Mitsubishi Puts Focus on Profits In Shake-Up at Bank of California
SAN FRANCISCO - The Bank of California, under pressure from its Japanese owners to improve a poor profit record, is carrying out a far-reaching shake-up of its internal organization and business strategy, company insiders and former employees said.
Since Mitsubishi Bank Ltd. bought it in 1984, the San Francisco-based bank has aggressively pursued a broad range of wholesale and middle-market businesses.
It has nearly tripled in size, to $8.9 billion in assets, making it the sixth-largest bank in the state and the nation's 68th-largest institution. But this week the California bank's board is considering a five-year strategic plan that would sharply cut back the bank's activities.
The plan, hammered out by bank staff over more than six months, would trim corporate and big-ticket construction lending, bank sources said. Bank of California would instead focus on business with midsize West Coast companies, as well as trust services and a handful of other core businesses.
In addition, the plan will outline steps to improve Bank of California's funding by reducing the gap between loans and core deposits.
Meanwhile, several major organizational changes have taken place since the beginning of the year, including the departure of three of eight executive vice presidents.
"Mitsubishi is very disappointed with its investment up to now," said a director of the bank. "They are determined to fix it."
Bank of California, the second-largest Japanese-owned bank in the United States, has more than 50 branches in California, Washington, and Oregon, but it does not actively compete for retail business. Except for the chairman and chief executive slots, the bank's executives are mostly Americans.
A Tighter Grip
While Bank of California executives are designing the bank's new strategy, insiders say Mitsubishi demanded a shake-up and has dictated several elements of the plan. Mitsubishi previously granted wide latitude to its California subsidiary, but the Japanese bank has drastically tightened its grip, sources said.
"The Japanese make all the decisions," said a former executive.
The Bank of California declined to comment on its recent performance or its emerging strategy. But, in an internal newsletter, president and chief executive Yasumasa Gomi said: "Mitsubishi has invested over $750 million in the Bank of California, and we have not yet earned a market rate of return. Mitsubishi is not complaining about this.... [However,] over the long term, Mitsubishi will look for such an adequate return."
Profits Sorely Needed
Changes are occurring at the bank as Japanese institutions struggle to boost profits in order to meet the 8% international capital standard that will take effect in 1993. Mitsubishi, considered one of the most conservative and best-managed Japanese city banks, shrank worldwide assets 4.2% in the year ended March 1991 in order to improve its capital ratio.
Over the past three years, Bank of California has averaged a 5% return on equity, about a third of what is considered good profitability.
The subpar performance reached a nadir in the fourth quarter of 1990 when a $50 million addition to loan-loss reserves, mainly for nonperforming commercial real estate loans, resulted in a loss of about $19 million for the period. The Bank of California's profits for all of 1990 were just $11.5 million, a return on assets of 0.14%.
After the rise in problem loans, commercial real estate chief Gerald R. McIntrye resigned. His unit was folded into Bank of California's corporate banking group, and new construction lending was suspended. Chief credit officer Colin M. Forkner and branch banking chief John R. Jenkins left in March.
Goals Spelled Out
In a first-quarter report distributed to customers, the bank said it is aiming for a return on equity of 14% and a pretax return on assets of 1.50% by 1995.
The bank's shift in strategy began with the arrival of Mr. Gomi, 48, a career Mitsubishi executive who was named Bank of California president and chief operating officer in 1989. Mr. Gomi took the additional post of chief executive in January 1991 with the retirement of Osamu Yamada, one of the best-known Japanese bankers in the United States. Mr. Yamada still serves as board chairman.
It is through Mr. Gomi that Mitsubishi has taken more direct control of Bank of California, insiders say. The new chief reports to Takeshi Yano, the New York-based head of Mitsubishi's North American operations. By contrast, Junji Hatano, Mr. Gomi's predecessor as operating chief, had a looser reporting relationship with Mitsubishi's Tokyo headquarters.
Mr. Hatano gave broad authority to the bank's American senior officers. Mr. Gomi tends to reserve decisions for himself, insiders say. While the new chief is praised for his hard work and personal decency, sources said his lack of familiarity with the English language and American business culture has made him remote.
Former Mission Was Growth
Under Mr. Hatano, the bank defined its mission as growth, setting an asset target of $10 billion by 1991.
In internal documents, Mr. Gomi defined the growth era as "Phase 1" of Bank of California's history since the Mitsubishi acquisition. "Phase 2," which started this year, replaces growth with two different objectives: improved profitability and an expanded presence in target markets for the bank's core businesses.
Phase 1 made Bank of California larger and stronger, Mr. Gomi noted in one document. "However, we also leave Phase 1 with a bank that is less profitable than its peers; ... a bank with a significant funding gap; and a bank with a recently announced increase in nonperforming loans."