SAN FRANCISCO - William E.B. Siart, the No. 2 executive at First Interstate Bancorp, has been a key member of a management team that turned the Los Angeles-based bank company from an industry laggard into a formidable retail powerhouse.

The nation's 14th-largest bank has cured the capital and credit problems that once plagued it.

Although it has made strides in controlling costs, it ranks a lackluster 33d among, the top 50 bank companies in efficiency, with an expense-to-revenue ratio of 62.72% in 1994s second quarter.

Now First Interstate is making efficiency its top priority. It just announced a pro gram to trim its expense ratio to 58% by cutting 3,000 jobs and consolidating operations.

Mr. Siart spoke to the American Banker two days after the restructuring plan was unveiled. As First Interstate's president, he is generally seen as heir apparent to chairman and chief executive Edward M. Carson, who turns 65 in November

But a recent news report suggested he faces competition from Southwest region chief William S. Randall for the job.

Q.: Given the turnaround that First Interstate has already achieved, why are you carrying out another restructuring?

SIART: As painful as it is, this is a logical thing to do to get our cost basis down in the 50s and be ready for the next 10 years. It's the kind of thing we need to do to become a high-performance bank.

Q.: But aren't you already making a lot of money?

SIART: Ten years ago a 17% return on equity would have been among the best of the top 20 banks. But group performance has improved.

Now our 17% is just a little better than average. There is a market requirement that you do better. If you don't, you disappear.

Q.: You have already done a lot of consolidating. How does this latest program fit in?

SIART: We consolidated from the 21 banks to the four regions. But that still didn't give us the cost structure to make 20% on equity ongoing. So we had to cut out operational redundancies. We couldn't have done that three or four years ago because we didn't have common systems.

Now we have common systems on everything but demand deposits. Before, if we had tried to operate a single telephone answering center, our operators would have had to have 13 terminals sitting in front of them.

Also, we don't need four finance functions in the regions and one at the holding company. We can decrease 130 people in our comptroller function because we now have the same general ledger, the same systems.

Q.: Will a 58% expense ratio be good enough?

SIART: We looked at all the cost saves and consolidations and figured out we would be at 58% or slightly below in 1995. But we expect to get better than that in 1996.

All banks are focusing on this, and 58% is not going to be in the top quartile in 1997. We are going to keep improving.

Q.: What is the role of your regional structure as interstate branching takes effect?

SIART: The four regions are market divisions. We actually have 14 legal units. If full interstate branching were available, we would have one legal entity.

Q.: What advantages does First Interstate have compared with its peers?

SIART: First, we operate in territory that is growing faster than the rest of the United States. Second, First Interstate is very focused.

We do not focus on international or major corporate, but very strongly on banking for individuals and small businesses. That is about 90% of our revenue. We have good market share in most places in our territory for that kind of business.

BankAmerica also has good share in a lot of our markets. But they do a lot of other things. They just bought Continental in the Midwest. Whatever amount of energy they put into that means they are less focused on our territory.

Q.: And where do you need to do a better job?

SIART: We would like to improve cash management. We have done a very good job of servicing people. But I think our products themselves have not been technologically leading. So we have got to invest money in our product mix.

It is also important to improve the sale of annuities and mutual funds. Our revenues are $40 million in that business,'2% of our total. It is not relatively big right now, but it is a business for the future.

Q.: Some of your competitors are high on proprietary mutual funds. What do you think?

SIART: We are selling 30% of our own funds. We would probably like to be 50% of our own funds. Some people sell almost 100%. We think customers should be offered both external and internal.

Q.: Given your heavy retail focus, are you sufficiently diversified?

SIART: We have four main business segments. First there is the mass market, a group that goes with the economy. Then we have the high-net-worth individuals who have trust and investments.

We have small businesses that have different cycles relative to their industries. Then there are middle-market and larger companies that were out of favor three or four years ago and now are considered to be hot again.

Also there is our geography. If you look at Texas, the Pacific Northwest, Arizona, Nevada, California, and Colorado, there is some correlation because of the national economy. But other than that, they sing a very different song.

Q.: One of First Interstate's strengths is its extensive branch network. But many people believe the value of branches is declining as customers move toward alternative systems.

SIART: What we focus on is the relationship with the customer. The way you protect that relationship is to make connections to them in a lot of different ways, whether its branches or telephones or home banking.

We are connected to those customers more through branches than we probably will be 10 years from now. But we are connected less through branches than we were 10 years ago.

Whether we have 1,100 branches or 800 branches doesn't make that much difference. The more important thing is whether we have three million households or four million households.

Q.: How do you stack up in alternative retail technologies?

SIART: I don't think anybody can tell you they have the formula on that. Everybody, is learning. And we are one of them.

Our strategy is that 10 or 15 years from now we are going to have half the branches we have today. We are moving on the technology side. Today that primarily means telephones and ATMs.

Q.: How are you using telephones?

SIART: We have seven million calls a month, and that is growing about 20% per year. If somebody just has a simple question, they can push a button and get an answer. We have got people who answer questions that are more complicated.

We have two telephone centers that are working on outbound selling. We have people who respond to inbound questions and turn it into marketing if that is appropriate. We have to get better people and better systems to work that telephone connection.

Q.: How are you using telephones?

SIART: We have seven million calls a month, and that is rowing about 20% per year. If somebody just has a simple question, they can push a button and get an answer. We have got people who answer questions that are more complicated.

We have two telephone centers that are working on outbound selling. We have people who respond to inbound questions and turn it into marketing if that is appropriate. We have to get better people and better systems to work that telephone connection.

Q.: What about computer banking?

SIART: We had home banking a few years ago. What we found is that customers liked it but were willing to pay about $6. It cost us $28 a head.

Today it is much easier to use and less costly, but people aren't willing to pay a heck of a lot more for it. Most studies will tell you that people will pay $8 to $10 per head.

Q.: Is there any truth to the recent news report that you are in competition with Bill Randall to succeed Ed Carson as chief executive?

SIART: I will not answer your question, but I will say two things.

One, every single member of our managing group believes in our strategic plan.

Secondly, succession is a board issue. The board will decide that at the appropriate time.

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