Thomas Theobald, chairman of Continental Illinois Corp., stands on a balcony overlooking the Italian marble columns, the leaded glass windows and the towering cathedral ceiling of his bank`s second-floor lobby.
He feels neither affection nor nostalgia for his ornate domain`s forbidding grandeur, a throwback to the era of ”great banking halls.”
To Tom Theobald, a man who demands simplicity in style and strategy, such a monumental facade is ”irrelevant to business today.”
The days of hushed reverence in the presence of great wealth are gone, just as Continental`s old grandeur as one of the nation`s banking powers is gone.
But just as his staff has adjusted to a single-focus strategy that is eliminating the bank`s retail operation, many of its foreign offices and its suburban branches, Theobald has learned to live with a football field`s worth of gleaming paneling for a headquarters.
After one year, the marriage of the humbled Chicago bank, subject of a $4.5 billion federal bailout in 1984, and the passed-over heir apparent to the top post at Citicorp in New York seems to be working.
Veteran senior bank officers at Continental, battered by the combative style and the ”dynamic tug” between the previous top officials, John Swearingen and William Ogden, say the cool, fast-moving Theobald is ”exactly what we needed at the time we got him.”
”There`s a general sense of well-being again,” said Hollis Rademacher, chief financial officer. ”We didn`t get the stuffy, patrician New York corporate banker we expected.
More Top Picks Best Dimmable Desk Lamps For Reading
”It`s fun here again,” he added. ”It`s been several years since you could say that.”
”You walk into Tom`s office and he`s got his collar open and his sleeves rolled up and his feet on the desk,” said S. Waite Rawls, a Continental vice chairman and former top executive at Chemical Bank of New York whom Theobald recruited over a dinner of cheeseburgers and beer. ”Substance is the real important thing around here now, not the form. The tone is `get it done, don`t make it look good.` ”
One former colleague, though impressed with Theobald`s decisiveness, interprets his style as cold and impersonal.
”He`s not the kind of guy that many people are close to on a personal basis,” he said.
”He is extremely self-confident about his own widsom on practically everything you want to talk about,” said William Spencer, former president of Citibank and another former Theobald colleague. ”He was certainly never bashful about his own grasp of things. I would think that when you are so sure you know the answer, you might not listen to somebody who`s had more time at bat.”
The main difference is that the bank has a ”clarity of mission now,”
said Eugene Croisant, chief operations officer. Even though that mission has its painful aspects, such as when he was put in charge of dismantling the retail operation he had built up, morale has improved, he added.
”We know where we are going and who is in charge,” he said.
The Continental strategy, to develop financial products for large and midrange business customers, is basically a case of asking ”what are we going to sell; to whom; and why should they buy it?” Theobald said. ”If you can`t put it on the back of an envelope, you`ve failed.”
Though some analysts describe the bank`s new direction as sensible but boring, a local banker concedes that Continental is pointed at ”the best piece of daylight available.” An advertising campaign to promote the new focus is planned for the fall.
”If you talk to a (stock) analyst about electronic cash management, his eyes glaze over,” Theobald said. But speeding the movement of cash to its most productive use can be exciting to those who do it, he said.
Only two other major banking firms in the country, J.P. Morgan & Co. and Bankers Trust New York Corp., have chosen this strategy, Wall Street analysts say. But Theobald says Morgan markets only to the top 50 or so corporations, while Bankers Trust is so successful it believes ”the world will come to them.”
Theobald says the bank will concentrate on traditional financing, cash and securities management services, risk management products and financial advice. Of these, he sees the best near-term growth prospects for such risk management tools as financial insurance on interest rate swings and foreign exchange exposure. It is here, too, where his enthusiasm seems to be centered, because he feels the marketplace is still wide open.
”Less than one-third of the customers who should have such insurance do,” he said.
The choice of what products to emphasize is vital, according to one local competitor.
”I haven`t seen Continental in the market yet,” he observed. ”They`re starting from a pretty low base in key products. Their success will be driven by which products they decide to emphasize.”
A recent survey by Goldman, Sachs & Co. shows some sign of success:
Continental was regarded as a primary bank for 25 percent of the Fortune 1,000 industrial companies and 350 Fortune service companies. That was a notch better than Bankers Trust, which was named by 23 percent of the firms surveyed.
Currently about 70 percent of Continental`s revenues come from noninterest sources, Rademacher indicated. ”It`s almost all fees, and we`d like to see it continue at this pace.”
In addition to retail banking, Theobald said Continental will not compete in such areas as underwriting securities overseas. It has discontinued offering record-keeping for profit-sharing plans and won`t compete in fund-raising syndicates for megabillion-dollar takeover transactions.
Theobald added that the bank will not seek to boost its penetration of the 100 biggest companies, focusing instead on the Fortune 200 to 1,000.
”If you knew us 25 years ago, we are returning to what we were,” said Edward Bottum, vice chairman.
On the other hand, Theobald insists that the swiftness of action that has characterized his tenure so far does not mean a return to the go-go years of the 1970s, when aggressive lending nearly destroyed the bank. Every loan of more than $500 is rated for credit quality and reviewed frequently, he said. With fewer layers of management, ”It`s a great deal easier for management to know what`s going on.”
However, Theobald`s first year has not been without its nasty surprises. He had been at Continental little more than a month when the stock market crashed, almost taking the bank`s First Options trading clearinghouse down with it. The bank wrote off $90 million in losses and put aside an additional $9 million in reserves, but has since acknowledged that the options unit lost $112 million in the crash. However, the bank hopes to recover enough from its customers to keep its final losses below the provided-for $99 million.
”That was not something that he factored into his game plan,” said writer Gigi Mahon, Theobald`s wife. ”It took a lot of time and energy away from other things he would rather have been doing at the bank.”
The other shadow that hangs over Continental is how and when the Federal Deposit Insurance Corp. will dispose of its remaining stock. As a result of the 1984 bailout, the FDIC holds or has options on 69 percent of the bank`s stock.
”Clearly, it`s not the business of the FDIC to be owning shares of a prosperous bank that`s just reported record earnings in the second half,”
Theobald said. He indicated he thinks the most likely scenario is a public offering and added that the uncertainty is ”an overhang and a depressant on the stock price.” The stock was trading at $5.12 at week`s end.
Sources at the FDIC indicate the board could start its first review of the matter of disposing of Continental`s stock as early as August. Theobald said it would most likely take 60 to 90 days for the FDIC to conclude any deal, once it made a decision.
The sources added that the board has talked to potential buyers but wouldn`t say whether members are leaning toward an outright sale of the bank or a public offering.
Theobald says that a sale of the whole bank is conceptually possible,
”but to whom? There doesn`t seem to be anybody with the capital and the interest.”
Federal law requires that a bank holding company be purchased by another bank holding company, and Illinois law requires it to be located in Illinois or a contiguous state.
Theobald believes a foreign buyer is equally unlikely because it would have to move its headquarters to this region, and most industry sources say they do not expect the Japanese to buy a major U.S. bank, certainly not before the fall election.
Though he says he has no indication from the FDIC board on what it intends to do, Theobald seems confident that he and his management team will be in place for some time to come.
For now, the bank is profitable again, with first-half earnings of $128.7 million, or 51 cents a share, in contrast to a net loss of $433.8 million in the year-earlier period, after a provision for $500 million in the second quarter last year for possible losses on loans to Third World countries. Continental`s return on equity was 16.8 percent for the second quarter, and the bank is meeting its goal of a 25 percent operating profit margin for this year.
More Top Picks Food Storage
Theobald would like to see banks measured by their revenues, rather than their assets.
”Nobody measures IBM by what they own; it`s what they sell and how much money they bring in that counts,” he said.
Expenses declined 7 percent in the second quarter from last year. According to Roger Sherman, manager of private banking, who headed up an internal cost-cutting brigade known as Project Focus, the bank will achieve its goal of cutting 5 percent of expenses, or about $40 million, out of the budget over a two-year period. The number of employees is expected to drop to 8,200 by the end of the year from 9,600; most will have gone as part of the sale of the suburban branches.
Part of the Project Focus emphasis has been changing the way the bank does business, Sherman said. ”We`ve tried to eliminate the redundancies, like cutting out the hard copies that used to accompany electronic mail messages.” ”We are taking the Japanese approach of improving efficiency as part of the everyday job,” Theobald said.
One of the trickle-down effects of Theobald`s much-touted informality is a reduction in the number of internal meetings and an attempt to cut into the layers of bureaucracy. ”There are fewer moving parts,” he said.
”There are one and in some cases two fewer levels of management than there were before,” said Garry Scheuring, vice chairman. ”Everybody has more marketing responsibility and more customer responsibility. My own time with customers has more than doubled.”
The pace is quick, Rawls added. ”You can get decisions made quickly; you don`t have to play through layers of bureaucracy.
”A manager in charge of Asian sales in Tokyo sent a first draft of a policy change here a week ago, and the final draft came yesterday with a note attached that maybe Theobald should see it,” Rawls recounted. ”When I told him Theobald had seen it last week, he was shocked. Before you had to ask permission to send stuff to the chairman.”
Part of Theobald`s apparent popularity among his team could be the contrast to Ogden`s style, characterized as ”painful” and ”unpredictable,” combined with Swearingen`s remoteness.
”Ogden was very difficult; he was always flying off on a rampage,”
Sherman said. ”He left lots of bruises behind. Neither one of them ever made an attempt to meet anyone unless they had to.”
”There was all this second-guessing,” said another officer. ”Ogden wanted all this extra data all the time. Then he`d find a chink in your presentation and just beat the heck out of you.
”I don`t mind a good fight, but I don`t want to fight every day,” he added.
Theobald, who frequently uses concepts from manufacturing and marketing in assessing the role of Continental, says he believes in taking a ”flexible manufacturing approach” to custom-tailoring relationships with customers. In the end, it`s the cheaper way to do it, he said.
”The average customer visit costs the bank $1,000,” he calculated. ”A foolish call is as expensive as dropping a bin of checks on the floor.”
Key customers agree they are seeing more of bank officials, and one added that Continental employees ”look you in the eye again, not at your shoes. They`ve gotten rid of that hangdog attitude.”
According to Robert Lannert, vice president and treasurer of Navistar International Corp., the morale among calling officers is higher than he would have expected at this stage in the bank`s recovery.
”They used to sell the bank on its image and had a lot of enthusiasm,”
he said. ”When that was taken away, they were embarrassed. Now they`ve gotten that pride back.”
As far as his role in civic activities, Theobald says he prefers to stick to areas in which he can ”add value,” such as the Civic Committee`s focus on improving the growth of Chicago`s options and futures exchanges, which he calls the risk management industries in Chicago.
His wife, author Mahon, says she feels no pressure to be a social lioness like her predecessor, Bonnie Swearingen.
”There is only one Bonnie,” she laughed. ”That`s not a standard I hold up for myself; we`re very different people.
”I don`t want to get involved in activities just to get my name on a list,” she added. ”I am thinking about getting involved with the library and the zoo because they are dear to me.”
When an international banking conference was held here recently, the Theobalds did a lot of entertaining.
”But we kept it low key and casual,” she added. ”That`s just the kind of person we both are.”