oriented organization.

We had a strong awareness that we needed quality people in charge of controls. On the other hand, we were also a very entrepreneurial organization, a very creative organization.

That creativity, that entrepreneurship, and that leading-edge attitude weren't what ultimately caused the problems. It was financing real estate in a variety of troubled markets that ultimately led to problems.

Q.: What do you think about BankAmerica's complaints that Security Pacific's trust operations skirted the law?

SMITH: Our trust activities - investment management, our mutual funds, our securities business, our personal trust business, Sequor - were very successful.

I ran them personally from 1978 until 1983. It's difficult for me to accept the opinion of a few people at BankAmerica when these activities were regularly reviewed by all of the regulatory authorities, by our accountants, by groups of attorneys, and by internal auditors. They never experienced a major problem during that period.

Q.: What about the San Francisco Federal Reserve Bank's concerns about possible violations at Sequor?

SMITH: Like many of our activities, Sequor was run very entrepreneurially. It had accountability to the head office in terms of asset quality, the use of capital, and policies and procedures. In our view it met adequate standards in all of those areas.

Q.: Security Pacific colleagues say your greatest asset was a willingness to take chances to find a better way of doing things. They say your greatest weakness was a tendency to shoot from the hip. Is this fair?

SMITH: Rather than prolonging an issue, it was my general approach to move ahead. That doesn't imply that the background work and analysis weren't done. They were done.

Q.: What were your thoughts as Security Pacific's problems mounted?

SMITH: I can remember one moment when I looked skyward and said, "God, why did you pick me for the 19902? Why didn't I get the 1980s?"

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