Risks are part of everyday banking life, but something about this new year and the approach of 2000 is pushing anxiety over the top.

The changing world economy, new and evolving forms of competition, legal and legislative uncertainty, the fundamental reassertions of the credit cycle, last summer's stock-market bump, the computer problems that have turned Y2K into an ominous buzzword-any and all of these have financial institution executives in states approaching high anxiety.

Wells Fargo & Co. chief executive officer Richard Kovacevich said, "There isn't enough room in the paper" to print all the things that keep him awake at night.

It is not a "moment of panic" like the ones that struck in years past, when real estate values or international credits collapsed, said Seamus McMahon of First Manhattan Consulting Group.

But there is certainly an unusual confluence of external and internal concerns and events, which Mr. McMahon described as "a series of reasons to be anxious about the business and less comfortable that they will go away."

The sky may not be ready to fall just yet. Paul Hazen, chairman of Wells, which was acquired by Mr. Kovacevich's Norwest Corp. last year, said, "I don't think we're in a position where the U.S. economy is going to fall out of bed."

Yet the climate is unmistakably changed-for the worse, it stands to reason. "It will be different in 1999 and 2000 than it's been over the past few years," Mr. Hazen said.

"I don't think there is any reason to believe that it's all going to sort out in the wash early in the year," said Mr. McMahon.

To people like these who take their paranoia seriously, the last six years of record-setting bank earnings provide every reason to banish the Pollyannish-and Mr. Kovacevich is fearing prolonged pain.

The good times "can't last," he bemoaned in a yearend interview. "We'll probably start to see credit issues in 1999 but worse will come in 2000 and 2001.

"Our lack of discipline, because we have not been pricing for risk, will come back to haunt us," he declared.

San Francisco-based Wells Fargo does not just take all this climatological stress on itself. It also typifies "micro" concerns that are rife in the banking industry: completion of merger integrations, attainment of cost-reduction and revenue-enhancing goals, confronting bank and nonbank competitive threats, and preparing organizationally and technologically for the year 2000, both the bug and close of the century.

Mr. Hazen said he is most focused on making the Wells-Norwest marriage of Nov. 2 work.

"Those of us that are involved in mergers are going to worry about staying competitive, retaining market share, and gaining market share," he said.

At the same time, the specter of nonbank competition looms large.

Joseph Williams, chairman of the community bankers council of the American Bankers Association, mentioned, for example, State Farm Insurance and its recently obtained unitary thrift charter.

"They'll be making each one of their insurance offices into a bank branch," said Mr. Williams, who is president and CEO of $75 million-asset American Heritage Bank, of El Reno, Okla.

Also on his radar screen are entities as diverse as the Farm Credit System and automobile companies' financing arms.

"The question becomes: How do we differentiate ourselves over time to create products that lure people in?" Mr. Williams said.

Community banks are also trying to face a challenge that their bigger counterparts have been working on for years: how to turn their branches into sales offices, with the right kinds of incentives driving employees to rise above the old transaction processing mentality.

Like many highly touted strategic initiatives, the sales culture effort may have lost some momentum because of the year-2000 distraction.

"Most banks have declared a moratorium on any new projects that aren't Y2K-related," said Mr. McMahon of First Manhattan Consulting. "That makes it hard to get excited about making yourself into a sales machine."

At most banks, "marketing energy has been constrained," he said, and "that permeates all the way down the organizations."

But at some point the Y2K issues get addressed and the energies can be redirected. Goldman, Sachs & Co. analyst Robert Albertson said, "Most banks are pretty well along the road now on Y2K." The problem is that "a lot of their commercial clients and government clients may not be."

Said Mr. Kovacevich, "There will be customers that will be year-2000 compliant and there will be those that aren't." The banks just have to be prepared for the worst.

Some bankers said they are mostly concerned about the public reaction to the millennium bug.

Y2K "has a lot more to do at this point with psychology than it does with technology," said Mr. Williams. "You've got to rein in the fears of people so they won't act irrationally."

For banks going through mergers, Y2K remediation compounds the ordinary systems challenges. Computer conversions have to be finished well before the turn of the year, said James Furash, president of Monument Financial Group of Alexandria, Va., which advises banks on acquisitions.

Mr. Kovacevich said, "Because of the potential problems of the year- 2000, we're basically planning for no major conversions in the fourth quarter of 1999 or the first quarter of 2000. We want to have capacity available to solve any problems that come up on our own or with customers. That's why we're talking a three-year integration" of Wells with the old Norwest of Minneapolis. In the past, most merged banks had combined their systems in a year or, at most, two.

The international market turmoil of 1998 is having a residual effect on banker expectations.

Well it should, said George L. Davis, president of Scarborough Partners Inc. of New York. "I think it's potentially a very dangerous world and people will need to be very careful."

Mr. Davis, a risk management expert and retired Citibank executive, was moved by the Asian crisis and other factors to write in an October letter to clients that "the global fabric in which banks and other lenders have operated for almost the last 10 years is badly frayed."

"A major sea change in the environment across the world" is affecting and will continue to affect the commercial and investment banks in this country, Mr. Davis said. "It is likely that this environment will be materially different than in the recent past."

Mr. Williams said these types of concerns will weigh heaviest on business-oriented banks with customers that are active exporters.

For many small institutions, particularly in the Midwest, he said, "the price of cattle and hogs has much more of an impact than how Asia or Europe goes."

For banks large and small, keeping employees motivated and morale high, especially in the wake of a merger, is a crucial task.

"I am concerned further at the sheer size and complexity of the institutions resulting from the ongoing merger activity," Mr. Davis said. "Each surviving management is stepping up to a paradigm of size with which it has never grappled before."

He said he is less worried about maximizing profits than about "whether there is sufficient internal knowledge, agility, and communication to avoid systemic or major individual mistakes."

Edward E. Crutchfield, chief executive officer of Charlotte, N.C.-based First Union Corp., has called human relations "one of my biggest challenges." In a speech last March he said keeping "the human touch" in the face of "the creeping bureaucracy of bigness" was a top priority.

For Mr. Kovacevich, who also speaks often about the human element, the bottom-line concern remains revenue growth and how to keep profits flowing from the ever-narrowing traditional banking segment.

"In the investment area, banks are not top-of-mind compared to a Schwab or a Fidelity or a Merrill Lynch," he said. "We have not been playing on that field except for the last year. But that's where people want to put their money."

Community bankers, meanwhile, "are trying to make our banks relevant to Generation X and beyond," Mr. Williams said. "Community banks' best customers have always been older Americans who believe that their money should be invested in bank CDs.

"But the people who inherit this money feel that it is better invested in stocks, mutual funds, bonds. In some of the rural communities, the older people die and the young people move off. Then the older person's CD is liquidated and disappears into the young person's mutual fund somewhere."

As a result, "our deposit base is disappearing," the banker added. "We have to look at how we're going to approach things in a new way."

"Some of these factors aren't going away any time soon," said Mr. McMahon. "Senior bankers are being paid more than ever before. That's because the anxiety level is going up and up. It's a more complex world and they are going to have to solve many complex problems."

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