ALBANY, N.Y. -- In his 18 years at the helm, Victor J. Riley Jr. has transformed KeyCorp into a national powerhouse and established himself as a larger-than-life character in the banking industry.
With his homespun charm and sometimes outlandish clothes, Mr. Riley logs nearly 120,000 miles a year in the company's corporate jet, preaching the gospel of geographic diversification. His speeches generally play to overflow crowds.
But Wall Street is now abuzz with speculation that Mr. Riley's diversification plans may include shopping for a merger partner -- or looking to be acquired. The 60-year-old executive is expected to retire within four years, and he has yet to designate an heir apparent. The company will have $30 billion in assets when its pending acquisitions are completed later this year.
"Although it's hard to gauge exactly what he will ultimately do, I have a sense that Victor would rather the succession occur through the instrument of a transaction than via a headhunter," says a source who has talked to Mr. Riley about the subject.
Mr. Riley insists he wants KeyCorp to remain independent, but his recent confirmation that he held merger talks last fall with U.S. Bancorp of Portland, Ore., indicates the issue may be negotiable.
"By confirming [the merger discussions tookplace], he almost put out an advertisement saying: |I'm willing to discuss these things,'" says R. Jay Tejera, an analyst at Dain Bosworth.
Although U.S. Bancorp is no longer thought to be a candidate, companies that are identified as possible marriage partners for KeyCorp include Norwest Corp. and First Bank System Inc., both based in Minneapolis, and Banc One Corp., based in Columbus, Ohio.
Merging with any of these banking outfits would satisfy Mr. Riley's ambition to build a coast-to-coast banking franchise and presumably solve his succession problem.
In the case of U.S. Bancorp, for instance, it had tentatively been agreed that Mr. Riley would oversee the merged company for a few years, then turn over the reins to Roger L. Breezley, U.S. Bancorp's 54-year-old chief executive.
Although a union with U.S. Bancorp would have been virtually a merger of equals, the headquarters of the surviving institution was to be in Portland.
The chief executives of KeyCorp's most likely partners also are comparatively youthful. Richard M. Kovacevich, who will become Norwest's chief executive in January, is 48; John F. Grundhofer, First Bank's chief executive, is 53; and John B. McCoy, Banc One's chief executive, is 49.
For his part, Mr. Riley says he has no plans to let the bank be acquired or to entertain a merger.
"We're not even giving that any thought," he insists. "The board has directed me to chart a course of independence and be one of the superregionals of the 1990s."
Mr. Riley, who holds the titles of chairman, chief executive, and president, also maintains he has made it clear how he intends to manage his succession.
He says he has told the board that he will retire sometime between next year and 1996, and has assured it that he would provide one, and possibly two, nominees for his post.
"I continually parade a series of officers in front of the board ... so they can see them in action," he says.
Despite his statements to the contrary, those who know Mr. Riley say his actions indicate a man who has not yet decided how to relinquish control of a company he has dominated for almost two decades.
Some Rocky Roads
Indeed, his attempts todeepen Key's top management last Vear in preparation for his Vetirement and the retirement of hits V1-year-old lieutenant, V
xecutive vice president William H. Dougherty, have yielded muddled results.
For example, Gregory C.Dillett, 48, quit five months after he Vas hired in December for the Vewly created post of chief Vdministrative officer. V3Mr. Dillett, who had been the V3ief finance and administration V3ficer at CoreStates Financial V3rp., declined to discuss his V3asons for resigning. V3But sources say he took the V3b with the understanding that V3 would succeed Mr. Riley or V3. Dougherty, then quickly V3alized that an upward move was V3 no means assured. V3KeyCorp has no plans to fill V3e chief administrative V3sition, a spokesman says. V3Another likely candidate is V3mes R. Waterston, who V3ersees the company's subsidiary V3nks. A former vice chairman V3 Detroit-based Comerica Inc., V3. Waterston, 51, was hired at V3e same time as Mr. Dillett. V3Others Mr. Riley has V3ntioned as possible successors V3clude Hans F. Harjo, 52, head of V3y's Washington Bank, and V3ry R. Allen, 43, head of Key's V3w York bank. V3But most analysts aren't yet V3nvinced that any of these men V3ll get the top spot. V3"There is not a successor at V3is point, as far as I'm V3ncerned," said Nancy Bush, an V3alyst at Brown Brothers V3rriman. V3That Mr. Riley might have V3nflicting emotions about V3epping down is easy to understand. V3 V3 Decades of Growth V2 V3He has built the organization V3om a sleepy, upstate New York V3nking company with $1.2 V3llion in assets in 1973 into a top-flight V3nancial institution. V3The company has a presence V3 eight states -- New York, V3ine, Wyoming, Utah, V3egon, Washington, Idaho and V3aska -- and will have a total of V34 branches after it completes V3l its pending deals. V3To some, Mr. Riley is so V3osely tied to KeyCorp that he V3w personifies it. "He is this V3mpany," says Mr. Tejera, the V3alyst. V3A heavyset man who includes V3oking as one of his hobbies, V3. Riley's influence on key is V3erywhere. It was at his urging, V3r example, that employees in V379 began wearing key-shaped V3ns on their lapels. V3 V3 No Fashion Plate V2 V3Employees don't follow his V3shion sense beyond that, V3wever. He's given to wearing V3ight colored clothes, which V3ave an indelible impression on V3ose who meet him. V3One investment banker V3calls that Mr. Riley once wore a V3iny lizard-green suit to a V3siness meeting. "It was the ugliest V3ing I had ever seen," he says. V3Mr. Riley has a reputation for V3ternalism, and some company V3siders affectionately refer to V3m as "Papa Bear. V3Once, when Mr. Riley heard V3 employee's son didn't have V3e money to return home from V3llege for Thanksgiving, he V3ew the employee and his wife V3t on the corporate jet to visit V3eir son. V3Mr. Riley insists on mixing V3th KeyCorp's rank-and-file, V3d he has been known to make V3announced visits. V3Last August, for example, at V3e end of a vacation rafting V3aho's Salmon River, Mr. Riley V3opped in unexpectedly at the V3x-person Key branch in V3Call. V3"We got out of the boats, took V3bus to town and he went over V3at afternoon," said Leroy V3ving, Key's treasurer who was V3 the trip. V3 V3 Visits to the Front Lines V2 V3Mr. Riley says meeting with V3e troops is important because V3hat way you can talk to the V3llers and talk to the branch V3nager and find out how V3ings are going." V3After years of criticism, Mr. V3ley also enjoys considerable V3pularity on Wall Street. V3Most analysts now have the V3ock rated "buy" and some say V3 could rise 25% to 30% in the V3xt 12 months to around $40 a V3are. KeyCorp's shares were V3ading Monday afternoon at V30.25. V3 V3 Analysts Take Notice V2 V3That's quite a turnaround. It V3s only two years ago that V3alysts were saying Mr. Riley's V3rategy of acquiring small-town V3nks across the country's V3rthern tier was ill conceived V3d were criticizing the V3mpany's poor cost control and its V3ndency to dilute shareholders V3 acquisitions. V3But when banks, particularly V3ose in the Northeast, fell on V3rd times during 1990 and V391, Key's diversification V3ted the impact -- and changed a V3t of analysts' minds. V3Earnings remained robust, V3nperforming assets remained V3dest, and capital grew. V3Meanwhile, Mr. Riley got V3y's costs under control. V3yCorp last year earned $188 V3llion, or $2.57 a share, which V3presented a 0.86% return on V3sets. V3The "snow belt" strategy was V3rticularly important because V3 put Key in position to buy V3iled Goldome Savings Bank in V391 and failed First Empire V3deral Savings Bank in 1990. V3Its competitors in the V3rtheast, struggling with mammoth V3ounts of bad assets couldn't V3ke competitive bids. V3Even the most critical of V3alysts say those deals were home V3ns for the company. They V3re valuable franchises and the V3vernment sold them at V3ckbottom prices. V3 V3 Possibilities Beckoning V V Although Mr. Riley now says Ve plans to slow the company's Vearch for acquisitions, those Vho know him say he likely will Ve out hunting for more deals as Voon as the pending acquisitions Vf $5 billion Puget Sound Vancorp in Tacoma, Wash. and 48 VankAmerica branches in Vashington state close later this Vear. V With the New England Vecession abating, Mr. Riley says Vanks in eastern Massachusetts Vnd Vermont have become Vore attractive. V He says he is also trying to Vind a way to buy banks in Vontana, Minnesota, and Visconsin. Those state's laws currently Vrohibit KeyCorp from Vntering. V Generating more fee income Vas become very important to Vr. Riley too. Lending has Vecome more competitive even in Vey's relatively uncompetitive Varkets, so "you create new Vevenue streams" to counteract the Vrosion, he says. V He hopes mortgage servicing Vill be a big part of that. Key Vcquired $14.4 billion in mortgage Vervicing rights from Goldome Vnd now has $18 billion. V V Technological Gains V V Mr. Riley says KeyCorp is Vmproving its technology and Vopes to contract out its data Vrocessing capabilities to Venerate fees. V Whatever happens to Key, Vhareholders likely will benefit Vandsomely. V Should it stay independent, Vnalysts say investors can expect V4% earnings growth this year Vnd 17% growth next year. That Vught to result in stock Vppreciations approaching 30%, they say. V Should the bank be acquired, Vnalysts say the company could Vetch $47 a share or 2.5 times Vook value. V Whatever Mr. Riley decides Vo do, he has a vested interest Vnsuring that shareholders get a Vood deal. He owns stock and Vptions currently worth about V13.2 million. V