Shawmut reinvents itself with the help of new blood from larger institutions.

If you haven't met Shawmut lately, you haven't met Shawmut at all.

That's what the investment community is saying about New England's second-largest banking company, Shawmut National Corp.

In the past 18 months, Shawmut has added seven outsiders to its 11-member senior management team. Newcomers are now running two out of four of Shawmut's major business lines, and the most senior officials in charge of credit policy, operations, and cost containment are also new.

The changes, observers say, have helped Shawmut chairman Joel B. Alvord and president Gunnar S. Overstrum engineer one of the industry's most dramatic turnarounds.

Stock Rebounds

In 1991, Shawmut's stock plunged to a measly $2.80 a share, and management was talking to rival Bank of Boston Corp. about a possible merger. Today, shares of the $26 billion-asset banking company are trading at $21.625, and Shawmut has announced plans to acquire three New England thrifts.

"This is not the same bank that it was two years ago," said Michael Mayo, an analyst at UBS Securities Inc.

The influx of new talent began in earnest in 1992, shortly after Shawmut terminated merger discussions with Bank of Boston in January. Intent on pursuing an independent course, Shawmut started to recruit executives who had managed big banks.

"It took me awhile, but I know now that the builders of the mid-'80s aren't the fixers of the late '80s or the early '90s," Mr. Alvord said. "Nor are they the builders of the next century."

Limited Experience

Mr. Alvord had plans to build Shawmut into a $35 billion-asset company. But many of Shawmut's top managers had grown up at one of its two ancestor banks - Hartford National Corp. or Shawmut Corp. Neither of those companies had more than $15 billion in assets.

"Shawmut had to bring in people who were comfortable with and have shown that they could perform in a much larger organization," said Thomas Theurkauf, an analyst at Keefe, Bruyette & Woods Inc. in New York. "They needed people who could operate in a big-bank environment."

One of the first brought in to fit that bill was David L. Eyles, a 27-year veteran of New York's Chemical Banking Corp. Mr. Eyles came to Shawmut in February 1992, fresh from a four-year, stint at Mellon Bank in Pittsburgh, where he had chaired the credit policy committee.

"Shawmut used my hiring as a lever to help attract more people," Mr. Eyles said.

Among them was vice chairman Allen W. Sanborn, a wellknown veteran of the corporate lending business who came to Shawmut from BankAmerica Corp. His mission: to help Shawmut expand its traditional New England corporate banking business beyond that region.

Bharat Bhatt, a colleague of Mr. Eyles at both Chemical and Mellon, followed, arriving in September as Shawmut's chief financial officer.

These three executives are eager to help Shawmut expand its large corporate lending activities. They recently launched a "specialized lending group" that is targeting national companies in specific industries. And they are trying to deepen Shawmut's relationships with its current customers.

"We want to change the culture and get people to go from being lenders to relationship managers," Mr. Sanborn said. Shawmut is now aggressively selling cash management and other noncredit services to its customer base.

Proprietary Funds

Also helping to mine new sources of revenue for Shawmut is Michael Rothmeier, an former Fidelity Investments executive who took over Shawmut's investment services unit in August 1992.

In February, Mr. Rothmeier helped Shawmut launch its own family of mutual funds. He is also working to build the institutional side of Shawmut's investment business.

Mr. Rothmeier said he feels confident that Mr. Alvord is committed to expanding Shawmut's investment unit. Indeed, he has already raided his old employer, as well as Dreyfus, State Street Boston, Scudder Stevens, U.S. Trust, and Goldman Sachs to get the talent Shawmut needs to compete in the business.

"We have the technical knowledge and the expertise we need," Mr. Rothmeier said.

OCC Veteran Tapped

Other recent additions to Shawmut's senior management team include Thomas D. Wren, who was hired as director of compliance and risk management in May 1992 after a 20-year career at the Office of the Comptroller of the Currency.

Another new member is Alan R. Buffington, the executive vice president in charge of operations. Shawmut lured Mr. Buffington away from Cigna Corp. in August.

The sea change in talent reporting to Mr. Alvord and Mr. Overstrum is more common at smaller institutions than it is at banks of Shawmut's size, observers said.

"The majority of people at bigger banks are still home grown," said T. Lee Pomeroy, an executive recruiter at Egon Zehnder in New York. "It's still not ordinary."

But it is winning accolades for Shawmut, which is dually headquartered in Hartford, Conn., and Boston. "Alvord and Overstrum were smart enough to recognize that they needed some new talent," said one observer.

Others Follow Suit

There is also evidence that other big players are welcoming more newcomers to their higher ranks. Just last month, Bank of Boston Corp. promoted to vice chairmen two executives who had been with the organization for less than 14 months. At the same time, three longer-term high-ranking employees - including one 21-year veteran - were dismissed.

For Shawmut, the turnover was necessary to instill a wholesale change in philosophy. "It's been a dramatic change for me and all of us at Shawmut," Mr. Alvord said. "To change the culture, you've got to change the leadership."

One area where that was especially true was in the credit culture. At their peak in the first quarter of 1991, Shawmut's problem assets - nonaccruing loans plus other real estate owned - totaled $1.7 billion, or 11.39% of total loans plus foreclosed real estate.

Loans Policy Revamped

Mr. Eyles moved quickly to change Shawmut's policies for dealing with problem loans. When he arrived, he said, loans were sent to workout specialists only when they were nonaccruing or when they no longer met the bank's credit quality standards.

"That is too late," Mr. Eyles said. "It is like operating on a patient who is dead on arrival."

Today, credits are carefully watched for any signs of potential trouble, which are dealt with immediately. The idea is to keep Shawmut's borrowers, mostly middle-market New England companies, as healthy as possible.

After all, their failure would result in more unemployment, which would ultimately come back to haunt Shawmut's consumer bank, Mr. Eyles said.

At the end of the third quarter, problem assets stood at $436.9 million, or 2.85% of Shawmut's loans plus foreclosed real estate.

A deep-rooted change was also necessary in Shawmut's cost culture. The company's efficiency ratio, which measures noninterest expenses to noninterest income, peaked in early 1992 at close to 80%. By the end of the third quarter, it was down to 68.7%.

"To continuously reduce your costs, you have to make it your religion," Mr. Bhatt said. One small, but telling example: The average Shawmut executive now works out of a 180-square-foot office, down from 240 square feet a couple of years ago.

"Our motto is, when we're dealing with our customers, we want deluxe quarters," Mr. Bhatt said. "But for ourselves, we just want bright and spartan."

For the future, Mr. Alvord is hoping to attract a top-notch attorney to replace its general counsel, Raymond Gunter, who plans to retire next year. Other than that, he sees few openings for more top-level banking executives at Shawmut.

"We're looking for a couple of key hires and we expect to fill them soon," Mr. Alvord said. "But our senior management team is rounded out."

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