USA:WACHOVIA ABSORBED

Farewell Wachovia
by Charles B. Wendel

Executive Summary: Wachovia, about to be absorbed by Wells Fargo, was once one of the best and most respected banks in the world. Thinking back on the bank that was offers bankers some clear lessons. More important, it may also provide a path for banks struggling with how to position themselves during and after the current economic crisis.

Over ten years ago, one of my clients commented that his major bank was Wachovia. I remember him saying that they were demanding in their credit requirements, but he felt that having them as your banker was something of a badge of honor, a sign that your company was of quality. It really was the Morgan of the South, when that phrase meant something very positive.

I came to know Wachovia both as a consultant and while conducting research for my first book, The Middle Market in the mid-1990s. Subsequently, I interviewed Bud Baker, then Chairman, for another book, The New Financiers. I felt that I knew the bank as well as any outsider could.

The Wachovia I am writing of is the pre-First Union bank, operating out of its Winston-Salem headquarters. It was a $70 billion bank back then with a reputation for excellence in commercial banking as well as retail.

* Teaming on the commercial customer. Wachovia emphasized a dual management focus for its commercial clients. The Relationship Manager oversaw the customer and was in charge of cross-sell. The Credit Officer shared responsibility for the customer and, basically, approved any credit-related decisions. They were "co-equals," and bankers would often move back and forth between functions during their careers. However, while the RMs and credit bankers were called co-equals, it always seemed that the credit people were a bit more co-equal than the RMs. RMs would certainly complain about a slow and painful credit process, but the portfolio quality was strong.

My memory is that it was unusual for a credit officer to visit a client; that was the RM's job. Instead, the credit officer was focused on the numbers and rigorously analyzing a company's current and pro forma performance as well as pushing the RM for more information. Bank management seemed concerned that a credit person spending too much direct time with the customer could cause that banker to "go native" and lose objectivity.

* Fees, please. The bank was also one of the first to give prominence to the role of cash management and the fees it generated. Many banks are only now focusing on this critical area; Wachovia saw this as an area of distinction and began to exploit cash management and trade finance early on.

In addition, Wachovia was among the first banks to position its Treasury Services Officers as the leads on certain relationships. Some commercial accounts that had little borrowing requirements were assigned to the cash management group; cash management became the fulcrum of the relationship rather than an add-on. While this approach is being pursued at more banks, it was very rare ten years ago.

* The customer really was first. One example: the bank followed the "sundown rule" with its customers. When a customer contacted the bank with an issue, Wachovia pledged to revert to the customer (albeit not necessarily with a full solution) by end of day. Ensuring high customer satisfaction permeated the bank in this and other ways.

On the retail side, the bank was probably the first large player to offer each consumer a private banker. That banker was expected to build a trusted advisor position with the customer, long before that shopworn phrase existed.

* Selectivity/segmentation. Certainly on the commercial side, it was a bank that did not view itself as right for everyone. Credit-only customers probably did not fit in and management expected RMs to diagnose and achieve significant cross-sell. I remember a senior credit banker on the commercial side telling me that he was not interested in increased risk assets for their own sake but the cross-sell they facilitated.

* Culture, culture, culture. While I came to have insider knowledge of the bank, there was no way I could take that knowledge across the street and help another bank become a Wachovia clone. That was because a unique and positive culture permeated that institution. It took decades to create but, frankly, very little time to destroy.

From an outsider's perspective, elements of that culture seemed to include putting credit quality first, a focus on relationships not just lending, a strong respect for colleagues but a willingness to disagree with them, and an acceptance of sometimes laborious internal processes.

Lessons from Wachovia
Heritage Wachovia was a strong and focused institution operating in a time that seems both simpler and long ago. However, many of its best characteristics (beyond its emphasis on credit quality) remain relevant today:

1. Relationships rather than one-off transactions. Everyone says they want this, but few banks operate with the discipline to become true relationship banks.

2. Fees given at least as much prominence as net interest income. Wachovia made this focus part of its marrow, rather than the afterthought it is for so many banks even today.

3. Selectivity/segmentation. Wachovians could define who their target customer was and was not. Most banks cannot do this beyond a few canned phrases. The bank seemed to know what it stood for. Few banks appear to operate with that type of clarity today.

Concluding Thought
I have very fond memories of my consulting time at Wachovia. Wachovians were smart, analytically strong, and well-intentioned professionals who really were trying to do the right thing for their customers. The good news is that their acquirer possesses many of the positive qualities that made Heritage Wachovia so successful and unique.