Exit from U.S. Bancorp Rekindles Merger Talk

August 23, 2000, 1:00 a.m. EDT 4 Min Read

U.S. Bancorp's president and chief operating officer, Philip G. Heasley, said Tuesday that he had resigned from the post at the Minneapolis banking company to pursue an ambition to become a corporate chief executive.

The surprise announcement cast uncertainty over the management succession at $86 billion-asset U.S. Bank.

Mr. Heasley, 51, was appointed president in a management shake-up a year ago and was widely regarded as the most likely successor to John F. Grundhofer, chairman and chief executive officer.

U.S. Bank said it will not name another president to succeed Mr. Heasley.

In a press statement Mr. Heasley said, "I want to run a company as a CEO, and I've decided to look outside U.S. Bancorp." He was traveling Tuesday and was not available for further comment.

Mr. Grundhofer said in an interview that Mr. Heasley had decided to resign after failing in contract negotiations to obtain a guarantee that he would become CEO within a given time frame. His employment contract expired early this month.

U.S. Bank executives traditionally retire at age 65, though Mr. Grundhofer, who is 61, said that is not mandatory.

"The timing wasn't right to give him a guarantee," Mr. Grundhofer said. "We agreed mutually that this was the best course of action."

Mr. Heasley was credited most recently with putting together a 14-member operating committee made up of U.S. Bank's senior-most executives and developing a plan to revive revenue and profit growth momentum after a string of disappointing earnings.

Mr. Grundhofer will take over the operating committee, and the members will now report directly to him.

Signs of management instability rekindled speculation Tuesday that U.S. Bank would seek a merger partner. Simultaneous with Mr. Heasley's announcement, the company said its branch banking chief, Peter E. Raskind, would quit next month to take a job as head of consumer finance at National City Corp. of Cleveland. (See story, page 2.)

Two other senior executives have quit U.S. Bank this year. Susan E. Lester resigned in May as chief financial officer to "pursue other interests," and Chris Rasmussen, a vice chairman and head of business banking, quit in April to become president of commercial banking at Washington Mutual Inc. of Seattle.

"Concern is raised about the breadth and depth of management remaining under Jack Grundhofer," said Michael Plodwick, an analyst at UBS Warburg, in a research note to clients. Likely buyers of U.S. Bank include ABN Amro, the Dutch company with a Chicago banking operation, Firstar Corp. of Milwaukee (which is run by Mr. Grundhofer's younger brother, Jerry), and Citigroup Inc., Mr. Plodwick said.

Mr. Grundhofer refused to comment on the speculation.

Analysts said Mr. Heasley probably declined to sign on for another term because most executive contracts include noncompete clauses that prevent managers from jumping to a rival company.

Mr. Heasley is well regarded for his work in technology, particularly in payment systems. He joined U.S. Bank in 1987 as an executive in its consumer banking operations. Before that he spent 13 years at Citicorp, including a three-year stint as president and chief operating officer of Diners Club Inc.

He has also been a high-profile member of Visa's board. U.S. Bank is the largest provider of Visa corporate and purchasing cards.

Analysts said Mr. Heasley was considered U.S. Bank's best bet to turn the company around. "We don't view this development positively," said David George, an analyst at A.G. Edwards & Sons Inc. in St. Louis.

The departure of Mr. Raskind, in particular, is being interpreted by many on Wall Street as a sign that U.S. Bank's efforts to reform its consumer operations are not going well.

Mr. Grundhofer, however, disputed the notion that U.S. Bank lacked the "bench strength" to continue. Mr. Raskind, for example, is being succeeded by Kent V. Stone, a 20-year veteran of U.S. Bank who most recently ran its consumer banking operations in the West.

"We continue to work hard to do the right thing, and we are making significant progress," Mr. Grundhofer said.

U.S. Bank - along with a handful of others - has been beaten down in recent quarters because earnings have failed to meet expectations. The company said it is working to improve customer service in the hopes of boosting revenues and profits, but Mr. Grundhofer acknowledged that the work has not gone as fast as he had hoped.

The company recently told Wall Street analysts to look for yearend earnings in the range of $2.18 to $2.23 a share. That is lower than the $2.30 to $2.35 range they were telegraphing at the beginning of the year - and even that earlier range was below expectations.

"We haven't maximized our potential," Mr. Grundhofer said.

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