Six months after the insurrection that led to the departure of Bank One’s John McCoy, the nation’s fourth-largest bank remains bitterly divided over who caused the company’s precipitous decline.
The finger-pointing and sniping centers on the role that McCoy, the chief executive who departed under a cloud six weeks ago, played in the dealings that now spur speculation that the company will be sold.
On one side are old First Chicago NBD Corp. executives and board members, who pressured McCoy to leave because of severe earnings shortfalls and massive declines in their new bank’s stock price. McCoy’s Columbus, Ohio-based bank bought First Chicago NBD in 1998.
On the other side are McCoy loyalists, who are resentful that their CEO was forced out.
In the middle are shareholders who watched their Bank One shares plunge by half in six months, employees who fear for their jobs, and Chicago, which could lose its last major bank.
Outsiders rarely glimpse the depth of the controversy swirling through the quiet, spacious offices of Bank One executives in the Loop.
Simmering behind the bank’s otherwise stable faade are bitter feelings, not only about the way McCoy ran the bank but also about how he was pressured to leave by old First Chicago board members such as James Crown and John Bryan, two Chicago business titans.
The rift has the bank searching for an outside CEO who could patch things up and avoid the upheaval of an outright sale. Currently Verne Istock, who had headed First Chicago NBD, is acting CEO. There are few signs that the wounds are healing, though.
Dozens of people inside and close to the bank were interviewed for this story, but most spoke on condition of anonymity.
“There is a lot of we/they in the organization,” said one executive. According to another, “The cultural war is grossly underestimated.”
And a company that is bitterly divided over past problems will only encounter more, experts say.
“The longer you’re focused on things other than customers and service and the competition, the less successful you’re going to be,” said Vicky Gordon, head of The Gordon Group in Chicago, which works with organizations undergoing change.
Question of balance
From the beginning, the First Chicago NBD contingent believed it had a greater stake in Bank One’s fortunes than its counterparts at the old Bank One.
Many employees on both sides have lost hundreds of thousands of dollars in stock value and say they are worried about retirement. But former First Chicago NBD people think they have endured larger hits.
Senior executives of the old Chicago bank had been required to own at least 10,000 of the company’s shares, while no such rule applied to executives of the old Bank One. The company does not track which set of employees owns more shares.
“It’s a pocketbook issue. The Columbus people didn’t feel the hurt or pain as quickly,” said one former First Chicago NBD executive who spoke on condition of anonymity.
The disparity is most obvious on the company’s board.
The largest shareholder on the board, James Crown, has suffered paper losses of about $230 million in Bank One stock since the earnings problems were first announced in August, according to information on his holdings disclosed in Bank One’s 1999 proxy. He’s from the old First Chicago NBD board.
But John Tolleson, the director with the most shares from the old Bank One, has a paper loss of $28 million, nearly 90 percent less than Crown, according to proxy data.
The serious discord flared in late August, when the stock dove after an announcement that pricing and servicing problems at the old Bank One’s credit-card unit were eroding the company’s overall earnings.
But the divisiveness at Bank One dates to April 1998, when McCoy announced that his Banc One Corp. of Columbus was acquiring Chicago’s largest bank.
Once among the country’s premier banks, the old First Chicago NBD had helped put Chicago on the map as a money center. Some people bristled at the idea of the bank bearing Chicago’s name being acquired by an Ohio company without the same illustrious roots.
McCoy, who declined to comment for this story, was regarded warily from the start. His style was far more gregarious and folksy than that of Istock, the staid, conventional banker who had run First Chicago NBD and who also declined to comment.
Although McCoy had built a national powerhouse out of the small bank run by his father and grandfather, he also had made mistakes, most notably the bank’s mismanagement of derivative investments in the mid-90s. And McCoy brought with him the credit card unit that fell apart last summer.
That made it easier for McCoy’s new colleagues to blame him when the company began faltering because of the credit card operation.
After the first earnings warning in August, McCoy became the object of ridicule and suspicion by former First Chicago NBD employees. The situation worsened in November, when the company made another earnings warning and missed a crucial meeting with analysts and investors in New York.
People in Chicago started whispering about matters that would have gone unnoticed before but became grist for the anti-McCoy mill. They castigated him for time away, even when it was for business.
Former First Chicago NBD employees are incredulous that McCoy left for a vacation in Europe after that first earnings warning to investors. But his old Bank One colleagues point out that it was a previously scheduled trip with a board member, a get-together they say McCoy could not cancel.
McCoy also is criticized by the old First Chicago NBD camp for going golfing in Texas shortly after the vacation. Again, people loyal to him say he could not miss that event, a Bank One-sponsored tournament for the PGA, on whose policy board he sits.
“We harbor ill will because he mismanaged this company severely,” said one Chicago executive who was angry to “see the guy flying off” on trips while the stock suffered.
For their part, old Bank One executives have formed a number of conspiracy theories about how their colleagues in Chicago pushed McCoy out. A popular theory is that an avalanche of anti-McCoy letters to the board was part of an orchestrated campaign by people from the old Chicago side.
“Inside First Chicago, there were people actively soliciting employees to make calls and mail letters and e-mails to board members,” said a Columbus employee who characterizes the cultural division as “a cult of personality in a negative way.”
“People here automatically felt like they had to choose sides,” he said.
The great divide
And the divisions between the camps widened. By October, some former First Chicago NBD executives were soliciting money for office pools to guess when–not if–the CEO would step down.
It was a sign of how far McCoy had fallen. In addition to facing a half-billion-dollar shortfall in annual earnings, he led an executive suite that was in disarray: The company’s two vice chairmen were retiring and First USA Chief Richard Vague, once a rising star at Bank One, resigned. McCoy had lost many of his executive duties as well.
And while William Boardman, the executive in charge of turning around First USA, is well regarded on Wall Street, the company’s overall management had lost credibility and its stock remained low.
Many executives from old Bank One were incensed at being hit up for cash to bet against their CEO.
“I was very angry and said it wasn’t very productive businesswise,” said a Bank One executive in Columbus who was asked to join an anti-McCoy office pool during a business meeting. She spoke on condition of anonymity.
Chicago executives told her, “You obviously don’t have enough stock,” when she declined the offer.
The Chicagoans were right about McCoy being on his way out, although their betting against him may have been a self-fulfilling prophecy. The CEO departed on Dec. 21 amid animosity that created an unbearable situation for McCoy, who was accustomed to working with people who believed in him even when the bank erred.
Although the old Bank One held a two-vote majority on the board, and no one from that side turned against McCoy, they went along with his decision to leave a company that had too many people rooting for his failure.
Some tried to talk him out of going, but in the end his friend Robert Walter, CEO of Cardinal Health Inc., led McCoy’s side of the board in supporting his decision to leave.
Before he left, McCoy knew the First Chicago NBD side of the board was against him. Led by directors Crown, whose wealthy, influential family has deep roots in Chicago, and Bryan, outgoing CEO of Sara Lee Corp., that contingent made it clear during board meetings that they wanted McCoy out, according to people close to the situation. Crown and Bryan declined to comment.
But McCoy’s departure did not mend the bitter dissension at Bank One, and its stock still trades around $30 a share, down from a 52-week high of $63.56 in May but exactly where it was trading just before McCoy departed.
Transcending divisions
Some executives insist the McCoy issue does not affect day-to-day operations at Bank One.
“The issues we’re dealing with are all business issues over which we don’t have any disagreements about where we came from,” said Scott Bates, who manages the bank’s institutional investment group, which includes about 2,800 employees evenly made up of people from both former banks. “I live with this every day.”
Some believe McCoy got what he deserved, but others are surprised people wanted him to resign because of problems at First USA, a credit card superstar he acquired in 1997 with the explicit promise that he would not interfere with operations.
“As the former CEO of the holding company, John McCoy is ultimately responsible for the disappointing performance of Bank One, but we believe the pressure to have him removed as CEO and the harsh criticism from some observers was unwarranted,” according to a report by Tom Brown, chief executive of Second Capital Corp., an investor in financial-services companies.
Brown added that the industry needs more CEOs like McCoy, people who “are willing to go against the grain” and will have successes as well as failures.
Many people at First Chicago NBD were familiar with failure–the old Chicago bank had stumbled badly with international and commercial banking in the ’80s and early ’90s–but they were unwilling to forgive a new CEO who recently had imposed a different culture on them, changed their bank’s name, and had a much different style than the one they were used to.
Whoever becomes Bank One’s next CEO, that person will have to mend the cultural divisions at a war-torn Bank One if the company is going to avoid being acquired, experts say.
“It would be far easier for someone who comes from neither side,” Gordon said of the type of leader a divided company needs. “But it depends on the person rising to the occasion, developing a group of leaders into a team together that is focused on delivering for shareholders, not jockeying for position.”
And what about McCoy? It could be that one of banking’s leading figures of the ’90s has left the industry for good. At a minimum, it appears he’s done with Chicago.
