Retiring Bank of America chief will be remembered as ‘emperor of banking’

Sara Silver

Monday, April 2, 2001 | 11:55 a.m.

State by state, merger by historic merger, the banker extended his empire -- through the South to Florida's tip, up the eastern seaboard to the capital, down to the Mexican border and, finally, out to the Pacific.

Hugh McColl conquered the U.S. banking industry with unending drive, brilliant strategy and military-style maneuvering. Just 15 years after taking charge of tiny North Carolina National Bank, McColl turned it into one of America's largest consumer banks, Bank of America, with $645 billion in assets. It's the second-largest bank in Nevada after Wells Fargo.

Today his vast empire helps finance 2 million businesses, including 85 percent of the Fortune 500. One-third of American households -- 30 million in all -- hold accounts at Bank of America. Its 14,000 ATMs will handle 1 billion transactions this year. Today, the bank controls $1 of every $10 in U.S. deposits from its Charlotte, N.C., headquarters. Locals dub the 60-story tower the "Taj McColl."

From the beginning, McColl, an ex-Marine, dazzled his field officers with his vision of expanding nationwide. "It was like John Kennedy saying, 'We're going to the moon'," recalled Adelaide Sink, who oversaw operations in Florida. "He made us all believers."

For a while, the market believed him, too. High stock prices allowed him to buy bank after bank. But then the market decided that for banks, bigger isn't necessarily better.

McColl's stock plummeted with his crowning moment, the 1998 merger of his NationsBank with the West Coast giant Bank of America. Today the megabank's stock hovers around $50, down 45 percent from its pre-merger peak.

Shareholders are grousing about McColl's $75 million bonus after the deal. Some want to block any parting gift of stock when he retires April 25.

How did a career built upon big visions and bigger victories end on such a sour note? The answer may be simple: Swallowing too many big banks can produce serious indigestion.

"What drives Hugh McColl is competing, winning," the banker once said of himself.

McColl honed his skills playing poker during two years in the Marines, once winning $40,000 from shipmates, according to an authorized biography.

At 48 McColl became CEO of the $13 billion bank called NCNB in 1983, just before interstate banking became legal. Employees remember that McColl managed by walking around, opening closed doors and asking, "What did you sell today?"

While they sold loans, he bought banks. Plenty of struggling local banks were there for McColl's taking. He could buy cheaply and let his managers turn them around.

McColl and other bigger-is-better bankers insisted that today's mobile society would welcome the convenience of a truly national bank whose ATMs, automatic deposits and Internet banking would cut costs and make bank lines obsolete.

"He saw the wave of universal banking coming and positioned his bank to take advantage of it," said Charles Calomiris, a banking historian at Columbia Business School. "He knew how to manage regulatory limits and turn them into regulatory opportunities."

In 1988 federal regulators practically gave him Texas' largest bank, First Republic Bancshares. After the real-estate collapse caused fears of widespread bank failure, the government agreed to write off First Republic's bad loans. Separately, his team negotiated $1 billion in tax breaks to offset the very loans that had been forgiven.

In 1991, with operations in just seven states and the District of Columbia, McColl's bank adopted the name NationsBank. "It was exciting to think that a lot of people from little old North Carolina could pull this off," Sink said.

After a string of expensive deals, McColl in 1997 won a bidding war for Barnett Banks, a sterling franchise in Florida. When questioned about paying $15.5 billion for a bank whose book value was about $4 billion, McColl said, "Let me ask the question another way: What is the price of not making an acquisition?"

To make the math work, McColl's bank had to cut 55 percent of Barnett's expenses, only to lose a chunk of the customers it had paid for.

"It was like walking into a Marine recruitment center," said Ken Thomas, a Miami customer who switched to Charlotte-based rival First Union. "The goal was to cross-sell you as many products as possible and charge you as many fees as possible."

Eight months after buying Barnett, McColl engineered what he called "the largest and most complex merger transition ever attempted in the financial services industry" -- a marriage with California-based Bank of America that formed the first retail bank with operations coast to coast.

McColl had become a giant, hobnobbing with presidents and CEOs. This was his apex. Now all he had to do was make the deal pay off.

Since the merger, McColl's bank has written off $4.5 billion in bad loans and may write off more. It has taken $1 billion in restructuring charges, in part to pay severance to workers laid off when it eliminated 33,000 jobs. With profits down $400 million to $7.5 billion this year, the stock trades below the shares of well-run regional banks.

McColl says gains from the merger are still ahead. "Even during the rougher days, I haven't changed my mind that there will be long-term benefits to our customers," he told the Associated Press earlier this year.

Some Wall Street insiders agree.

"If a company announces a growth strategy, you take a lot of risk buying into it for a year or two," said Rodgin Cohen, who has handled scores of bank mergers for the New York law firm Sullivan and Cromwell.

Most shareholders lose money when their bank buys another, according to Stephen Rhoades, author of a Federal Reserve staff study reviewing 20 years of banking mergers.

A wave of consolidation has nearly halved the number of America's commercial banks, from about 14,500 in 1983 to about 8,000 at the end of last year.

As his career winds down, McColl, who declined to be interviewed for this story, now appears to accept that the basic business of banking -- deciding who can be trusted to repay a loan -- is much harder to conduct from a far-off headquarters.

In a letter to shareholders last year, he acknowledged that "making the pieces of Bank of America work in ways that create value for customers, clients and shareholders would be an even more challenging task" than its aggressive growth strategy.

Until the 1998 merger, McColl's stock was outperforming other banks' stock by 33 percent. But after that, investors who bought into his West Coast expansion lost 50 percent more than other banks' investors, according to the Keefe Bank Index.

McColl didn't suffer with them. Last year, he was awarded about $3.75 million in salary and bonus, $45 million in restricted stock, and 1.4 million stock options worth $27 million.

For years, shareholders have complained about the cozy ties among McColl's board of directors, which includes so many hunting buddies, employees and hometown friends that it has twice made Business Week's list of worst boards. Now, as he departs, some are mobilizing to prevent any new retirement gifts and to tie stock grants to performance.

"We were delighted when the chairman of the board announced he was stepping down," says Pat Macht, communications director for the California Public Employees Retirement System, which owns 1 percent of the bank's stock.

On the morning of April 25, McColl will walk into a glass and blond-wood concert hall to formally hand power to his chosen successor, Ken Lewis. He will face angry people who bought into his ambitions and the employees who must now manage the empire he built.

Tired of paying the price for being big, Hugh McColl now says he wants to enjoy the small things in life. The emperor of banking is going home -- to play with his grandchildren.

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