Let's face it: Sometimes subsidiaries have to sacrifice for the good of the parent. Even at Banc One Corp., which is famous for letting local managements run their own shows.

Since she became chief executive at Bank One Cleveland in 1986, Karen Horn has seen her fair share of the downside of affiliate existence.

She has taken on assets she might not have chosen to buy because Columbus-based Banc One got a package deal on another bank's Ohio branches and divvied up the assets based on geography.

(The Akron bank got some really hot branches, while the offices that went to Cleveland were located in blue-collar areas with high unemployment.)

She has participated in a companywide securitization sale, only to have her higher-yielding auto loans, credit cards, and student loans replaced by lower-yielding, shorter-term Treasuries. In the months after the sale, interest rates took an unexpected turn up, squeezing margins even further.

And last year, largely because Banc One wanted to buy a bank in Arizona, her bank was put under the spotlight for its less-than-stellar Community Reinvestment Act performance.

Threatening to hold up the proposed merger was a perfect way for local politicians to get more inner city services out of Bank One Cleveland.

Through it all, Ms. Horn, 51, has managed to double the bank's asset size to $2.6 billion, with half of that growth attributable to increases in Bank One Cleveland's core consumer-lending businesses.

Net income has grown steadily during her tenure, from $20.5 million in 1986 to $38 million last year. Return on assets was a respectable 1.69% at yearend 1993, when the net interest margin stood at 6.86%.

Says Ms. Horn: "I love running my own shop. It's a little bit like being a plant manager... having the ability to implement and execute for an entity. I suppose I'd have to say this is the second-best job at Banc One Corp."

This year will be another challenge for Ms. Horn and Bank One Cleveland. The recent spikes in interest rates have put pressure on margins yet again. (The last time Ms. Horn had to face this was back in 1989 and 1990, but then interest rates rose more gradually before falling steeply.)

Although the Cleveland affiliate's chief financial officer, Ronald A. Richardson, says this year's net income should meet or exceed last year's without any difficulty, ROA, on an annualized basis, was down to 1.50% at Sept. 30. And the net interest margin had slipped below 5%.

Predictably, Ms. Horn says the way to deal with balance sheet interest rate sensitivity is to "get back to basics and focus on the customer."

But a current drive to centralize back-office functions across the corporation should realize even more tangible results for the affiliate.

Bank One Cleveland, the ninth-largest Banc One subsidiary, faces another obstacle, this one specific to its history. Cobbled together from several small institutions, many based in outlying suburbs, it has always been a laggard in deposit market share.

With $1.9 billion of deposits, Bank One Cleveland places a distant sixth in its market, behind KeyCorp, National City Corp., Third Federal Savings & Loan, Charter One Financial, and Star Banc Corp.

The only way to improve this standing (which has remained constant the entire time that Ms. Horn has run the bank) is to buy branches, a thorny proposition when the conventional wisdom holds that brick and mortar is obsolete.

"To really move up deposit market share one would have to build new branches, or acquire new branches," Ms. Horn acknowledges. "We've chosen to enhance our profitability through market share in products that use really alternative delivery systems."

Some analysts see this approach as unrealistic over the long term. Fred Cummings of McDonald & Co. points out that even though the bank doesn't need a branch system to make auto loans or offer credit cards, (its bread and butter businesses, along with student loans), it does need deposits to fund them.

"They'd have a better chance of gaining market share in those segments if they had a larger branching system in Cleveland. They have not historically been a big commercial lender. They've got some very solid competition in this market."

Mr. Cummings says Bank One Cleveland missed the boat when it let Star Banc outbid it for TransOhio Savings Bank, recently auctioned by the Resolution Trust Corp.

He admits that Star Banc paid a high price for the failed thrift, but he contends that Bank One Cleveland is underestimating the need for infrastructure.

"Between KeyCorp and National City, they've got two strong competitors. Bank One Cleveland doesn't have a significant presence in this market. They haven't had a branch network that's wide enough. They have to do more acquisitions in this area," he insists.

If the parent company's refusal to pay more for mergers bothers Ms. Horn, she certainly does a good job of hiding it.

Instead, her emphasis is on the coming state-by-state consolidation of Banc One affiliates, which on the surface at least, appears to put her in a position of less control over her beloved shop.

Handling change well, though, is one of her strong suits. When Ms. Horn first came to work a Banc One, she reported directly to the parent company's chief executive, John B. McCoy.

After a few years, as the company grew, another layer of management was lodged between them. Ms. Horn remained unperturbed.

The newest move by the parent company will give her greater authority, not less, she says. "Instead of running something that looks like a bank in the traditional sense, my job will now become a market manager's job. Instead of just dealing with bank products, I now will have under my strong influence the whole array of financial services products that are delivered in my geography."

Under this scenario, Bank One Cleveland personnel will have more control over the way offerings like mortgages or mutual funds are priced and sold in the market. This, Ms. Horn says, is part of the ultimate fulfillment of the Banc One vision.

"The original dream was to get all the costs and efficiency and quality benefits of centralizing paper and yet still decentralize the decisions about how to interact with the local market. This seems to me the next logical step," she says.

A Bank President Who Was About to Give Birth

When Karen Horn was asked to become the first woman to head a Federal Reserve bank, the Cleveland Fed, back in 1982, she was very pregnant.

Seven months pregnant to be exact.

That a female, especially one about to give birth, would be offered a chief executive's job is, she says, a tribute to just how far women have advanced in the professions over the last 30 years.

Raised in California's San Fernando Valley in the 1940s and 1950s, Ms. Horn can remember when her mother, an assistant superintendent of schools, fought to change the school district's pregnancy policy. In those days, women teachers had to leave their jobs as soon as they knew they were pregnant. The new, liberalized policy that Ms. Horn's mother succeeded in implementing allowed pregnant teachers to remain at work only until their pregnancy showed.

Now women can stay on the job until contractions start, if they like. And Ms. Horn's own baby has grown into a 12-year-old son named Hartley.

Her husband John, a Harvard MBA and freelance technical writer, helps make possible her double life as mom and bank CEO.

Other transformations Ms. Horn has witnessed during her 25 years as a banker: "I can remember concerns about women taking business trips with men; concerns about whether promoting women made sense; whether women would be stable employees if their husbands were offered transfers. Those kinds of things are much more sensibly handled now," she says.

Thank goodness for small miracles.

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