Banking on Performance

The Australian owners of Michigan National Bank trust Birmingham lawyer to lead the way to maximum profit

From where he sits, James A. Williams likes what he sees in banking’s future. That’s partly because he sees lots of exciting competition. And partly because he’s observing from a taller stool than most folks.

Williams was named chairman of the board of Michigan National Bank in March. A longtime Birmingham lawyer, Williams, 53, has been a board member since 1989.

MichNat has been chaired by professional bankers throughout its 55-year history (Howard Stoddard, Stanford Stoddard and, most recently, Robert Mylod). Williams, who will continue to practice law, is first to acknowledge he’s no banker. That’s one of the reasons he was chosen as chairman, he says, by the bank’s new owner, National Australia Bank Ltd.

National Australia is parent to seven banking organizations, each of them relatively autonomous. "In all of their banks, the chairman is an ‘outsider’ – not a bank employee," says Williams, who plans to leave daily operations to MichNat President and Chief Executive Officer Doug Ebert.

Ebert says he recommended Williams for the chairmanship "because of his experience with the board, his high degree of involvement with the company and his very sound judgment."
Williams sees his job primarily as dealing with regulators and setting agendas.

One of his highest priorities will be helping to get the maximum profit out of Michigan National'’ operations. National Australia paid $1.56 billion -- $110 per share – for the bank chain last year, $32 per share premium over the trading price of the stock just two months before the announced sale.

National Australia will want to start getting some of that money back as soon as possible, according to Roney & Co. banking analyst Mike Moran.

Williams admits, "They told me, ‘The price of autonomy is performance.’"

Michigan National’s earnings have jumped all over the lot in recent years: $66.1 million in 1992, $23.8 million in ’93, $171.7 million in ’94 after the company reaped the benefits of restructuring and shed about 2,700 employees through layoffs and sales of subsidiaries.

Earnings for 1995 are projected to be about $120 million, according to Williams, but the final number will depend on how National Australia allocates the costs of buying Michigan National, Projections for 1996 probably will be slightly higher than $120 million, but those numbers – and the guesstimates for 1997 – are being reworked.

Williams says he sees no looming layoffs or other major changes that would affect employees at Michigan National.

But he would like earnings to even out and stop lurching up and down. To that end, he looks for more income from fees (on trust administration, business services, electronic bill-paying for customers, checking and savings accounts, etc.) – an income segment that now accounts for 30 percent of the bank’s revenue compared with 10 percent 20 years ago.

Loan income fluctuates a lot with the economy, Williams points out. In addition, savings accounts come and go as the stock and bond markets become more or less attractive.

Williams wants Michigan National to increase steadily both its customer accounts and its earnings.

Easy to say, Harder to do.

It requires the bank to dance a fine line between attracting customers and losing potential income.

An example: MichNat began offering 6.5 percent interest on savings accounts in September 1995. "That generated a billion dollars for us," says Williams. But paying that much put a lot of pressure on profit margins; in addition, the Federal Reserve has lowered interest rates twice since then. So the rate has been trimmed to 4.8 percent (with various minimum requirements, starting at a $3,000 average monthly balance in checking). "We’ll lose a little from the accounts, but not a lot," says Williams, "because that’s still higher than other banks are offering." Typical Detroit area savings accounts range in interest from 2 percent to 4 percent.

Another example: The bank likes the steady nature of fees, but customers hate paying them. "With technology, there are more ways now to serve consumers. Banks are just going to have to be creative and offer enough quality service that the fee is not an issue."

Williams sees competition for retail customers heating up in Michigan – something that should benefit consumers, he says, adding that MichNat will e right in there fighting for its share of the action. The bank already has opened about 20 branch offices in supermarkets, hoping to grab time-pressed shoppers who don’t want to make that extra stop somewhere else to deposit a paycheck or apply for a loan.

Williams expects MichNat to get involved in some way with Detroit’s new stadium for the Tigers – and hopes the bank can make some loans to small subcontractors on the job and to new businesses that spring up around it. "Small business is where the growth is," he says.

There’s also a good change the bank will get back into the credit card business, he says. MichNat, which was the first bank in the state to develop its own, large credit card operation, sold it in 1989 to Chase Manhattan.

Roney’s Mike Moran says, whatever the approach, the opportunity for growth in consumer banking in Michigan is "tremendous."

"Historically, one of the strongest retail banks in the state was Michigan National. But that was 10 or 15 years ago, and right now there is not a dominant retail player in this market," Moran says.

The analyst agrees that capturing that title will be tricky. "There’s a niche to be carved out there. In terms of doing it profitably, simply going after the market with rate plays won’t do it. There will have to be a combination of aggressive marketing and products and alternative delivery channels."