Cracks in the Wall at Bank One
Investors await answers as John McCoy's strategy unravels
John B. McCoy cut a high profile as head of Bank One Corp. (ONE), snatching rivals and shaking up the hidebound banking business. He transformed a regional company into a national contender, capped by last year's $19 billion buyout of First Chicago NBD Corp.
But after a career of buying banks, McCoy himself may be forced to sell. Chicago-based Bank One is beset with problems--when most big banks are enjoying growing profits. Troubles range from a near disaster at First USA, the giant credit-card company it bought for $7 billion in 1997, to turmoil in the executive suite. McCoy promises that by early January, he'll provide answers about the future of the nation's fourth-largest and most ailing major bank.
SECOND WARNING. But answers are late: Bank One's management was scheduled to brief Wall Street on Nov. 15 on its outlook for 2000. But five days earlier, execs called it off and instead stunned investors with their second warning in three months that profits would fall far short of earlier targets. Some analysts are increasingly skeptical about whether McCoy, the third generation of McCoys to run Bank One, can lead the behemoth he built.
A spate of managerial shuffling doesn't augur well. Just a year after the First Chicago deal closed, Bank One's board in October stripped McCoy of most of his operating responsibilities and swapped his president's title for chairman. The board then handed Verne G. Istock, the 59-year-old former CEO of First Chicago NBD and then-chairman of Bank One, the president's title and responsibility for all of the bank's operations except First USA. Yet McCoy, 56, remains CEO, with the job of cleaning up First USA. As to questions about his leadership, he says: ''I'm comfortable with the support of the board, and we are moving forward.''
Meanwhile, high-level departures continue. James W. Stewart III, the head of Bank One's new Internet bank, Wingspanbank.com, is the latest: He announced his exit after First USA's chief executive and two key vice-chairmen said they were leaving.
Now some investors are asking: Is First USA the only thing that ails Bank One? ''They keep assuring people it's First USA,'' says regional bank analyst Lisa Welch of John Hancock Funds Inc. ''It's still a question mark until management provides more information.'' Analyst Nancy A. Bush of Ryan, Beck & Co. adds: ''How long [McCoy] can stand this, I don't know. My guess is he gets out by engineering a sale of the company.''
A sale would be a cruel comedown for McCoy, who since the '80s had led the bank on a series of daring, high-stakes acquisitions. Fallout from the First USA deal has put a stop to that. The credit-card company produces both a third of the bank's earnings and most of its profit woes, according to the bank. While other huge issuers face similar pressures, Donaldson, Lufkin & Jenrette Securities Corp. analyst Moshe A. Orenbuch says First USA's problems are largely of its own making. It hooked customers with teaser rates as low as 2.9%. But when it jacked them up, many fled--especially when the company unfairly tacked on late charges, he notes.
CUSTOMER FLIGHT. Big cracks appeared in the third quarter: 1.1 million customers left, new accounts plunged, earnings growth fell from 20% to below 15%. McCoy says the problems surprised him: ''This happened faster than I've seen things happen in the banking business.''
After Bank One issued its first profit warning on Aug. 24, shares plunged over 40%. Profits are off roughly 17% from original targets. And the bank is behind in delivering $275 million in revenue growth promised by 2001 from the First Chicago merger. With shares down and no plan yet for a First USA fix, Wall Street has labeled the company a takeover candidate. Asked about a sale, McCoy responds: ''You've got to do the right thing for the shareholder.'' But he adds: ''I don't think that there's any chance of somebody trying to take us over. I'll put it at 10%.'' Given the bank's recent history, investors may be hoping for higher odds. |
