As he prepares to step down from the top job at BankAmerica Corp., Richard M. Rosenberg looks back on a tumultuous five years during which he has been both a hero and a goat. In 1991, less than two years after he became BofA's chairman and chief executive, Rosenberg engineered the takeover of California rival Security Pacific Corp. - at the time, the biggest merger in banking history. In the deal's afterglow, he was hailed as a visionary who had secured BofA's status as the country's premier retail bank and seized pole position in the race towards nationwide banking. Analysts sang his praises, business writers searched for superlatives to describe the huge expansion he had masterminded and an industry newspaper picked him as its "Banker of the Year."

[Expanded Picture]Eighteen months later, after SecPac turned out to be a swamp of bad loans and the expected spurt in profits failed to materialize, Dick Rosenberg went from notable to notorious. Wall Street grew testy and the press turned skeptical. The company's stock fell below premerger levels. One analyst even selected the company for his "Dilution Hall of Fame."

To some, Rosenberg became a symbol of the empire-budding CEO who squanders shareholders' money in a mania to expand. Having risen from the consumer side of the banking world, he was pegged as a mere marketing man with a weak grasp of finance. Most galling of all, BofA was constantly compared unfavorably with Wells Fargo & Co. - the bank across San Francisco's California Street where Rosenberg had labored for a quarter of a century - which had walked away from the bidding for SecPac, only to see its earnings and stock soar.

Today, as the 65-year-old Rosenberg gets ready to pass the torch on Jan. 1 to BofA's incoming CEO, corporate banking chief David A. Coulter, he finds, his stock is once again on the rise-both literally and figuratively. Rosenberg's reputation, down in the dumps just a year ago, has recovered much of its luster.

That's largely because, after years of stagnation, BofA's performance is once more on the upswing. The bank has recorded seven straight quarters of rising per-share profits, rates of return are returning to respectable levels and share price is up more than 35% so far this year. A stock buyback program announced earlier this year proved a big hit on Wall Street. Meetings with analyst - once described by vice chairman and chief financial officer Lewis W. Coleman as "slightly better than having a root canal" - are almost chummy again.

Indeed, the legacy Rosenberg is leaving Coulter is looking decidedly better. To be sure, the $4.7 billion he paid for Security Pacific was too much and, analysts maintain, so were the hundreds of millions of dollars he doled out between 1990 and 1992 for failed thrifts in a half-dozen westem states. And, yes, the task of cleaning up and integrating the acquisitions was more daunting and more distracting than anyone had guessed.

Ultimately, BofA had to write off Security Pacific's entire net worth. All told, the shopping spree left a legacy of more than $6 billion in goodwill and other intangible assets on the balance sheet. Amortizing that dead weight takes a $100-million bite out of quarterly earnings - roughly the profits of a large regional bank.

But the institution that Dick Rosenberg built is not simply bigger. By most measures, it is now better than the one he inherited in 1990: stronger, safer, more competitive, more diversified and more predictable.

PaineWebber analyst Lawrence W. Cohn cuts Rosenberg little slack on the big acquisitions. He concludes that either BofA didn't know enough about Security Pacific's condition when it stuck the deal or, "if they weren't surprised, they paid too much." But Cohn's overall verdict on Rosenberg is more favorable. "You have to look at Dick's contribution over time," he stresses. "He built up a much more diversified organization." BofA today is substantially less risky institution. And he did so while maintaining a profitable organization."

If there is any quarrel with the way Rosenberg is leaving BofA, it is on the matter of succession. By all accounts, his own choice as the new CEO was Coleman, his closest lieutenant, a brilliant stategist and the key figure in the bank's restored reputation with investors. Rosenberg's failure to persuade the board to accept Coleman created a destructive year-long power vacuum at the top, fueling the rumor mills in ways that were both distracting and destructive.

In San Francisco's gossipy banking world, all sorts of names were brandied about as BofA's next CEO, including former CFO Frank Newman, who left the bank a few years ago to take a senior position in the Treasury Department; and Luke S. Helms, BofA's retail chief brought down from its Washington-based Seafirst Corp. unit in 1993. Brainy and mild-mannered, the 48-year-old Coulter was on few people's lists, and most BofA watchers were stunned by his selection.

To be sure though he lacks retail banking experience, Coulter is a talented, sober-minded and well-regarded manager who is likely to be an excellent leader for BofA. He was trained as a financial analyst and held mostly staff jobs at BofA before being tapped to run the capital markets operation in 1988.

But the fallout from the mishandling of the succession process may disrupt the stability of the senior management corps for some time to come. The process seemed particularly unfair to Coleman, who was eminently qualified to run BofA and was left hanging for a year only to see a former deputy leapfrog over him to take the top job.

"The mood inside BofA is very tense," said a San Francisco bankers a few days before Coulter's appointment was made public. "This succession stuff is debilitating to the morale of the people who work there." BofA officials, on the other hand, reject criticism of the bank's handling of the matter. "That's unfair," counters one senior executive here. "The process was deliberative by design."

Coulter, who is known for his personal decency and fairness, says he expects he management group to remain collegial. "We've always had a fairly strong team environment," he said the day of the announcement. "I'm not worried about significant disruption."

Coulter will inherit a bank with assets of $225 billion - more than twice the size than when Rosenberg took over. Among U.S. banks, only Citicorp is larger. BofA's nearly 2,000 branches in 10 states, more than 6,100 automated teller machines and 14 million monthly teleservice calls are numbers no other bank matches. It has the largest corporate banking business in the U.S., doing business with 85% of the Fortune 500 companies. It has far-flung consumer and commercial finance operations, probably he most extensive venture capital activities of any commercial bank and offices in 36 countries.

[Expanded Picture]BofA holds a commanding 35% share of bank deposits in its home sate of California, the largest state in the U.S. Yet it now generates roughly half of its income outside the Golden State. Although it has the largest retail franchise in the nation, about half of revenues come from wholesale, international and other non-retail businesses, segments significantly strengthened by last year's acquisition of Chicago-based Continental Bank Corp. It is a money machine that spits out $4 billion in cash and $2.5 billion in profits per year. And bad loans are 25% less than in 1990, even though the company has twice the assets.

Until recently, financial performance was the Achilles Heel of Rosenberg's BofA. For 19 consecutive quarters, beginning in 1989, the bank's earnings were stuck in a narrow range between $1.15 and $1.25 per share. Performance lagged most peers. During a period of unprecedented bank profits, BofA's return on equity remained stuck around a lack-luster 12%. And despite a roaring bull market for bank stocks, BofA delivered an anemic 5.4% annual total return to shareholders.

But BofA's profits have broken out of the rut. First-half earnings of $1.26 billion, or $3 per share, are up 16% from the same period a year ago. Grains came across the board in net interest income, fees, trading and venture capital profits. Analysts are raising their estimates and now expect the company to net approximately $6.75 per share and reach a 15% ROE level in 1996.

Even analysts who were disappointed by post-merger results give Rosenberg credit for his success in boosting profits. "He heard the message of the market," says Thomas K. Brown of Donaldson, Lufkin & Jenrette Securities Corp. "His focus is on improving earnings per share and returns on equity."

An animated, emotional executive, Rosenberg has little of the grave bearing of a high-ranking captain of finance. Instead, he remains true to his roots, the son of a Jewish clothing salesman from Fall River, MA. Despite having reached what is often considered retirement age, his step still bounces and he has lost hardly a whit of the vigor his colleagues cite as his most distinguishing characteristic. His short figure and rapid movements exaggerate the sense that he is a bundle of energy. His words - pronounced with the broad A's and misplaced R's of his home state - show a practical, unpretentious intelligence. His manner is warm and his smile is infectious. But on occasion he displays an irritated defensiveness in the face of criticism.

For starters, he admits that the harsh notices got under his skin. During an interview only weeks before his retirement announcement, conducted in his office on the 40th floor of BofA's headquarters with its stunning panorama of the Golden Gate and San Francisco Bay, he spoke frankly of his frustrations, while making few concessions to those who find fault. "We did have some strong-voiced detractors," he noted. "You are always personally distressed. If you bleed a little - and I do bleed a little - you are not happy when you see people who are negative on the company for reasons you believe are wrong."

BofA's profit doldrums, Rosenberg contends, stemmed not from overly aggressive acquisitions, but from a California economy that slumped far more severely than forecasters had imagined. "Lots of analysts, when we announced the Security Pacific merger, thought it was a terrifically nice price until California's economy turned down so significantly," he complains. "And then, `Gee, why didn't you predict the economy? You should have paid less."

Rosenberg argues that BofA deserves credit for producing steady earnings while carrying out a massive expansion program in the teeth of a recession. "Any bank that could achieve good earnings - and they were good earnings, they just weren't great earnings - being based in California during that period was really (making) quite an achievement," he says. "We were investing for tomorrow as well as taking care of today's shareholders."

Now, BofA's rebounding profitability is a direct result of the expansion plan he directed, Rosenberg says. "The strategy we put in place in 1992 and 1993 has clearly begun to pay off. The investments we made began to bear fruit."

"We are obviously capable of doing better," he adds. "We are not satisfied with the middle of the road."

The view that today's profits are being fueled by yesterday's expansion is seconded by Lew Coleman. "Dick Rosenberg built the best banking franchise in the industry, " he declares . "The primary reason we are doing well today is that we are operating with a wonderful franchise."

But is BofA's newfound earnings power the result of Rosenberg's expansion strategy - as he would have the world believe - or pressure from Wall Street, as many analysts contend? Rosenberg says the bank never wavered from the growth plan it adopted early in his term as CEO. In one respect he has a point: Shifting from expansion to making that expansion work is a natural part of any growth strategy. And Coleman insists that the bank always had strict return-on-investment standards for its acquisitions.

All the same, there has been a profound change in both tone and behavior at BofA over the last few years. At the beginning of the decade, Rosenberg emphasized the one-time opportunities created by the restructuring of the industry, the breakdown of interstate barriers and the movement toward nationwide banking. In a 1991 interview, BofA's chief said he felt a sense of urgency, reflecting the fast pace with which banks were staking claims on new territory. His goal, he said, was first to make BofA "impregnable" in the West, but ultimately to establish it "in the major population centers of the United States."

Those weren't empty words. Early that same year, Rosenberg fought hard in a losing bid to buy Bank of New England Corp.from the federal government. When he sat down to deal with Security Pacific, anxious to keep the Los Angeles bank out of Wells Fargo's hands, he was indeed in a hurry. "Coming from an institution that never moves fast, they were on a fast track," recalls Robert H. Smith, then Security Pacific's chief executive.

Messy Hodgepodge

By the end of 1992, Rosenberg had bought not only Security Pacific and more than a dozen failed thrifts, but also Valley Capital Corp., the largest independent bank in Nevada, and First Gibraltar Bank and HonFed Bank, respectively Texas' and Hawaii's biggest savings and loan institutions.

But the new additions were a messy hodgepodge that proved difficult to fold into BofA's orderly ranks. With Security Pacific, Rosenberg hit his $1.2 billion annual cost-saving target ahead of schedule. But the Los Angeles bank's loan portfolio, especially commercial real estate, fell apart faster than expected when California's economy collapsed. What's more, its trust, private banking and securities processing operations spun out of control, incurring the wrath of regulators and forcing BofA to carry out multi-million-dollar cleanups.

The S&L acquisitions provided branch locations and customers, but data systems, product mixes and staff training procedures had to be reorganized from the ground up. Also, when interest rates tumbled, the thrift deposits fled faster than BofA had expected.

The bank found itself in the unenviable position of managing down analysts' earnings expectations. As it did so, the bank began to stress new themes: what had become urgent was no longer growth, but making the existing network pay off. At the same time, BofA took up the mantra of financial discipline, complaining that branch system acquisitions had become overpriced.

Many trace the shift to the beginning of 1993 when Coleman, once the head of BofA's wholesale operations, became finance chief, replacing the widely respected Newman when he moved on to a senior Treasury position in the Clinton Administration. "I noticed a change in tone that coincided with Lew Coleman's movement into the CFO spot," notes Dain Bosworth analyst Jay Tejera. The market-savvy Coleman recognized that Wall Street was in no mood to hear about nationwide banking from an institution whose earnings estimates were ratcheting downward.

At first, BofA ran into a wall of skepticism. Some analysts whispered that BofA had dropped out of the mega-merger game only because its stock - then trading just a little north of book value - was too weak to allow the bank to be a player. "It appeared that they had got religion, but how long they had been sitting in the pew wasn't clear," says Lehman Brothers analyst James M. Rosenberg.

Ironically, it was another acquisition that provided strong evidence of the bank's discipline. In last year's $1.9-billion takeover of Continental, BofA paid a modest 1.25 times the Chicago bank's book value. And, to avoid dilution, BofA used a combination of cash and stock, linking the stock portion to a $500-million share buyback. "It was a nice, solid deal that was accretive in the first year." says Paine Webber's Cohn.

BankAmerica's Rosenberg calls the Continental deal "an absolute home run." Continental, one of the leading wholesale banks in the Midwest, "had a superb customer base and a superb group of calling officers with not much product line," he notes. "Everything from leasing to investment banking products have been able to flow into that customer base from BofA." For example, BofA was able to win agent-bank status on the British corporation Hanson PLC's $1.6-billion spin-off of its U.S. operations "because of the close relationship that Continental had cultivated with Hanson," Rosenberg says. "But the old Continental couldn't have done it; they did not have a syndication capability."

Last year, BofA also bought two mortgage companies with a combined $9 billion in assets: Minnesota-based United Mortgage Holding Co. and New York-based Arbor National Holdings. The deals were in keeping with BofA's policy of using acquisitions to build specific business lines.

[Expanded Picture]But the move that wowed Wall Street the most was BofA's announcement last February that it would use surplus capital to repurchase up to $2.4 billion in common and preferred stock over a three-year period, said to be the industry's largest buyback program. By the end of June, the bank had bought approximately $475 million of its common shares.

Inside the bank, few people had doubts about Rosenberg's priorities. In 1993 the word was that BofA's chief was on the warpath for revenue, a reflection of the weak top-line growth following the Security Pacific merger. A year later, Rosenberg was said to have zeroed in on per-share earnings and ROE as his obsessions.

Higher profits meant fixing the network he had created. In a key move to improve result, Rosenberg in 1993 brought in Helms from Seafirst to run the newly created and feebly performing interstate banking units. Helms, a marketing whiz who had made Seafirst one of the most profitable large banks in the country, quickly took charge of all retail operations, including the flagship California bank. He consolidated processing centers, installed common computer systems and imposed intense management and staff training regimes. The units are now twice as profitable as last year, although they still produced only a modest a 0.48% return on assets in the first half of 1995. In an important milestone, the Texas bank, created almost entirely from busted thrifts and a personal priority for Rosenberg, finally went into the black after nearly three years of red ink.

In California, Helms is overseeing what he dubs "creative destruction" in the branch system - systematically closing underperforming branches while installing supermarket locations, freestanding ATMs and electronic banking centers. And to test whether BofA can penetrate the Chicago retail market using only alternative delivery systems, he is installing 172 ATMs and three in-store branches in Jewel-Osco supermarkets. Brick-and-mortar branches "were once perceived as a convenience," says Helms. "But that's a 25-minute deal to visit a branch. Maybe it's no longer perceived as such a convenience."

Rosenberg has also made a major commitment to computer banking, paying $35 million in partnership with NationsBank Corp. to buy Meca Software, developers of the personal finance program Managing Your Money. In contrast to BofA's previous and unsuccessful forays into computer banking, Managing Your Money can be popped into a personal computer where, besides handing banking chores, it keeps the family budget, watches investments and helps make financial decisions.

Speaking before his retirement, Rosenberg revealed little about the succession drama then underway. He declined to comment when asked why he had decided to stay beyond his 65th birthday in April. BofA watchers had suggested all sorts of possible motives, including a desire to keep collecting his $3.5 million salary or simply to enjoy the bank's rising profits and improves standing with investors. Sources close to BofA say the board asked him to stay on. In hindsight, directors probably needed more time to conduct a search and settle the succession issue.

For his part, Rosenberg said nothing except: "I'm sure everybody in the world always wants to go out on an up note."

But another comment, far removed from the question of succession, gives a hint of what might be on Dick Rosenberg's mind. Asked whether being BoaA's CEO was as he had imagined, he replied: "It's been more challenging than even I had perceived. But from the standpoint of personal satisfaction, it has been everything I could have dreamed for and more."

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