Norwest's Johnson Shows Charisma When It Counts

MINNEAPOLIS - No one ever called Norwest Corp.'s Lloyd P. Johnson dynamic. Indeed, the chairman and chief executive officer's monotone speeches are a standing joke in Minnesota. But Mr. Johnson makes no apologies.

"I run into so many people with great charisma who wreck a business," he says.

Mr. Johnson's emphasis is on profits and performance, areas where he has proved himself one of the nation's most adept chief executives.

In just six years, Mr. Johnson has transformed Norwest from a chronic underachiever into one of the nation's top-performing retail banking companies.

"Lloyd Johnson may put people to sleep, but he has created a model consumer bank," says David J. Gilson, bank analyst with IDS Financial Services Inc., Minneapolis.

As the Bush administration's interstate banking proposal moves through Congress, Norwest may serve as a prototype for the retail banking company of the future.

The company, the nation's 17th-largest, with $36 billion in assets, was in seven states more than three decades ago. It was allowed to keep its holdings under a grandfather clause in the Bank Holding Company Act of 1956, which otherwise prohibited interstate banking.

More recently, Norwest has aggressively taken advantage of various regional interstate banking pacts. Today, the company has 337 retail offices in 12 Mid-western and Western states.

Strength Is in Small Cities

While Norwest's lead bank is in Minnesota's Twin Cities, its strength is rooted in towns and small cities such as Spearfish, S.D., and Sioux City, Iowa, where margins are high and business relationships enduring.

It is in communities like these that Mr. Johnson believes he can best reach Norwest's target markets: consumers, farmers, and small to midsize businesses. The company also is attracted by the work ethic and honesty that it believes is typically found in these places.

Minimum Return Established

Norwest does not shun business with large corporations, but insists on the same 18% minimum return on capital that it gets from its community banking businesses. Officials say they regularly turn down business from corporations that won't also buy high-profit, fee-based services such as cash management.

Norwest also has taken steps to protect itself from the vagaries of interest rates and real estate markets, which have helped it become one of the most profitable banking companies in its peer group.

About 38% of Norwest's revenues comes from fees and other noninterest sources. Real estate construction and leveraged-deal loans represent less than 8% of total credits.

Mr. Johnson, 61, follows a simple but effective banking strategy: spread risk widely and avoid concentration in dangerous markets.

"I have a basic philosophy," he says. "All banks should have new products or new sources of income coming on all the time. Small things. That way you can try things without betting the bank."

Acquisitions are integral to Mr. Johnson's strategy, prime examples of the kinds of new income sources he seeks. The company prefers underperforming organizations with solid franchises that will give a pop to earnings after they are fixed.

Two months ago, Norwest completed its acquisition of United Banks of Colorado, a $5.5 billion-asset banking company based in Denver. UBC's $400 million in commercial real estate loans and $211 million in nonperforming assets probably represent the biggest risk on Norwest's balance sheet.

Nervous About Takeover

"The magnitude of the UBC deal makes me a little nervous," says Mr. Gilson.

Mr. Johnson says he is confident in Colorado, stressing the thoroughness of Norwest's research. Norwest not only pored over UBC's books, but also carried out a detailed study of Colorado's battered economy.

"We knew exactly what we were buying," Mr. Johnson insists. He adds that Norwest's 168% ratio of loan-loss reserves to nonperforming loans is among the highest of large banks.

Since the beginning of 1990, Norwest has bought eight banks or thrifts and expanded into Illinois, Indiana, Colorado and Wyoming. Mr. Johnson says Missouri, Kansas, Utah, Idaho, Washington and Oregon are on his wish list. And he wants to add to Norwest's small operations in Illinois and Indiana, although there are no plans to enter the Chicago market.

Wary of Wandering

Norwest is reluctant to scout outside its heartland base. Officials say they briefly weighed bidding for Bank of New England, but dropped the idea because they didn't feel comfortable in the Northeast.

For three straight years, Norwest has earned returns on assets over 1.00% and returns on equity over 19%, among the best performances for a banking company its size.

Norwest last year earned $280.6 million or $2.73 a share. Besides its core branch banking business, Norwest operates highly profitable mortgage banking, credit card and insurance subsidiaries.

Norwest Financial Inc., a $3.6 billion-asset finance company with 663 offices nationwide, produced a stunning 26.3% return on equity and contributed about a third of the company's profits in 1990.

Praise for the Unit

"It's probably the best finance company in the country," judges Ben B. Crabtree, an analyst with Dain, Bosworth Inc., Minneapolis.

Despite a slumping economy, Norwest's profits rose 13%, to $77 million, in the first three months of this year, a record quarterly profit.

Only in cost control is Norwest's performance less than stellar. Its 65.3% ratio of noninterest expenses to revenue last year put it about in the middle of the pack for banks its size.

Norwest today is a far cry from the bank handed to Mr. Johnson when he arrived in March 1985. The company was plagued by bad loans to farmers and developing countries. Its mortgage subsidiary had sustained a paper loss of $220 million on a $1.3 billion portfolio of adjustable-rate mortgages it could not sell.

Internal organization was a nightmare, with dozens of separately chartered banks operating under their own policies and procedures. Earnings for 1984 were a puny 0.34% of assets.

For Mr. Johnson, the job represented a return to the town where he had grown up and played high school hockey. For 30 years he had worked in California for Security Pacific Corp. or its predecessor companies, moving up from teller to loan officer, regional manager, and eventually corporate banking chief.

Mr. Johnson says he immediately saw the strength of Norwest's franchise. "I said we want to get back to basics," he recalls. Besides acting to stem credit losses and fix the mortgage portfolio, the new CEO's top priority was creating a standardized banking system out of a loose affiliation of banks.

Mr. Johnson imposed uniform policies and a line reporting system. Separately chartered banks were combined and several businesses inconsistent with Norwest's community focus were sold.

Bankers in the field were told they had only two jobs: to manage employees and deal with customers. All other functions were centralized.

One of Mr. Johnson's most inspired actions was hiring Richard A. Kovacevich, a hard-driving retail specialist at Citicorp, as his No. 2 man and probable successor.

The two men shared views on banking, but their personalities were light years apart. Mr. Kovacevich's impassioned style provided Norwest the spark Mr. Johnson couldn't contribute himself. In a most un-Johnson-like gesture, Mr. Kovacevich even listed "having fun" as one of his top goals for employees.

"Lloyd came in to save Norwest and he did that. But the leader who will get the banker in Bismarck making more calls, it's Dick Kovacevich," says Dain, Bosworth's Mr. Crabtree.

Mr. Johnson credits his second-in-command with creating a sales culture. Indeed, the 46-year-old Mr. Kovacevich, a tall, animated executive who dominates a room with the force of his personality, likes nothing better than to talk about selling. "We want to serve all the needs of our customers - every one of them. We want 100% of their business." he declares.

Not a Communicator

Those who know Mr. Johnson say he was a tough boss during the early days. He had an iron will, they say, but was a poor communicator.

"Lloyd is an extremely inarticulate person," says a former Norwest executive. "He had difficulty trying to explain what he wanted. There was always tension in the air."

Those who know Mr. Johnson say that success has mellowed him. Mr. Johnson agrees that he may indeed have lightened up over the years.

"I used to worry," he confesses. "But I don't worry any more. I'm having fun."

PHOTO : Where Norwest Gets Its Profits

PHOTO : Norwest's Interstate Empire

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