After two-and-a-half years as chief executive of Wachovia Corp., L.M. "Bud" Baker Jr. has finally put his stamp on the company.
It may be just in time.
Wachovia, long regarded as one of the banking industry's model institutions, finds itself in the grip of unprecedented ferment and change. Organizational charts have been redrawn, executives shifted, and branch networks reengineered. Most important, the company has launched a massive technology investment program.
During a recent address to shareholders, Mr. Baker said he was "taking apart" the organization in order to institute a "stronger growth culture." He warned his audience that it was no longer sufficient to be "just a good credit organization."
But some observers, while applauding the effort, wonder whether Wachovia has come to the party a bit late. Nearly every initiative undertaken by Wachovia has already been pioneered by other banks. Moreover, some analysts wonder whether the North Carolina institution has been hamstrung by its reluctance to pursue acquisition opportunities in the South.
"They're definitely on the right track, but they're playing a little catch-up," said Thomas K. Brown, an analyst with Donaldson, Lufkin & Jenrette.
The need for some new direction at Wachovia is reflected in its stock performance. Wachovia has appreciated only 15% in the last 52 weeks, compared with a 32% gain for the Standard & Poor's major bank index.
Analysts generally blame the drag of the high cost of technology initiatives expected to top $100 million this year. Chief financial officer Robert S. McCoy Jr. said investments in new systems - branch automation, customer information file, trust, and performance measurement - will eventually help take Wachovia to a higher level of earnings.
But, as Mr. McCoy acknowledged, "you can't plead to the market to be patient."
Wachovia's problems may go deeper. The Southeast's preeminent bank in decades past has become much less high-profile in the 1990s, in the wake of explosive growth by the two Charlotte-based titans, NationsBank Corp. and First Union Corp., which now dwarf Wachovia in asset size and product range.
"The First Union and NationsBank that Bud Baker is competing against are different companies from the ones John Medlin competed against," said Anthony R. Davis of Dean Witter, referring to Mr. Baker's predecessor John G. Medlin Jr., who is still Wachovia's chairman.
Wachovia officials conceded privately that the bank may have erred on the side of caution by declining acquisition opportunities in deposit-rich Florida during the late 1980s and the early 1990s.
It has been Wachovia's nature to shine in bad times, when its sterling credit quality provides a competitive edge. But in today's economic environment, the pace is set by companies that generate faster growth.
Dean Witter calculates that total revenues at Wachovia grew at an annual compounded rate of 7.1% from 1991 to 1995, compared with 21% at First Union and 10% at NationsBank. To be fair, the comparison reflects more acquisitions by First Union and NationsBank during the period, as well as internal growth.
The challenge for Mr. Baker is to get Wachovia on the offensive before the bank falls further behind . The 53-year-old Mr. Baker admitted in a recent interview the difficulty of getting his people focused on growth without sacrificing the risk management skills for which the company is famous.
"The trap is that you become so enamored of the past that you can't see the future," he said. "You have to change, go with your customers, or you'll be left behind."
Wachovia accomplished much of the reorganization last year, which involved moving the company from a geographical to a line-of-business structure. Mr. Baker's priority for 1996 is to ride herd on the technological investments while keeping an eye out for acquisition opportunities, which are more likely to involve business units than a traditional commercial bank franchise.
The hearty embrace of technology has become a definite characteristic of the Baker regime at Wachovia. Mr. Baker, a self-described "techno-nut," maintains PCs at his home and office .
"Bud will drive us a lot harder on technology," said G. Joseph Prendergast, Wachovia executive vice president. "When Bud goes around and shows people he enjoys working with the computer, that's partly to say, 'If I can do it - and I've been around a while - you can do it.'"
Mr. Prendergast, who runs Wachovia's retail operations from Atlanta, says Mr. Baker has encouraged the company to view technology as a vital instrument of growth rather than simply as a means to enhance operational performance. The recent snafu in Wachovia's automated clearing house operation embarrassed the company severely, but did not shake Mr. Baker's conviction that technology will help determine the banking industry's future winners.
Mr. Baker's strategy for taking Wachovia into the next century is threefold: drive down operating costs as low as possible while selling more products and services to existing retail customers and expanding the bank's share of the national credit card and corporate services businesses.
Wachovia's cost-control efforts can't be faulted. Its efficiency ratio, 52%, ranks among the lowest in the industry. A branch reorganization last year resulted in 700 employees being laid off or redeployed into other areas, such as credit cards, investment sales, and telephone banking.
The company plans to complete a review of its entire distribution system by the end of this year, which could produce more cutbacks in some markets. A reengineering of the mortgage lending operation is also now under way, similar to an earlier consolidation of the sales finance effort.
Mr. Baker, said Mr. Prendergast, "is clearly intent on driving our efficiency ratio much lower - dramatically lower - to numbers that most of us are afraid to admit."
The bigger challenge for Wachovia is growth. As exemplified by its slow buildup in mutual funds sales, Wachovia has been more reticent than its peers in pushing products at customers. Wachovia retail bankers still feel more comfortable letting the business come to them.
Mr. Baker said he hopes that improved technology will boost Wachovia's sales efforts by providing branch personnel and telephone sales people with enough customer information to allow them to suggest appropriate products. He looks forward to the day when Wachovia's new customer information file is merged into its updated branch automation system, so that "when you come into the bank, the banker you deal with will have an absolutely on-line, real-time view of your situation."
While banks have traditionally done a good job maintaining close relationships with their customers, adding better customer information to the mix will produce "a winning combination," Mr. Baker predicted.
"There'll be a payoff at some point" to the Wachovia initiatives, according to Natwest Securities Corp. analyst Thomas D. McCandless. "But they don't know when and we don't know when."