One day late in August, Victor J. Riley Jr. was poring over the 1994 profit plan he was preparing to give to his board this fall - and feeling uncharacteristically depressed.

The chairman and chief executive of Keycorp liked what his company was doing this year and even felt "pleased" with the outlook for 1994, "But I was a little bit despondent out there as far as '95," he said in an interview Monday.

A Call to Cleveland

So he called Robert W. Gillespie, his counterpart at Cleveland-based Society Corp., with whom he had been conducting an on-again, off-again corporate flirtation for two years.

Mr. Riley said he was concerned about the longer-term future of banking - declining margins, an "extremely questionable economy," and banks' shrinking share of the financial services market.

His strategies of the past - acquiring inefficiently run banks using his company's relatively high stock price or buying them from the government - were looking less effective. Targets were raising their asking price; the government was running out of brain-dead institutions; and Keycorp's stock price was treading water.

And Mr. Riley had a well-publicized management succession problem to consider: He had yet to find a younger executive he could work with who could take Keycorp's reins in a few years.

All this was pressing on the 62-year-old executive. But Mr. Riley didn't get his reputation as a crafty negotiator for nothing. So when he called Mr. Gillespie, he began chatting about horseback riding and white-water rafting.

"I remembered a conversation we had a year earlier about our experiences in the Middle Fork of the Salmon River, and heard he had just come back from a fishing and riding trip in Montana. He said he had a great time and asked to me to come to Cleveland to let him tell me about it," Mr. Riley said Monday from his Waldorf-Astoria suite, hours after Keycorp and Society confirmed their plan for a $3.8 billion "merger of equals."

During the six weeks after Mr. Riley's call to Cleveland, the conversation quickly shifted to business fundamentals.

Mr. Gillespie, 49, "sensed an opportunity and was pretty relentless about doing something to control his future," said an investment banker close to the deal.

The two shuttled between Albany, N.Y., Keycorp's base, and Cleveland to discuss management succession, headquarters, the surviving bank name, personnel decisions - "those very crucial issues that only the senior leadership can make," Mr. Gillespie said.

Taking the Initiative

"We knew we had a huge job ahead of us to make sure we would reap the full benefits of what we wanted to do," he noted fingering a large key-shaped pin on his right lapel. "We weren't going to sit back and wait for the world to go by."

The Ohio executive, whose company has a sterling reputation for its trust banking and investment product expertise, said he had developed comfort with all those things about Keycorp that people like to call |culture' these days," in the course of the long courtship.

Mr. Riley, who plans to remain chairman through 1998, admitted to analysts that he and his board radically changed their strategy in the past few months. Less than a year ago the board had approved a five-year strategic plan that envisioned remaining independent and continuing to expand through acquisitions.

But Mr. Riley said that he realized in recent months that Keycorp's stock price was falling to the point where acquisitions would start to dilute current shareholders. (Mr. Riley himself is one of the company's biggest individual shareholders and sits on unexercised options worth almost $7 million as of yearend.)

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