When it comes to charisma, Kenneth D. Lewis could never be confused with his boss and mentor Hugh L. McColl Jr.

Mr. Lewis, 47, plays understated cool to Mr. McColl's brashness and fire. But Mr. Lewis, the president and heir apparent at NationsBank Corp., does bring an enthusiasm to his job that is reminiscent of the 59-year-oM chairman, he just channels it in a different direction.

Mr. Lewis'job at NationsBank is to keep the machine that Mr. McColl built in top working order. It's a hideously complex assignment. From $29 billion in assets in 1988, NationsBank has grown to $170 billion, making it the third-largest bank in the country.

Mr. Lewis' attempt to tame the beast centers around two programs. Model Banking Center and Freedom to Act. Both initiatives are designed to make NationsBank as efficient and responsive as a $170 billion-asset behemoth can be.

Model Banking Center includes a wealthof items such as employee incentives and the use of temporary workers at teller windows during peak hours. But at its heart is the standardization of technology, products, and services used in all of NationsBank's 1,900 branches in nine states.

Freedom to Act is an attempt to prune bureaucracy across the company and empower employees at the branch level.

Mr. Lewis discussed-these projects and a number of other subjects during a recent interview with American Banker. Softspoken but intense, he comes across as a man who relishes the nitty-gritty details of his profession. "I take great pride," he said, "in being able to improve things and get things more profitable. Because at the end of the day, that's what you're going to have to do."

With all his enthusiasm, though, Mr. Lewis wasn't giving away any secrets. He declined to say anything about NationsBank's rumored interest in buying ITT Financial Corp., a commercial and consumer finance company, or T. Rowe Price, the mutual funds group.

Q: Which lines of business at NationsBank promise the most potential future growth?

LEWIS: Our basic core businesses are doing very well at the moment. Our loans are growing. That's probably the story of NationsBank, that there's good core loan growth.

A lot of our efforts have been on the technical side in learning more about our customers and doing predictive modeling. Our credit scoring has gotten much more sophisticated, so we can tier better in terms of pricing and get a better breadth of customers.

We understand customers' changing habits in terms of using branches. We think our customers use our branches about 50% of the time versus alternative delivery vehicles like phones and ATMs. We think branch use will go to 35% within about five years. So it's Clear to us we're going tohave to develop and are developing new forms of delivery. We think, even then, there's a need for brick and mortar to some degree, but less of it.

On the corporate side, we see great opportunity for us to develop our fee income businesses: investment banking, syndication, and foreign exchange. We are in the big leagues in terms of being a syndication bank: We are not in the big leagues yet in those other areas, where we see great potential to grow if for no other reason than the huge existing customer base.

We also think the core commercial middle-market banking business can be an 18%-returnon-equity business. We've. got to do a lot better job of serving and keeping and enhancing relationships with the ones that pay the freight, and so we've done a whole lot of work on identifying who the real profitable customers are.

Q: How do you do that?

LEWIS: We have in fact identified tiers of customers with predictive modeling and will have our support mechanisms geared to serving them on the basis of their profit contribution.

An example would be: You've sold a single product, and you continue to call on the customer, and after some number of years they continue to do business with another institution. At some point, you're going to have to cut it and redirect your efforts at those who have some higher probability of generating business.

We also see an opportunity to bring investment banking activities to a market that hasn't been as well served as others have been.

Q: So you're moving downstream with those products from the Fortune 500-size customers to the middle market?

LEWIS: That's been in process for the last year or so, but we've really just begun to implement it and deliver it in the market place.

Q:: What are your other growing lines of business?

LEWIS: I see us growing our mortgage operation larger and larger, both originslion capabilities and servicing; But we will have patience, as we have shown, in terms of how fast we build it. We have not and will not pay the prices that some have paid.

Our credit card operation is very profitable and continues to grow at a 20% clip and will earn about a 3% return on assets this year. So we want to grow that. We do that internally now. Again, that's an area we'd like to acquire businesses in, but the prices are too high.

For a company or group of people who are not known for their patience, I think we'Ve demonstrated some.

Q: How fast can the credit card business grow?

LEWIS: I think for the foreseeable future we will get 15% to 25% growth in that business. We've surprised ourselves with how successful we can be when we get our act together. I always like to say there's nothing so hard to get in the world as momentum, but it's .the greatest thing since sliced bread when you have it.

Q: How far along are you in your Model Banking Center, or systems integration project? On what day will every branch in every state be linked to the others and then to Charlotte with standard products and services?

LEWIS: I have a very definitive answer to that: I have no earthly idea. But having said that, we're in the final stages -- it will carry over into early next year -- of completing Georgia. Then we go to Florida. Sometime in 1996 we will have completed mid-Atlantic, which includes Virginia, Maryland, and D.C. And then somewhere in the late 1997 time frame, I would expect our existing franchise to be converted.

Q: Why was the Freedom to Act program necessary? Is NationsBank too bureaucratic?

LEWIS: That would be my constant fear and my admission of defeat, that we let our company become too bureaucratic. And to not let that happen, I think we have to take some proactive steps.

The first thing we did was decide that extra layers do cause bureaucracy. We eliminated a layer called district managers. And so between a banking center manager and me, there are three layers, and we're a $170 billion bank.

But when you do that, people are not going to be micromanaged. When a manager has 15 to 50 direct reports he can't get to them as often as before, and therefore the people at the customer contact level have to have the freedom to act. So what we have said, as an overriding principle, is that you use your best judgment and serve the customer.

I'm sure there will be instances in which people will make a mistake, or we'll decide their best judgment will never be good enough and we'll find somebody whose will. But in the main, our people will soar in response to this effort.

I then decided I wanted to deliver this message directly. So I spent the summer talking to about 1,930 banking center managers at about 100 a time. I visited cities and states from El Paso to Baltimore. It was the best thing I've ever done. There was not one meeting we didn't come away with something we wanted to do differently.

Q: Are you disappointed with Nations Secruites, the joint venture between NationsBank and Dean Witter, which has recently faced a slew of lawsuits from its own brokers?

LEWIS: I'm disappointed that some of the brokers have done what they've done. And it's Caused me to step back andat least look at whether the premise was correct. And I'm more firmly than ever convinced that it is. You have to be needs-driven and do what's right for the customer or ultimately you will not be here.

The joint venture gave .us the ability to gear up faster and serve more customers more fully than using an internal approach. It's caused me to reaffirm that the basic premise is correct.

Q.: Where will NationsBank be with mutual funds and annuities three or five years out?

LEWIS: We acknowledge the importance of those areas, and we acknowledge we can't be who we want to be without having a breadth of products. That may mean that we just continue to grow it on our own. But I would not rule out the possibility of buying a company in any of those areas, if you could get it at the right price.

Q: Does NationsBank still have any interest in buying traditional bank branches?

LEWIS: After seeing a lot ?of mutual fund, mortgage company, and bank card prices, banks don't look so bad. Despite the fact that we see usage patterns changing, the branch is still the most effective way, especially geographically, to get customers. I'd rather have the customers and then change what I need to change to keep them than not have them.

Q: Does the Microsoft-Intuit deal worry you?

LEWIS: I think it rings an alarm bell for those who were asleep. We have seen companies like Microsoft as potential threats for some time. Bill Gates has said he thinks banks are dinosaurs.

Q.: Do you buy that?

LEWIS: I buy it if we repeat the mistakes of the last 30 years and don't acknowledge that customers are changing and do something about it. We're investing a lot of dollars in alternative delivery systems so we will be around when the final battle is fought.

Q.: Doesn't Wall Street complain about all those expenses?

LEWIS: If you get consistency through thick and thin, they'll help you explain away bad efficiency ratios. If you get consistent double-digit earnings-pershare growth, and get return on equity in the rate of 15% to 18%, those two things matter more than anything else -- with the key word being "consistent."

The real issue with banks today is: How do you redeploy the excess capital you generate? That's a conversation I bet is going on in more executive management team meetings than anything else.

The two things you can do are increase dividends and buy back your stock. and we've done and announced programs to do both.

But at the end of the day, we want to grow, and not be the most profitable small bank in America. My boss has reminded me that big-bank presidents get paid more than small-bank presidents.

And we're clearly not harvesting this company. Think of what $72 million a year spent on the Model Banking Center program does in terms of the efficiency ratio. If all that I cared about was our efficiency ratio and getting another incremental piece of ROE, I wouldn't have expended the money on Model Banking.

Some banks have done very well at the cost-cutting piece, but they either have hit or see themselves hitting the wall in revenue growth. What we try to do is balance that and say: Yes, let's focus on expense control -- but let's not lose sight of the other piece, too, so we can create some sustainable momentum on the revenue side.

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