FIRST INTERSTATE Bancorp wants to make loans again.
The Los Angeles-based giant has engineered a dramatic turnaround in the last 18 months, fueled by strong improvements in the three Cs: capital, credit, and costs. But when it comes to the R word -- revenue -- the company has been moving backward.
In 1992, with credit costs down sharply, First Interstate earned $282.3 million, reversing a $288.1 million loss the year before. But both net interest and noninterest income plummeted. Total 1992 revenue of $2.93 billion was 16.5% below the 1990 level.
Much of the decrease reflected a stunning drop-off in lending at the company, which has $49 billion of assets. First Interstate's loans and leases totaled $23.8 billion at the end of March, a steep 38.5% drop from year-end 1989.
Turning on the revenue tap is now the top priority at the nation's 12th largest bank company, said William E. B. Siart, First Interstate's president.
But analysts say progress toward that goal is likely to be painfully slow. "They are swimming upstream," says Salomon Brothers' John D. Leonard.
Mr. Siart agrees that First Interstate will see only modest revenue increases for the next few years. He doesn't quibble with estimates of growth slightly over 2% growth this year -- a projection that comes from annualizing the company's first-quarter net revenues of $746 million.
Especially Tough Problem
To be sure, revenue is an industrywide problem. But several factors make it an especially tough issue at First Interstate. California, its principal marketplace, remains mired in an economic slump that is keeping loan demand soft. In addition, First Interstate has sold off a number of businesses, such as merchant banking, that produced subpar returns but still brought in revenue.
To top it all, First Interstate must must win back customers it cut off over the past two years as it focused on overhauling credit policies. The problem is especially severe in the Northwest, where the bank abruptly withdrew from the commercial credit market while other banks were lending aggressively.
The company's strategy is to decentralize its revenue efforts. Each of its four regions -- California, Texas, Northwest, and Southwest -- are developing 10 to 20 income-boosting initiatives. "We didn't want to dictate from headquarters," explains Mr. Siart.
The business emphases vary by region. In Texas, the stress is on tapping the state's enormous consumer market. In Nevada, about 70% of incremental revenue is to come from small businesses and other commercial customers.
Company officials say they are working on wooing customers from other lenders by taking advantage of mergers and other market disruptions. In Arizona, says Southwest region chief William S. Randall, "we are the one [major] organization that isn't changing."