FROM THEIR headquarters on the shore of Lake Erie, top executives at Buffalo's Marine Midland Banks Inc. spent a good part of the 1980s dreaming of how they could soon join the ranks of money-center banks clustered downstate.
But huge losses in 1990 and 1991 totaling almost $500 million, along with nearly $2 billion in loan chargeoffs between 1988 and 1991, instead forced Marine to trim its sails, shedding assets and employees to concentrate on a handful of businesses.
The bank's management and operations have also been tethered more closely to those of its corporate parent, HSBC Holdings PLC. The London-based holding company, with nearly $260 billion in assets, has had an interest in Marine for more than a decade, and full ownership since 1987.
HSBC's other companies include Hongkong and Shanghai Banking Corp., Midland Bank PLC, and numerous other banking, finance, brokerage, and insurance concerns. Since Marine's troubles became apparent in 1989, HBSC has added $500 million to the bank's reserves to meet regulatory requirements.
In addition, many of Marine's senior executive officers are actually employees of the group - company parlance for the holding company - who were put in place soon after HSBC was given approval to do so by U.S. regulators in 1990.
Leading those executives was John Bond, who was Marine's chief executive for 18 months before being promoted to group chief executive last year. Other group managers took over control functions such as audit and human resources, moving quickly to slash expenses and address problem areas within the bank.
"The management that took Marine into a money-center mode is gone. The management that is here now is committed to making Marine a strong regional bank," said James H. Cleave, Marine's president and chief executive since November 1992.
That approach is consistent with HSBC operations in other parts of the world, said Mr. Cleave, who previously headed Hongkong Bank of Canada. He noted that while the group does maintain substantial wholesale operations worldwide, retail finance remains its stock in trade.
"It's clearly [a change in] the way the management of Marine Midland is approaching the business," Mr. Cleave added.
Since the change in management, Marine has shrunk dramatically. Assets were down to $17.1 billion at the end of 1992 from a high of $27 billion in 1988 and full-time employees to less than 9,500 from 13,000. Nonperforming loans fell to 1.6% of the portfolio in 1992 from 3.5% in 1991.
Accordingly, Marine returned to the black in 1992, posting a $109.2 million profit, and had an additional $34 million gain in the first quarter. But its 1992 return on average assets of 0.48% and return on equity of 7.04%, placed it near the bottom of its peer group, according to recent American Banker rankings.
While analysts view Marine's restructuring as almost complete, its near-term profit picture remains hazy. "The banking company is poised to rebuild its presence in New York State. However, earnings growth may be restricted somewhat by strong competition and limited product offerings in the company's primary markets," a recent Fitch Investors Service Inc. report stated.
The changes have reached to the bank's information technology function as well. Ronald P. Lawrence, senior executive vice president of information technology and a 12-year veteran of the department, remained in charge. But the size and mission of his group has changed considerably.
Mr. Lawrence said the previous management structure at Marine called for vertically integrated lines of business.
"We had 22 businesses, and they were all going to have their own human resources, and their own data processing, and their own finance departments. We weren't big enough to do that. So we went through an enormous amount of pain to get to where we are now," he said.
The information technology group, which includes all office automation and telecommunications, once had nearly 1,100 employees and an annual budget of $140 million. Today the budget is $95 million and the head count is 660, and it will eventually dwindle to about 500.
"We're letting attrition take us where we want to go," said Mr. Lawrence. "The downside is, I have an organization which on average is 38 years old. I have no bright, shiny-faced 22-year-olds." he added.
The employees that remain haven't been left adrift, though. At the behest of the group, in 1991 Marine embarked on a five-year plan to reshape the group. That plan includes more than 300 separate projects designed to consolidate and simplify the organization and move all of the operating units within HSBC to common systems.
Some of the steps in that plan were relatively simple. Operations that had been located throughout New York State were moved to Marine's headquarters in Buffalo, leading to what Mr. Lawrence calls a highly centralized organization. Systems that had been developed for businesses that Marine was exiting, such as auto lending and some wholesale lines, were simply shelved.
The bank's telecommunications networks were also merged with those of other HSBC units operating in the United States. That reengineering project, combined with the closing of regional offices that supported businesses that Marine was getting out of, led to Marine's single largest cost savings.
Marine's telecommunications budget has dropped from $36.6 million in 1988 to an estimated $20.5 million this year.
"Nothing makes the cost of geographic diversification clearer to me than telecommunications costs," noted Mr. Lawrence.
His next belt-tightening step was to move what he calls "artificial intelligence, esoteric research, and development types of things" to the back burner. Those resources instead went to actual development work on existing systems. That "enabled us to keep these projects going while we were downsizing," said Mr. Lawrence.
The future status of development efforts was a major concern for the executive. Marine had begun a number projects in the late 1980s, particularly in the areas of branch automation and computer-aided software engineering (CASE), which were considered particularly innovative.
Most of that work was salvaged. "There's very little we started that we threw away, except for the businesses we exited," Mr. Lawrence said.
The CASE project was particularly worth saving because it allows programmers to work more efficiently as the computer itself takes over more the drudgery of organizing and editing thousands of line of programming code.
"What makes this stuff work is the programmers, which is a euphemism for hard-core technologists," he continued. Remaining Marine staff was retrained in the latest CASE and other software development techniques.
Marine's systems development efforts were eventually integrated with those of both Hongkong and Midland Bank. "We have systems that are 20 years old. So do our colleagues," said Mr. Lawrence. The joint development was the most significant component of the five-year plan. "We're taking a leadership role in some of these projects. That's had a positive impact on morale," he added.
The project management role for each application is handed to one of the three banks, but developers at each bank contribute to the design. The groups communicate primarily by electronic mail and video teleconferencing.
All three banks have begun using an existing Digital Equipment Corp.-based money transfer system developed by Marine in the 1980s. Marine is also leading the creation of a new trust and securities processing system, which will run on International Business Machines Corp. AS/400 midrange computers.
Work has also begun on a mainframe-based core banking system, which will eventually encompass most retail deposit and credit products.
Although there is a great deal of systems development going on within the group, Mr. Lawrence said "there's nothing revolutionary here. The real economies of scale are that we are going to build in-house applications that are going to be used in three different parts of the world."
Buying software, he added, was out of the question. "We belong to an organization that believes you must control your own destiny," Mr. Lawrence said. "You don't subcontract to a vendor things that are critical to your success.
"We have the resources to build," he continued. "We're part of a very successful global giant. If there was only. Marine Midland, we would be doing some things differently."
The template for future development within the group is probably a cash management product known as Hexagon, which was a joint project of the Hongkong and Midland Banks in the late 1980s. Hexagon facilitates global funds transfers, creation of letters of credit, portfolio management, and a variety of other services from PCs anywhere in the world.
"There's no way we'd have an application like this if we weren't part of a global giant. We'd be buying it from Chase or Chemical or somebody," said Mr. Lawrence.
Mr. Lawrence also said that Marine is benefiting from a focus that it might not have had in the past. "We've been on a steady track for a couple of years. We never had that luxury before."
Although Marine is recommitted to what remains a strong New York retail franchise, the bank is still not totally in the clear. "The economy has helped us contain our credit problems, but they're not completely behind us." Mr. Cleave said. "There are severe credit problems in the bank, from Third World lending to real estate lending to a national automotive finance fiasco."
Nevertheless, Marine is looking to grow through acquisition. Mr. Cleave oversees a due-diligence team that includes other senior management, and is evaluating a number of possible deals within New York State.
"We're looking for market fill-in opportunities across the state. The first acquisition we do will be in New York State," said Mr. Cleave.
Marine also continues to court the small to middle-market companies that have been its traditional commercial lending base. Those companies are driving the bulk of the economic growth within New York, said Mr. Cleave.
Expanding that business won't be easy, however. In addition to strong local competition like Manufacturers and Traders Trust Co., giants like Citicorp and Chemical Banking Corp. are pursuing the middle market with renewed fervor. So, even with increased capital and lowered expectations, Marine Midland will find itself butting heads with many of the same players it saw when it dreamed of being a money-center in the '80s.