Other big-city banks have given up, but Chase raises ante in upstate N.Y.

ROCHESTER, N.Y. -- Most New York City banking companies that expanded upstate during the 1970s and 1980s have given up on the region. Except for Chase Manhattan Corp.

The reason Chase remains has more to do with the size of its upstate operation (105 branches and $4.4 billion of assets) than its performance, but William H. Hoefling is out to change that.

Installed as head of Chase's upstate bank a year ago, Mr. Hoefling has been shaking things up, according to competitors and Chase employees.

Focus on Service, Teamwork

Preaching the Chase creed ("financial services provider of choice, employer of choice, investment of choice"), he has brought a renewed focus on customer service and teamwork to the upstate operation.

One of 10 up-and-coming Chase executives recently promoted to corporate executive vice president, Mr. Hoefling, 43, has been working hard to recharge the upstate bank, which Chase acquired in 1984.

"He's scaring the hell out of everyone" in, the upstate bank, said one banker at a competing institution who spoke on the condition of anonymity. Mr. Hoefling is whipping Chase bankers into shape, sources say, by insisting that formerly competing business managers now share leads and work as a team to drum up new business.

Acquisition Planned

Sources say Mr. Hoefling will make his most dramatic mark on the upstate bank early next year when it makes an acquisition. This purchase will add to the bank's asset size, and will allow it to consolidate offices.

Mr. Hoefling declined to comment on the bank's plan, but says a "restructuring of the distribution network" is in the works. He says the bank is not after brick and mortar but customer lists.

Sources say Chase is very interested in Columbia Banking Federal Savings and Loan, a 26-branch Rochester thrift seized by the government last year. Chase could consolidate many of the branches with its existing Rochester offices.

Chase is also rumored to be looking at the auto financing subsidiary of Rochester Community Savings Bank.

Treading Water

Though it is the leading bank in Rochester and a few other small cities in upstate New York, Chase has been treading water here for several years'

The bank has been troubled by a lagging upstate economy, stiff competition and a New York City banking style that didn't necessarily work in the smaller cities upstate.

Shifted to the back burner by a parent company preoccupied with heavy credit losses, it saw its Rochester deposit share slip four percentage points last year, to 31%. Profits declined 8.3% to $44 million in 1992.

Mr. Hoefling, who ran Chase's Long Island banks for nine years before transferring to Rochester, acknowledges that internal strife and competition from nonbank entities took their toll on the upstate bank's performance.

"Our focus had been on the internal [situation] rather than the customer," Mr. Hoefling said in a recent interview. "Our share was decreasing because people were focused on internal" difficulties.

Others Have Abandoned Region

Chase isn't the only New York bank that found the upstate market troubling. Companies like Citicorp, Bankers Trust Co., Chemical Banking Corp., Bank of New York Corp., and Manufacturers Hanover Corp. all expanded and then later cut back their operations in the region.

Chase and Chemical, which inherited branches from Hanover, are the only remaining money-centers upstate.

But even Chemical is pulling out. It has an agreement to sell its upstate offices to Fleet Financial Group, which has some 240 branches in upstate New York and is one of Chase's main competitors there.

Other competitors include regionals Marine Midland Bank, Keycorp, and National Westminster Bancorp, and community banks like Rochester Community.

To deal with that competition, Chase Manhattan Corp. is moving to strengthen its upstate franchise. First, it brought in Mr. Hoefling, who had built the Long Island operation into a profitable network of 50 branches and $3.2 billion of assets.

When Mr. Hoefling came to Lincoln First, he replaced William Balderston, who went to Chase's New York offices in 1991 as a retail marketer.

Once Mr. Hoefling was in place, Chase instituted a corporate-wide restructuring of retail banking that replaced geographic divisions with "segments" organized around specific customer groups such as mass market consumers, wealthy consumers, small businesses, and middle market companies.

Chase has "segment executives" in its regional banking group (which includes upstate and downstate New York, as well as Connecticut and Maryland retail operations) who are based at the corporation's New York headquarters.

7 Regional Districts

The heads of Chase's upstate lines of business report simultaneously to Mr. Hoefling and to their respective segment executives. Regional executives who oversee the day-to-day management of seven districts stretching from Buffalo to Binghamton to Rochester also report to Mr. Hoefling.

Although the structure appears top heavy, Mr. Hoefling says it keeps the bank focused on customer groups and has helped Chase steal market share from competitors, especially on the commercial side of the business.

Upstate New York is fertile ground for business banking, he says. Several large corporations, including Eastman Kodak Co., Xerox Corp., and Bausch & Lomb, as well as their suppliers, call the region home.

"Our outstandings are growing, and it's coming from [winning market] share," said Mr. Hoefling.

Chase ranked No. 1 for "willingness to lend" in a recent Greenwich Associates survey of upstate companies, up from fourth place a few years ago, according to Mr. Hoefling.

Of Chase's $3 billion upstate loan portfolio, two-thirds is business lending. Robert F. Ryan, vice president and manager of the upstate bank's middle market business, says loans have grown 6% to 8% this year.

"The results are a combination of successful efforts to bring in new clients and a slight increase in usage of existing credits," he said.

Kodak Planning Layoffs

But there are problems on the corporate business front. Massive layoffs are planned at Kodak, which has corporate headquarters in Rochester. The company is under pressure to shed as many as 20,000 workers and downsize operations, which could have a devastating effect on the local economy.

Mr. Ryan said the bank has examined its exposure to Kodak and its suppliers and he claims Chase's vulnerability is "minimal." The situation, though, does not give Chase bankers reason to cheer.

Competitors say Chase may be getting more aggressive now but during the period before Mr. Hoefling came on board there was an identifable loss of customers.

"We have been able to get a lot of business away from Chase over the years," says the president of a competing regional bank in Rochester who requested anonymity. "On the retail side they're doing a solid job. But they can't get deals done [on the wholesale side]."

However, Mr. Hoefling has gained the respect of some local bankers.

"He knows how to cut through the legendary Chase bureaucracy," said the bank president. "But he hasn't succeeded yet."

Lot of Work to Do

It's difficult to determine whether the bank's performance has truly improved since Mr. Hoefling's arrival. Chase merged the upstate bank - formerly called Chase Lincoln First Bank - into its New York-based banking subsidiary, Chase Manhattan Bank, this January. Chase no longer releases financial information for the upstate entity.

Mr. Hoefling says the bank will have a record 1993 and that profits will be "substantially higher" than the $44 million earned last year. But he acknowledges that there's still a lot of work to be done to get the upstate bank humming.

"Clearly we're not where we want to be," he says.

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