O'Brien's Goal in the '90S: Make PNC 100% Fat-Free

By Klinkerman, Steve | American Banker, May 5, 1992 | Go to article overview
Save to active project

O'Brien's Goal in the '90S: Make PNC 100% Fat-Free


Klinkerman, Steve, American Banker


O'Brien's Goal in the '90s: Make PNC 100% Fat-Free

PITTSBURGH -- When it comes to rigorous efficiency, Thomas H. O'Brien should be one proud chief executive. After all, his PNC Financial Corp. last year had the seventh-lowest operating costs among the nation's 50 largest banking companies.

But Mr. O'Brien says that's not good enough. PNC's chairman and CEO wants to drive the company's ratio of recurring expenses to net revenues below 50% from an already-low 59.5%.

Even Banc One Corp., the perennial leader of operating efficiency, has yet to achieve that; the Columbus, Ohio-based company last year managed a 56.51% ratio, according to calculations by Keefe, Bruyette & Woods.

U.S. banks controlling more than $25 billion of assets in 1991 together posted a 66% ratio.

"We'll have to be a very lowcost producer to be a superior performer," Mr. O'Brien insisted.

If PNC, with $43.8 billion in assets, achieves its efficiency target, the Pittsburgh-based company "would set a new benchmark for the banking industry," said Anthony Davis, a banking analyst with Wheat First Butcher & Singer, Richmond, Va.

Recovering from a Crash

The efficiency crusade is a veritable path to redemption for Mr. O'Brien, who is 55. He charged to the forefront of the banking industry during the heady 1980s, doubling PNC in less than five years.

But the executive crashed into a brick wall in late 1990, presiding over a $168.3 million fourth-quarter loss provoked by realty loan defaults.

Once jolted, Mr. O'Brien rebuilt his strategy from the ground up. He started gearing up for the contractionary 1990s, forsaking bold expansion and embracing intense fiscal discipline as his credo.

Just how far has Mr. O'Brien gone? He has sunk $5.5 million into a computer system that tracks each of PNC's 490 branches and 107 banking products.

The system manages nearly three million sets of records, generates roughly 500 cost-allocation statistics using 25,000 criteria, and pops out a company-wide analysis within eight business days after each monthly reporting period.

"We saw that if you can't measure it, you can't manage it," says William J. Johns, senior vice president and controller at PNC.

System Broadly Useful

By reining in personnel expenses and using the system to pinpoint cost-cutting opportunities, Mr. O'Brien hopes to raise returns even at units showing slow revenue growth - simply by holding the rate of expense growth even lower.

Streamlining is but one offshoot of the project, however. Mr. O'Brien also is using computer analysis to identify units whose profit margins are unalterably low - and putting them up for sale.

Computer-generated analysis led last year to the sale of four Ohio banks deemed unworkably distant from other hub operations in that state.

Also sold were a majority stake in a merchant-card processing unit in Louisville, Ky.; of a precious metals depository unit; and of a stock transfer unit.

Some Businesses Nurtured

At the same time, Mr. O'Brien bolstered investments in "high-potential businesses," such as mortgage banking, corporate services, mutual funds products, and a brokerage subsidiary.

These efforts mean everything to Mr. O'Brien, who only too well remembers the dark days of 1990. after a decade of acquiring rivals and pumping out loans at a breath-taking clip, PNC rather suddenly began unraveling.

In 1990 alone, nonperforming assets leaped by 124.4% to $1.3 billion, or a daunting 4.67% of gross loans.

Not only did PNC's common stock sink to $16 per share - a 45% discount from book value - but analysts were fairly open in saying Mr. O'Brien got what he deserved.

"Management was slow to come to grips with the deterioration in the loan portfolio, and doubly slow to communicate [with] Wall Street," commented Brown Brothers Harriman & Co.

The rest of this article is only available to active members of Questia

Sign up now for a free, 1-day trial and receive full access to:

  • Questia's entire collection
  • Automatic bibliography creation
  • More helpful research tools like notes, citations, and highlights
  • Ad-free environment

Already a member? Log in now.

Notes for this article

Add a new note
If you are trying to select text to create highlights or citations, remember that you must now click or tap on the first word, and then click or tap on the last word.
Loading One moment ...
Project items
Notes
Cite this article

Cited article

Style
Citations are available only to our active members.
Sign up now to cite pages or passages in MLA, APA and Chicago citation styles.

Cited article

O'Brien's Goal in the '90S: Make PNC 100% Fat-Free
Settings

Settings

Typeface
Text size Smaller Larger
Search within

Search within this article

Look up

Look up a word

  • Dictionary
  • Thesaurus
Please submit a word or phrase above.
Print this page

Print this page

Why can't I print more than one page at a time?

While we understand printed pages are helpful to our users, this limitation is necessary to help protect our publishers' copyrighted material and prevent its unlawful distribution. We are sorry for any inconvenience.
Full screen

matching results for page

Cited passage

Style
Citations are available only to our active members.
Sign up now to cite pages or passages in MLA, APA and Chicago citation styles.

Cited passage

Welcome to the new Questia Reader

The Questia Reader has been updated to provide you with an even better online reading experience.  It is now 100% Responsive, which means you can read our books and articles on any sized device you wish.  All of your favorite tools like notes, highlights, and citations are still here, but the way you select text has been updated to be easier to use, especially on touchscreen devices.  Here's how:

1. Click or tap the first word you want to select.
2. Click or tap the last word you want to select.

OK, got it!

Thanks for trying Questia!

Please continue trying out our research tools, but please note, full functionality is available only to our active members.

Your work will be lost once you leave this Web page.

For full access in an ad-free environment, sign up now for a FREE, 1-day trial.

Already a member? Log in now.

Are you sure you want to delete this highlight?