OT: California Banks
CA-based exec sees problems only with certain large corporate loans, sees loan quality significant better than 10 years ago.
Published Monday, Dec. 25, 2000, in the San Jose Mercury News
Bank of America exec looks at challenges ahead
Liam McGee became president of Bank of America Corp.'s California operations in August, just after the nation's largest bank announced a restructuring that would cut up to 10,000 jobs and close 200 branches nationwide.
Since then, Charlotte, N.C.-based BofA has warned that an increase in bad loans and slowing market activity would hurt profits.
California is the bank's largest and most profitable market, with about 960 banking centers and $185 billion in loans and deposits. BofA is looking for the state -- and Silicon Valley specifically -- to provide a boost in revenues.
A native of Ireland, McGee, 46, joined the company in 1990 and has lived in Southern California nearly all his life. He discussed the challenges ahead for Bank of America California with Mercury News Staff Writers Jim Mitchell and Dan Lee. The following is an edited transcript of the interview:
There has been a lot of talk about declining credit quality at banks. What's your perspective?
There is pressure on credit quality at banks. It hasn't shown up in consumer banking or small business or credit cards yet. Where you see most of it is in large syndicated credits -- what you would know as corporate credits -- and usually around transactions and business models that anticipated continued low interest rates, continued high economic growth. Although the economy is still pretty strong, it's not quite as strong as it was.
But you have to keep the credit-quality situation in context. Most banks have had little to no credit quality issues in the last five or six years. Whatever banks are having -- including ours -- are still well within ratios we would have died for 10 to 12 years ago.
How is BofA -- particularly BofA in California -- adjusting to the New Economy? How is that changing banking, and what are you doing differently?
Clearly, the population is different. In many of our markets, the majorities are not Anglos, and within the majorities we have, a high percentage of our immigrants are first-generation.
I think that's what makes California the greatest place in the world, and with that is coming new energy. You see it here. This area is proof of that -- that kind of energy and entrepreneurial spirit.
The cultural changes in California are sources of great opportunity but also great challenge for us, because many of the residents of our state come from countries where banks -- or financial institutions -- are not trusted, are not places that afford middle-to-lower-class people the opportunity to buy homes or even such a basic thing as a checking account.
That's a new business model for us. And increasingly, the population growth is among population sectors like that -- and the new affluence is from population sectors like that. So we're having to learn to be more adaptable, more flexible. Our staff certainly reflects the ethnic diversity of our state -- and needs to.
Private banking -- services for wealthy individuals -- is lucrative for banks. What will it take to grow that business in Silicon Valley?
Historically, people have not used banks as a place to invest. Certainly they have been places to save and transact, manage your cash flow and borrow money. But we along with others have very good capabilities. We are a very large money manager at Bank of America. What we haven't been as successful at is leveraging those strengths for individuals.
Asset management is a very good business. It's a high-return-on-equity business, and it's very consistent with what our strengths are, including our unparalleled distribution system in California. Most people do business with us in one way, shape or form. We just want to evolve that relationship and, if and when they become affluent, want to be the place where they'll invest.
My general impression of banks as investors for clients is that they do a terrible job.
I wouldn't use the word terrible, myself, but I would agree with the spirit of your comment.
So how is Bank of America changing that?
The investment brokerage business evolved separately from the banking business. And so those people who happened to have been affluent, which were much smaller numbers than we have today, were sought after by these investment houses, and banks really missed the boat on it.
But if you look beneath these large companies, like ourselves, Citigroup, Chase and a few others, they have very world-class money management abilities. They've typically been more institutional, and what we're trying to do is take world-class money management abilities and offer them for consumers.
We have a challenge -- there's no question about that. But if we make it more convenient and we have different kinds of people that are more aggressive, that are more creative, that are more sophisticated as opposed to the stereotypical trust officer, I think that's our challenge.
Does the big downturn in tech stocks make it a bad time for this big push for private banking?
I don't think so. The great thing about the state of California is that people have wealth from a number of sources, and tech is only one of them.
California is soon to be the fifth largest economy in the world. We passed Italy, which was sixth, and I think the UCLA forecast said we'll pass the U.K. by the end of this year. And what's remarkable about it is it's almost entirely a small-to middle-sized business.
When you talk about serving the diverse market, one area that's been talked about some is under-served markets. Do you have any plans to expand in places like East Palo Alto?
I can't comment on that one in particular, but I can tell you, if you go up and down the state of California and you look at these ``under-served'' markets, typically, Bank of America has more banking centers in those markets than all the other banks combined.
In the banking business, because we're regulated, we get asked to do things and always have this internal debate between the greater good and can we make money at it. I think that tension will always exist.
What would be an example, then, of an under-served market in the Bay Area where BofA stayed?
Oakland. We've spent a lot of time and money really focusing in not only banking there but affordable housing and the like, and we've done that throughout the state, but I think Oakland and the Alameda County area is an area where we really focused-in and brought the whole resources of the company to do that.
What's the relationship between BofA in California and corporate headquarters back in Charlotte?
I guess the fact that I'm running California suggests it's pretty good. There have been a lot of stereotypes to the contrary -- that someone like me never would have had a chance to do what I'm doing or be on the operating committee. So I would tell you that the merger is in the rear-view mirror and has been for a year. We clearly are a new company now.
I don't really spend much time in Charlotte. We run California as a relatively autonomous business, with key functions in California, not in Charlotte or anywhere else. |
