NationsBank: Already Big in Chicago, Its Boss Wants More

May 09, 1994, Crain’s Chicago Business
By Barbara Rose

CHARLOTTE, N.C. — The view from Hugh McColl Jr.’s offices near the top of NationsBank’s 60-story headquarters here is so wide open, one can imagine seeing all the way to the Sears Tower. Mr. McColl’s ambition easily stretches that far .

Chicago bankers recall meeting him 20 years ago at genteel industry conferences, when he was a stocky young executive from a scrappy North Carolina bank. To their amazement, he and a colleague devastated opponents on the tennis courts with awesome overhead smashes. Reminded of those doubles matches, Mr. McColl’s tanned face cracks into a wide grin.

“I don’t think they’d seen people quite that competitive,” he says in his deliberate drawl. Then, he pauses, his eyelids drooping with mock seriousness: “We used to be very aggressive, but that was years ago. We have mellowed, of course.”

Not a chance.

Cagey and opportunistic, the forceful 58-year-old chairman of the country’s third-biggest banking company is eyeing the Midwest-and yes, the world-with the same relish he brought to his tennis slams.

Focus on Chicago

Having made Chicago the hub of NationsBank’s trading and risk management business with last year’s purchase of Chicago Research & Trading Group Ltd. (CRT), it’s only a matter of time before he muscles into the city in a much bigger way. Late last year, he took a hard look at buying Chicago’s second-largest banking concern, Continental Bank Corp., before deciding it was too expensive. California’s BankAmerica Corp. locked up the deal with a pending $1.9-billion offer. Mr. McColl declines to say whether NationsBank made a formal bid. Analysts say he wanted Continental badly for strategic reasons, but couldn’t justify the price.

“We looked at it very thoroughly,” Mr. McColl says. “People are always going to see prices differently.”

As for speculation that he’s set his sights on Chicago’s only remaining big independent banking firm, $60-billion-asset First Chicago Corp., he sidesteps the question.

“I actually think (First Chicago Chairman) Dick Thomas is a really terrific fellow,” he says. “And I think he and his board and his management are masters of their own fate.” Mr. Thomas declined comment.

Mr. McColl’s bold series of acquisitions in 10 years has fashioned a $158-billion-asset colossus with branches from Washington, D.C., to Dallas. Now, he’s bent on winning the industry’s endgame: creating a powerful coast-to-coast conglomerate that offers everything from household accounts to global financing.

Chicago, the Midwest’s financial center and the country’s third-biggest banking market, is crucial to his strategy. Already, NationsBank is an important local player.

Last year, Mr. McColl paid $225 million to buy CRT, one of Chicago’s most prominent options trading and clearing houses.
Now, his executives are harnessing CRT’s brainpower and sophisticated computer systems to serve a growing national base of corporate customers (see story below).

In the Midwest, NationsBank ranks among the top five corporate banks based on the number of large customers. (First Chicago is No. 1.) Its Midwest division, headquartered in the Loop across from First Chicago at Three First National Plaza, does business with about 125 large companies, including Sears, Roebuck and Co., Quaker Oats Co. and Rosemont-based Comdisco Inc.

Its aggressive style is rooted in the history of the feisty bank through which Mr. McColl rose: NationsBank’s predecessor, NCNB Corp. (North Carolina National Bank). For years, NCNB scratched for business in the shadow of North Carolina’s bigger bank, Wachovia Corp.

“We grew by being sort of scrappy,” says NationsBank’s strategy chief, Frank Gentry. “When Wachovia had all the silk-stocking trade, we’d go to the textile companies . . . and do our homework and try to pick the ones that could pay the money back.”

Great financial strength

Today, that calculated risk-taking is coupled with far greater financial strength and billions of dollars in customer deposits– NationsBank has 1,900 branches in nine states–that keep the bank flush with money to lend.

Not surprisingly, corporate bankers recite this mantra: “Mr. McColl says, ‘If we don’t lend, we don’t eat,’” says Midwest banking chief Douglas Bowers. ”This place is for winners,” he adds, sounding another of his boss’ themes. “We flat out like to win.”

Customers notice.

“They don’t win every bid,” says Sears Treasurer Alice M. Peterson, “(But) they try to be extremely timely in acing out a competitor. They’ll be the first ones back with an answer.”

Acknowledges Continental Vice-chairman Richard Huber, “We’ve probably lost more business to them than to any other bank.”

NationsBank’s swaggering approach is not without risk. Banking history is littered with lenders that grew too fast and blew themselves apart by misreading markets or cutting deals too close.

Says another competitor, “The danger is, how do you keep that aggressiveness without slipping up?”

Mr. McColl contends that NationsBank is protected by its diverse customers, its broad geographic reach and varied business lines.
Last year, NationsBank’s institutional group-aimed at big corporations-contributed 39% of the bank’s $1.5 billion in net income. The general bank-aimed at households and small businesses-contributed 58% of net income. The remaining 3% came from the non-bank group, which includes business and consumer credit companies.

“When one area’s not performing,” says analyst Frank Anderson of Little Rock, Ark.-based Stephens Inc., “another one is.”

Everything clicking

For the moment, virtually all areas are clicking. The result: strong first-quarter profits of $417 million, up 48% from last year’s first quarter, excluding last year’s special accounting gain. Even expense control–a weak spot–is improving. NationsBank’s efficiency ratio (non-interest expenses to operating revenue) fell from a high 71% at the end of 1992 to 63% a year later, about average for large superregional banks.

Says analyst Moshe Orenbuch of investment banking firm Sanford C. Bernstein & Co. in New York, “Mr. McColl and the people under him have done some terrific things, and ultimately, it’ll be recognized in above-average earnings growth and a better (stock) multiple.”

So far, Wall Street has been slow to reward NationsBank with a high stock price. Shares trade in the low $50 range, around 1.4 times book value and less than the 1.6 average premium on book value for big superregionals. That effectively makes stock-based takeovers more pricey for NationsBank than for some other superregional banks.

Acquisition skills

But no one doubts Mr. McColl’s skill as a clever acquirer. He doubled the size of his bank twice-first in 1988, when NCNB bought Texas’ biggest bank, troubled First RepublicBank in Dallas, and again in 1991, when it bought Atlanta’s C&S/Sovran Corp. to create NationsBank.

Roundly rebuffed in his first bid for Citizens & Southern by its Chairman Bennett Brown, Mr. McColl bided his time. While Mr. Brown arranged his bank’s merger with Sovran, Mr. McColl ordered his staff to gather personal information about Mr. Brown and other C&S executives so he could devise a better approach.

When the ill-fated C&S/Sovran merger foundered, Mr. McColl visited Mr. Brown at his Myrtle Beach, S.C., vacation home. The resulting $4.3-billion deal gave NationsBank one of the dominant banking operations in the Southeast.

Says a Wall Street bank analyst, “He’s shrewd. He never buys at the top. He just sits back and measures you, and when you least expect it, he pounces.”

Nonetheless, it wouldn’t be easy for NationsBank to snare First Chicago–a prize with the area’s biggest retail franchise, a leading national credit card operation and a large corporate business. First Chicago’s board wants the bank to remain independent, so any acquirer would be forced to pay a high premium–likely twice book value or more, in the $7-billion range. That would be a stretch even for giant NationsBank, whose total market capitalization is around $14 billion.

Mr. McColl also has done deals that have broken the traditional banking mold, from a joint venture in which New York-based brokerage Dean Witter Reynolds sells its products throughout NationsBank’s branches to last year’s purchase of Chrysler First, the automaker’s consumer finance unit.

Future plans

What’s left on his wish list? A mutual funds group. A mortgage origination company. A large credit card operation.
As for geographic expansion, he likes large, fast-growing areas.

“We don’t like creeping in,” says Mr. McColl. “When we get there, we like to be a market leader.”

On a recent spring day in Charlotte, the hard-charging ex-Marine sounded for all the world like a mellow suitor.

“We love the Midwest,” he says, “and the reasons are straightforward: stable people, stable economy. Generally speaking, the people do what they say they’re going to do.

“The Midwest is a big place,” he continues, “but it’s hard not to think of Chicago as the (center). . . .Professionally, it’s a great city. It’s a trade center. It’s a global center. It’s not just an American city. It’s a world city.”

And what does Mr. McColl bring to the table? An expansive vision. Revving up to describe it, he expounds on his dream of making NationsBank not only an important North American bank, but one that his successor will expand around the globe.

“I can see out beyond the other side of the hill. . .,” he says, sounding like an evangelist or a soldier with a firm belief in manifest destiny.

As to whether his reach exceeds his grasp, consider this perspective: “For years, if we had nothing else, we were good at hyperbole,” he acknowledges. “(But) we built a company larger than the one we talked about.

“For the first time in my career, the reality really exceeds the rhetoric.”

And that’s saying a lot.

Reprinted with permission from the May 09, 1994 issue of Crain’s Chicago Business. © 1994 Crain Communications Inc. All rights reserved.