Winding down a tumultuous year that included big writedowns, the closing of operations, and senior management shuffles, FleetBoston Financial Corp.’s chief executive Charles K. Gifford says he is counting on basic banking to return the company to double-digit earnings growth.
The timetable of the turnaround remains unclear, however. Mr. Gifford, who is to take full stewardship of FleetBoston at yearend when Terrence Murray retires as chairman, says he is still “circumspect” about the economy’s near-term outlook — though he said personal financial services and wholesale banking have the potential to propel double-digit growth at Fleet.
FleetBoston has identified home equity, mortgage, mutual funds, credit card, and checking account businesses as fertile areas and has made efforts to solidify its customer base. Also, revenues from cross-selling fees are up — products sold per customer were 5.8 in the third quarter, against 4.7 in the third quarter of 2001.
“I want our company to be positioned so that when people want to go back into the market, they don’t have to go outside of the bank to do so,” Mr. Gifford told investors Wednesday in a presentation at a Goldman Sachs Group conference in New York.
Consumer banking income rose 6.3% at Fleet in the third quarter from a year earlier and 20% from the second quarter. Domestic core deposits rose 13%, to $92.2 billion, though total deposits fell 2.7%, to $121.5 billion.
Commercial lending continued to be a sore spot. Fleet has been working to make itself less reliant on revenues from lending, which were 39% of revenues over all in the first half of 2002, versus 45% in all of 2001. Nineteen percent of its relationships were credit-only in the third quarter, versus 33% in the third quarter of 2001.
The last 11 months have been marked by big changes at Fleet as the new CEO has tried to get a handle on losses from investment banking, private equity investing, corporate lending, and Latin American operations. It shut down Robertson Stephens, its San Francisco-based investment bank, after failing to find a buyer, including a management-led buyout. It has stopped investing new capital in Argentina and Brazil, where shaky economies forced steep writedowns.
“It wouldn’t be FleetBoston if the CEO didn’t touch upon Latin America,” Mr. Gifford said half-jokingly. He noted that Fleet has $2 billion of nonperformering assets from Argentina, adding, “I never thought I’d say those words to anybody.”
At home, meanwhile, Fleet is focusing again on improving retail service and is trying to reduce customer attrition. It has found that online clients tend to be more “sticky” and to have higher balances than those who do not use Web banking, Mr. Gifford said.
“We are going to have revenue-growth opportunities that we have not seen in the past” among e-banking users, he said. “To say that I’m interested in this and follow it closely is an understatement.”
Fill-in acquisitions are a possibility in areas including the tri-state area, Long Island, and eastern Pennsylvania, as are small deals in asset management and asset-based lending, the CEO said.
Fleet has stabilized some, but it has not come easy, Mr. Gifford said Wednesday. On Argentina, he said, “I look at the crossborder book as a workout situation with a significant amount of reserves, but I think we’re close to seeing stability but it’s stability that has come at a very high price.” As for credit quality, “the overwhelming pain that we have taken in the past is behind us,” but the company will still be thinking about loan-loss provisions, Mr. Gifford said.
Once FleetBoston’s credit quality is healthier, the company should be able to achieve double-digit earnings growth — a reasonable expectation for 2003, said Gerard Cassidy, an analyst at Royal Bank of Canada’s RBC Capital Markets.
