When L.M. "Bud" Baker Jr. was named chief executive of Wachovia Corp. a year ago, he said, "My fondest wish is after a year people will say, 'My gosh, it's like John Medlin never left,' " a reference to his widely respected predecessor.
A year later, it appears he got his wish.
Richard Stillinger, an analyst with Keefe, Bruyette & Woods in New York, said, "I haven't really noticed any marked change (since Mr. Baker took over), nor would I have expected to."
And one of Mr. Baker's top managers at the Winston-Salem, N.C., company said, "It feels very much like nothing has changed. And I mean that in a positive sense."
With little fanfare, Mr. Baker has made it clear Wachovia will not stray from its "values," most notably the strict lending standards that have helped avoid the problem loans that have periodically dampened the fortunes of others in the industry.
"The worst thing that could happen would be to one day announce to the world that Wachovia was in some difficulty or had gone off the deep end, or had become so enamored of growth and change that it had deserted its core values and principles," he said.
He'll also have the guidance of Mr. Medlin, who remains chairman.
All the same, it's clear Mr. Baker isn't keeping the $37 billion-asset banking company in a holding pattern. Late last year, for example, Wachovia created a General Banking Division, headed by the CEO of the Georgia bank subsidiary. The executive, G. Joseph Prendergast, has been charged with developing a strategic direction for the company, including long-term plans to scale back the branch networks in its markets in North Carolina, Georgia, and South Carolina.
In a recent interview, Mr. Baker also spoke of the consolidation of Wachovia's back office - by now largely complete - that he said has prepared the bank for future growth and gaining greater efficiencies through automation.
And - noteworthy for a bank that has made few acquisitions during these years of rapid consolidation - Mr. Baker said Wachovia is keeping an open mind about growth through mergers - even a merger of equals.
Nevertheless, Mr. Baker says, Wachovia is still in the midst of deciding where it is going, and how it will build on its strong, even- keeled financial performance over the years.
For the first nine months of 1994, for example, the bank posted a return on assets of 1.44% and a return on equity of 17.26%. The ratio of nonperforming assets was just 0.44%. Wachovia also continues to be one of the most efficient banks in the country. Noninterest expense per dollar of revenue during the period was 53.65%, sixth-best among the 100 largest U.S. bank holding companies.
"What you're seeing at Wachovia is a very, very well-run company that may well have been - for the period of John Medlin's term at least - one of the most effectively run banking companies in the world," Mr. Baker said. "Now the question is how do we improve on that? And what kinds of things do we do to actually make this great company better? That's a heck of an order."
Executives as Wachovia are asking lots of questions like that these days. Mr. Prendergast noted that part of the reason for setting up the general banking division he heads was to force the bank to spend time pondering its future.
"When you take a job like (Mr. Baker's), it's a little bit like drinking from a fire hose," he said. "He doesn't apologize for the fact that we don't know what it's going to look like in 1998. But we don't think any of our competitors do, either."
"I believe Bud is thinking very hard about the future," said Mr. Stillinger. "John Medlin was given to thinking about the future . . . but I think Bud feels a little more urgency about the acceleration of change in the industry."
That's not to say Wachovia lacks a plan. It's clear to Mr. Baker that the bank needs to better manage its core businesses, in part because he expects economic growth in the coming decade to be lackluster. And he says Wachovia must become a more-effective sales organization.
Rather, the bankers are thinking about the larger changes facing the industry. Mr. Prendergast's division, for example, will be looking at finding efficiencies and identifying best practices within the bank. Today, Mr. Baker said, the corporate and private bankers spend "an alarming amount of time" on things other than selling. And the best elements of the private banking approach used in the Atlanta bank, for example, will be carried across the institution.
"The truth is, we still need to get everybody singing from the same prayer book," said Mr. Baker, who is 52.
Wachovia will also look to find ways to close some of its 491 branches without compromising customer service.
"If we have 18 branches in Winston-Salem, can we just as well serve those customers with five?" asked Mr. Baker. "How can we serve customers better, how can we get at customers without using the branch?"
"I would envision an environment between now and the turn of the century where we would have considerably fewer branches," said Mr. Prendergast.
Still, it's not clear when and how that will happen at Wachovia. The risk of closing branches now, executives say, is that customers will take their business to a competitor.
"It reminds me very much of the Cold War," said Mr. Prendergast. Wachovia and the competition agree there are too many branches, he said, but no one is willing to "unilaterally disarm."
"We would like to be in a mode of closing them down in an orderly fashion over time. We don't have a preconception of how many we will come to," said Mr. Prendergast. "And we would certainly like to believe we have built bridges to our customers - largely through technology - that tie them to us even as we close down brick and mortar."
While Wachovia executives talk articulately about the coming obsolescence of branches, they have not rushed into new delivery channels for the retail bank.
Only in June of last year, for example, did Wachovia unveil its bankwide 24-hour-a-day call center, a service offered by many other big banks for years. And at a time when some regional banks across the country are beginning to offer home banking services via personal computers or special screen phones, Wachovia has no specific plans to offer a fully remote service option.
Mr. Baker has no apologies for the caution. "This is really no different than the investment counselors approach, where we were somewhat slower getting in that market," said Mr. Baker. "Yet, I will submit to you that by the time we are finished our people will be the best-trained people in the marketplace."
Mr. Stillinger, the analyst, noted that Wachovia is likely to maintain its tradition of pursuing change deliberately and carefully. "That's their style, and I think it's served them very well," he said.
Still, Mr. Baker, a self-described lover of gadgets who enjoys playing chess on his computer, can be expected to accelerate the pace of change.
"I am a little impatient at our progress in developing consumer products," he said. "I'll be pushing our people some in that area."
Walter E. Leonard Jr., the executive vice president who heads Wachovia Operational Services Corp., agreed. "We learned that you need to be decisive and move forward," he said. "It's better off just to move forward with either one of two good solutions" than "discuss it beyond the value of the marginal benefits you are getting from either one."
Mr. Leonard said the bank gained a great deal of practical knowledge when it set out to consolidate bank operations after its 1985 acquisition of First Atlanta.
"Neither bank had the systems or processes in place to run a multistate, multibank holding company," he said. "An awful lot of work had to go on to accommodate that concept."
The process of bringing the two banks onto common systems took several years. But what Wachovia learned, however, helped it convert its South Carolina acquisition within 14 months.
The bank is also is the midst of several other initiatives on the technology front. Wachovia, like a handful of other big banks, is working with Financial Technologies Inc., New York, to develop a comprehensive system for its trust area.
"It is a total redo of software which will also drive a total redo internally of the business processes that utilize these automated systems," said Cecil O. Smith Jr., senior vice president and head of information services for the operations subsidiary.
The bank is also introducing a new automated mortgage origination processing system, enhancing its branch automation software, and using new client-server technology in its auto loan financing area. Already, Wachovia makes check images available to corporate customers on CD-ROM.
"If you really run through the various business lines, we are doing in many cases, foundation structural work for the future, looking out for the next 10 to 15 years," said Mr. Smith.
A key part of that foundation involves building a new customer information file to replace its useful, but aging, system.
"One of the weaknesses we have in our current CIF is householding information," said Mr. Smith.
He said the bank wanted to buy a new system but couldn't find one on the market that satisfied its needs.
"We looked at the EDS system, we looked at the Hogan CIF, we looked at M&I CIF, you go down the list, we've studied them all," said Mr. Leonard. "They are not only not robust enough, they are just not able to handle the volumes we think are going to be required - and do it in a way that is virtually instantaneous."
Wachovia has been working on the project for about a year. It is still in the design phase and is not expected to be up and running before mid- 1996.
"We are a large development shop and always have been," noted Mr. Smith.
And while the information systems staff is laying the technological foundation, Mr. Baker is looking for new ways to build on it. That growth may involve an acquisition, he said, but one that would be pursued cautiously. The native Virginian repeated his interest in moving into that state, noting that his father "banks with Hugh McColl," the chief of NationsBank, Wachovia's North Carolina-based rival.
But such a move into a nearby market is unlikely now, he said, given the prices banks are going for.
Wachovia, he said, would be more likely to buy a nonbank company that would "enhance a capability or strengthen a product line."
"Is Wachovia going to buy a gigantic mortgage company? Probably not," he said. "Is Wachovia interested in better ways to use the payment system or better ways to sell or enhance its position in corprate trust products, I would say probably most certainly. Building our investment capabilities? Most certainly."
Mr. Baker also discussed the challenges and opportunities of a merger of equals. "I would say to you that's a hard transaction to do," he said. "You have to be very disciplined when you put the two organizations together . . . so that two and two make five. Better capabilities to serve our customers, better growth prospects in the future, no loss of revenue, no loss of earnings and cash flow for our shareholders. Otherwise, it's not a good deal."
While many stars would need to come into alignment for such a move, Wachovia is open to the possibility, he said.
"We are, frankly, not that concerned about size," said Mr. Baker. "We are concerned about being located in good markets and growing shareholder value and serving our customers."
He added, "The facts are, notwithstanding the record of any organization, it is a time of change. And so the ultimate problem is to make sure that change takes place in a timely and orderly fashion."
"And Wachovia is well positioned to meet the challenges of the future, whatever they may be."