After Stephen A. Hansel was recruited in 1992 to engineer a turnaround at Hibernia Corp., he commissioned an artist to represent the challenges overcome and those that lay ahead.
The resulting painting, called "The Trials of Hibernia," is a kind of epic mural, featuring the distinctive bell tower that caps the bank's downtown New Orleans headquarters and an eagle looking resolutely forward. It also includes an octopus with spindly tentacles representing the reach of federal regulatory agencies - which had imposed restrictions on Hibernia - as well as "media vultures" - fierce-looking raptors with beaks like the nibs of quill pens.
After nearly three years as chief executive, Mr. Hansel, 46, can look at the mural and chuckle. The trials of Hibernia are largely behind it, and the verdict is favorable: The bank has been recapitalized, profits are back, performance is strong, and it's on the way toward strengthening its Louisiana franchise with a string of community bank acquisitions.
The acquisitions extend its reach in a state where the economy is no longer so dependent on the fortunes of the oil and gas industry. Hibernia has also invested heavily in technology to catch up on long-deferred investments.
"He's done an exceptional job of turning this thing around, and turning it into what now looks like a pretty good company with lots of momentum," said Michael Granger, an analyst at Fox-Pitt/Kelton in New York.
Louisiana "banks have now recapitalized and restructured themselves to the point that they are doing extremely well," he said. "Hibernia is the supreme example of that."
While the trial is over, some speculation persists in the industry that Hibernia, which will have $6.8 billion of assets when pending mergers are completed, is building with an eye toward putting itself up for sale.
But some analysts disagree. "I think for the near term, at least for the next year or two, they are not really looking to do that," said Mr. Granger. "The things they have been doing recently have been actions that are trying to build a franchise in Louisiana that will clearly be viewed as the strongest in that state."
And John Coffey of Robinson-Humphrey Co. in Atlanta, said, "I can't speculate whether the endgame is to sell it. That doesn't appear to be in their vocabulary."
It isn't - although Mr. Hansel doesn't rule out the possibility. "Hopefully, we will make decisions that are in the long-run best interests of the shareholders," he said. "What does that mean? I don't know. It might mean operating a great, great company for another 125 years. It might mean something else. That's not something I spend much time worrying about."
What Mr. Hansel is thinking about these days is boosting market share in Louisiana - which remains a relatively fragmented banking state - through internal growth and acquisitions. Generally, he wants to improve the bank's performance to place it among the top quartile of its peers.
Much progress has been made since the dark days of the early 1990s. Hibernia had managed to avoid the hits that affected many other banks in Oil Patch states as energy prices fell in the 1980s. But by the end of the decade, its commercial real estate and leveraged buyout lending had begun to turn sour. In 1991 and 1992, Hibernia lost $165 million and $64 million, respectively.
Under the management team led by Mr. Hansel, profits returned. In 1993, Hibernia posted net income of $63.8 million, and its profit increased 33% last year, to $84.7 million. Nonperforming assets as a percentage of loans also decreased dramatically during the period, from 3.49% to 1.03%. Return on assets in 1994 stood at 1.35%, up from 1.06% the year before.
Analysts noted, however, that the operating numbers reflect a lower than normal tax rate due to previously unrecorded deferred tax benefits.
Mr. Granger added, "They have more reserves than they'll ever need. They have been reporting negative provisions, but even with that, they still have very, very high reserve levels."
"That's going to be an issue they are going to have to deal with," he continued.
Hibernia has lagged also in reining in overhead costs. Its efficiency ratio, or noninterest expense per dollar of revenue, was 77.4% last year, compared to 79.4% in 1993.
"Judging from their expense ratio, they are not there yet," said Mr. Coffey, adding that "it takes more than two years to do that."
Still, Mr. Hansel is quick to point out that the efficiency ratio includes one-time costs associated with mergers and the impairment of goodwill. The "normalized" ratio, the bank reports, was 72.1% in 1993 and declined to 69.2% last year.
Mr. Hansel said that a goal set in 1993 - to reduce the efficiency ratio to 62.5% by 1996 - remains unchanged.
"I believed for a long time, and continue to believe, that an efficiency ratio and an ROA is not a per se goal. I think what we're trying to do is deliver earnings per share with a franchise that becomes ever more valuable and that is increasingly capable of delivery . . . annuity-like returns," he said.
Mr. Hansel also sought to improve shareholder value by tying compensation to performance. "Only seven of (the) top 18 executives will get raises in base salary next year."
And he takes pride in the fact that he didn't take a meat ax approach to cutting costs.
"There has probably been too much of a focus on efficiency ratios - cut, cut, cut, cut, cut. The assumption that you can both significantly cut costs and raise revenues is usually not correct," he said. "Coming in, I resisted calls for more blood on the floor. There had already been some cuts. And what I tried to do was, on a very measured basis, look at what we were doing and take out the costs we could."
"You have to give him credit for that," said Mr. Granger, the Fox- Pitt/Kelton analyst. "He made the decision that he wasn't going to gut the company for the sake of near-term profitability. He wasn't going to hack 30% of the staff and get his efficiency ratio down to 60%."
Instead, after getting the company back on track - which involved raising $75 million of equity in a complex deal - Mr. Hansel turned his sights to expanding its presence in Louisiana.
Since the fall of 1993, Hibernia has acquired, or has agreed to acquire, 10 banking companies, seven of which have assets of less than $200 million. The largest had assets of $366 million. Mr. Hansel calls them "bite-sized acquisitions."
Louisiana, because it did not allow multiparish banking for many years, and then because of its economic woes, remains one of the most fragmented banking states. Ten years ago, Mr. Hansel noted, the state's largest banks - Hibernia, Whitney, Premier, and First Commerce - held just 14% of the market.
But the consolidation has begun. Today, about half the market is in the hands of the (same) top four banks. And as Hibernia expands in Louisiana - it has no ambition to cross state lines after its ill-fated foray into Texas - consumer banking and small business lending have gotten the emphasis.
In addition to spending money to grow by acquisition, Hibernia has spent heavily on technology.
"The old guys did not invest in the future," said Mr. Hansel. "They didn't invest in training; they didn't invest in technology. They were buying used ATMs that weren't upgradable, to save money."
"If you're running a company to sell it in the next six months, that's great," he continued. "If you're trying to build long-term value in a company that is 125 years old today, you got to invest in the future."
W. Kirk Domingos 3d, executive vice president of administration, who is also responsible for technology, said, "When I came here in 1985, we didn't have any technology. I was flabbergasted."
Hibernia embarked on a plan to play catch-up. The technology budget nearly tripled from 1993 to 1994, from $5.4 million to $15.8 million. The bulk of that amount - nearly half - went to buy personal computers and to set up a wide area network to link Hibernia's 156 branches. The bank also spent nearly $4 million on new ATMs last year and plans to spend nearly half that amount again in 1995.
Hibernia has also upgraded its telephone call center and management information systems to improve profitability tracking across the bank.
"We were woefully underinvested in management information," said Mr. Hansel. "We're now in a position where we can make, I think, rather surgical decisions and cuts based on good management information."
"The investment(s) for the network are by and large in place," said Mr. Domingos. "What we'll be investing in is on ways to use it - tools that will let us use the network."
Hibernia has budgeted $13.5 million for technology this year.
And in a major move, Hibernia also decided in 1993 to sever its outsourcing relationship with Integrated Systems Solutions Corp., a unit of International Business Machines Corp. The bank paid IBM $12 million to get out of its 10-year contract, which had been signed by the previous management.
In late 1993, the bank signed a new deal with Systematics Financial Services Inc., now called Alltel Information Services. The conversion was completed in January, more than a year after the decision was made.
"The relative probability of a successful conversion is directly related to the amount of effort that you put in," said Mr. Domingos. "You've got to map systems. You've got to look at how one system does it versus another system, number one. The way you'd do one particular function on one may not work the same way on the new system."
Mr. Hansel said the decision to switch outsourcers was driven by issues of cost and performance. The contract with ISSC, he said, was "back- loaded," meaning that annual costs were rising even as the bank's asset base was shrinking.
"They were expensive, and they weren't integrated. The applications systems didn't talk to each other," he said. "They were not fast, not responsive, not cheap."
The deal with Systematics is expected to save at least $40 million over eight years.
Mr. Hansel said his views on outsourcing began to evolve when he was at Barnett Banks Inc. in Florida., where he had become chief financial officer.
"If you think about where cost savings are in the industry generally, and where cost savings are available from any type of merger, anything that involves systems - whether they be employee benefit systems, or compliance systems, or data processing systems, policy, things like that - is where you save money," he said. "What are the odds that we are going to be able to build a better mousetrap than Systematics?"
Mr. Domingos agreed, noting that the bank outsources other functions, such as investor and legal services.
Hibernia executives also say the outsourcing agreement and other technology investments have prepared the bank to grow and to realize economies of scale.
"I don't think we've really begun to see the impact of the technology spending," Mr. Hansel said.
But with the bulk of its technology initiatives behind it, Mr. Hansel is looking to improve internal growth.
"Though Louisiana is not Florida," he said, "we're a long way from using our franchise as well as we can as a consumer lender, as a seller of annuities, as a seller of securities products, and investment products generally, small business services."
Mr. Hansel said the bank also sees new opportunities to use its capital. It has gotten approval to set up a small business investment company, which will be managed by Hibernia's top executives. A typical investment, he said, might be in an entrepreneurial energy company.
"We have very clear guidelines on (what) we are planning to do," he said. "You can get for that extra risk a significantly enhanced return."
While Mr. Hansel was brought in as a turnaround specialist, he said he has no plan to move on. "I came in with a deal that makes it not very attractive for me to leave," he said.
And he appears to relish the job. "I had wanted to run a company since I was 20," he said. "So I was eager to do it. More eager than I knew.