LOS ANGELES -- No one can accuse Isao S. Matsuura of aiming low.

His Sanwa Bank California has been an anemic performer in recent years. But Mr. Matsuura, president and chief executive of the Japanese-owned bank, says he wants to turn his institution into the best-quality bank in the United States.


During an interview in his Los Angeles office, he pulled out a table with a list of bank companies topped with names like Banc One Corp. and SunTrust Banks Inc. The chart, he explained, contained financial data on the top-performing banks in the United States.

"In every sense we can exceed these banks," he said emphatically. "We can be No. 1 in return on assets, No. 1 in efficiency, and No. 1 in nonperforming asset ratio."

Close to the Bottom

Such a goal might seem a mere fantasy for an institution that ranks near the bottom in most of these performance measures.

But those who know Mr. Matsuura say the statement is characteristic of the optimism and energy he has displayed since he took the chief executive spot at California's sixth largest bank a little more than a year ago.

The 49-year-old executive is a human whirlwind. A typical day for might include a visit to an outlying branch during working hours (he has visited all 106 statewide); karaoke singing at an employee event at night (Hawaiian music is a speciality); light reading at home until the wee hours of the morning ("The Bridges of Madison, County" was a recent favorite)' followed by four or five hours of sleep.

Wake-Up Call

And while some may view Mr. Matsuura's statements as hyperbole, colleagues say his lofty goals have provided a needed jolt to Sanwa California, a subsidiary of Sanwa Bank Ltd., Tokyo.

Said Howard N. Gould, the former consultant and California banking superintendent who took a senior post at Sanwa last year: "He's raising everyone's expectations."

Still, it will take more than a better self-image to turn Sanwa California around. Despite its success in such niches as farm lending and trade finance, the bank faces a daunting array of problems.

Sanwa California, which has $7.2 billion of assets, has produced roughly 50 cents of net income for every $100 of assets for the last three and a half years, except in 1992 when the return on assets fell to 0.22%. That's far below industry standards.

Problem Assets in Check

While credit woes have taken a bite out of earnings, Sanwa has not been a major commercial real estate lender. Problem assets have not mushroomed out of control.

What has done more to depress earnings is a series of structural and operational weaknesses, such as an excessive cost structure and a shortage of core deposits. These problems, which Mr. Matsuura inherited, stem in part from the 1986 acquisition of British-owned Lloyd Bank California, those familiar with the company say.

Today, the bank has too much overhead, with noninterest expenses representing more than 70% of revenues in recent quarters. "Expenses have never been looked at critically before," said Mr. Gould.

What's more, in the 1980s Sanwa California's assets grew faster than its funding, forcing it to rely on expensive wholesale deposits. Foreign deposits and deposits greater than $100,000 currently represent more than a third of total deposits.

|Hodgepodge' of Branches

But Sanwa's biggest hurdle is an irrational branch structure. "They have a hodgepodge of branches, and the average deposit size per branch is low," said an outsider who knows the bank.

Sanwa's retail offices are scattered throughout California, with no concentration in any single market. That makes it difficult to advertise or concentrate sales efforts.

Moreover, "we have a number of branches with under $20 million in deposits," said Mr. Gould. "We all know that's a bad number."

Said Mr. Matsuura: "The weakness of the bank is in its branch structure."

Like other Japanese-owned banks in California, Sanwa in the 1980s stressed rapid growth above all else. Profitability was a secondary priority. Assets jumped 34% from 1987 to 1990.

Japanese parent banks have spent the early years of the 1990s building capital and fighting the effects of worldwide recession. But in the meantime, pressure for profits has increased. Although Sanwa Ltd. is among the financially strongest banks in Japan, it has not been immune to this trend.

The arrival at Sanwa California in July 1992 of Mr. Matsuura, a specialist in international law and a 29-year Sanwa veteran, coincided with the negative change in economic conditions for the bank.

Sanwa's new chief quickly set ambitious interim goals: a 1.00% ROA and a 60% efficiency ratio by 1995.

Shortly before Mr. Matsuura came to Sanwa, the bank hired Mr. Gould to take charge of operations. Given the title of chief administrative officer, the 44-year-old executive was made responsible for rationalizing Sanwa's organizational structure.

The third member of the bank's senior management team is Tamio Takakura, who runs Sanwa's retail banking units and serves as a liaison between the bank's Japanese and American sides.

While Mr. Matsuura has focused on changing Sanwa's culture, Mr. Gould and Mr. Takakura have carried out the nuts-and-bolts work of making the organization more efficient.

For the first time, all expenditures are being put under a microscope.

"They are discussing every job," said one Sanwa insider.

For example, the bank is eliminating an average of one full-time employee in each of its branches, Mr. Gould said. And after reviewing security needs, Sanwa will remove guards at seven branches.

Meanwhile, Mr. Gould expects to save several hundred thousand dollars annually by installing a new telecommunications system to link the branches.

Focus on Sales

Mr. Matsuura said he has no dramatic plans for revamping Sanwa's branch structure, though the bank may open one or two new offices each year. Instead, he is concentrating on building business in current branches through a more aggressive sales program.

To rev up sales, Mr. Matsuura has imposed Sanwa Bank Ltd.'s "Plan, Do, Check, Act" method, essentially a management-by-objectives technique that forces all units to examine where they are, where they should be, and how they can get there.

Some staffers have questioned whether the goals set by the system are too ambitious.

"We have very aggressive goals, and most divisions are not meeting them," Mr. Matsuura conceded. "But we can accelerate our speed."

There is always the possibility that Sanwa California could use acquisitions as a way to meet some of its lofty goals. But Mr. Matsuura blandly demurs when the question is put directly to him.

"Right now we are concentrating on quality," Mr. Matsuura said. "Without a strong profit base, acquisitions are not possible."

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