Name: Terry Murray
Age: 60
Position: Chairman and Chief Executive Officer, FleetBoston Financial Corporation
Background: Joined Industrial National Bank — FleetBoston Financial Corporation’s predecessor — in 1962, after graduating from Harvard University; served in several Fleet Bank departments and was elected president in 1978; named chief executive officer of the bank in 1982; also a director of the A.T. Cross Company, CVS Corporation, and Partners HealthCare System. Murray is a member of the Board of Trustees of Brigham and Women’s Hospital and is a former director of the Harvard Alumni Association.
Education: Harvard University, Bachelor of Arts
Residence: Narragansett
Family: Married, five children
TERRY MURRAY: ‘My priorites now are overseeing and driving this intergration process and the momentum of FleetBoston.’
PBN: As we approach this year’s end, how do you assess the last 12 months at Fleet?
MURRAY: Obviously, it’s been a great year for us. A lot of things have happened, including the merger of Fleet and BankBoston and all that entails. Legally, we came together October 1st, but now there’s a lot to do over the next several months of integrating the two companies not only from a systems and software point of view, but also from a management point of view. But I think we’ve got very good momentum going into next year. Earnings for this year are spectacular. I think the bank stock market has been soft in ’99, but bank earnings are strong. So obviously, if we can begin to have the stock values reflect the earnings we’ll be happier, but I think that will happen next year.
I know you’re sometimes restricted in talking about where you want the stock price to go, but can you talk in general terms of that compared to where it is right now?
We’ve had a high of 46 – that was probably a year or so ago. Now we’re in the low 40s and we’ve hit a low of 36 in the last three or four months. My feeling, and the street says, because we met with portfolio managers as recently as yesterday, I spent a lot of time with some people and this could be a $55 to $60 stock late next year if we stay on track and the market doesn’t tank, the overall market. I think we’ve got great momentum with a cooperative market and if we achieve our earnings goals of the next year or two, I don’t think that’s unrealistic.
Can you give us a rough timetable of the merger development process through the first few months of the year 2000?
From the time we announced the deal from March through the end of October it’s been more or less pro forma. We’ve announced managements, etc. But now we’re one company. Because of Y2K, it’s obviously slowed up the technical integration of the company. We’re really not going to convert any systems until Y2K is passed so that’s costing us 60 to 90 days. But we’ve just got to do it. I would say 80 percent of the systems will be converting BankBoston into Fleet and then maybe the balance vice versa. So we’ve made all the decisions. We’ve chosen the team that’s going to do it. We have about 600 people working on the integration, a full-time battalion of people.
The major conversions will start around February. We’ll be finished most of them by summer. Some will go into the third-fourth quarter, but 90 percent of the work will be done by July or August. That, of course, involves all the cost saves as well. We had indicated it’d be about $600 million in cost saves by consolidating these companies.
Do you still direct most of your time now overseeing this merger, or are you already looking ahead to whatever the next merger might be?
That’s a reasonable question because my nature is always to be looking ahead. I think at this point in time it would be kind of a mistake to do that. I think our shareholders can benefit the most by a good integration and a good execution of our game plan in the next nine months or so. And realize the cost saves and keep the earnings momentum so a lot of my priorities now are overseeing and driving this integration process and the momentum of the company.
That said, it’s just in your nature – we have at Fleet built a very good mergers and acquisitions group. They continue to look at opportunities. That group reports to me and I spend a lot of time with them. But we do not have enormous appetites at this point in time.
In the year 2000 where will Fleet see job growth in the company and which areas will see job cuts, aside from the previously announced cuts in upper management?
Most of the reductions will be when we consolidate back rooms. I’m talking about operating groups, systems groups, data centers and so forth. That won’t be completed until next year.
Fortunately this economy has been good. We had announce up front back in March that the combined companies had about 60,000 employees. So the new company will net about 55,000. But what we’ve done is we’ve put a hiring freeze on and we also have a normal attrition rate in certain jobs and then Sovereign, which is the buyer of a lot of these divested assets, is taking far more people than we expected. So I think the number of layoffs will be modest. It could be a couple of thousand over the whole system, whereas originally it was 5,000 positions eliminated. But because of attrition, because of a hiring freeze and Sovereign is actually picking up 700 more people than we expected, so these people will keep their old positions, but with a new employer.
But what of those people who do lose their jobs in this acquisition? I know in past acquisitions, severance packages have been quite generous. In this acquisition?
Actually, they’re more generous because what we did there, we took the best of both. BankBoston had been through a process with BayBank. They were quite generous. So we took the more generous aspects of that, and the best of the Fleet package, and combined them. So basically, a seasoned employee – in fact a lot of people are volunteering to be part of this package because it could be a year, maybe two year severance for anyone with any length of service.
From what you’ve said so far the new banking corporation is going to be content to stay put for awhile at its current level, eighth largest bank in the country, largest in New England and all that. How long will it remain in that position?
We’ve got a big job in the next nine months and that is to make sure that the new combination works. We’re integrating sometimes different managements, we’re integrating different perspectives. BankBoston was clearly strong internationally. Fleet historically didn’t have that position. BankBoston was strong in capital markets, (the)investment baking side. We’re very strong in retail, banking, we’re strong in middle market, and I think the managements have got to get comfortable because we obviously drew the managements from both companies, and they’ve got to become comfortable, and I don’t want us to lose any momentum in the process.
How will the Graham-Leach Bank Modernization Bill change your bank, and banking in general?
It breaks down all the barriers between commercial banking, insurance, investment banking, brokerage, mutual funds, etc. and we can integrate all those business lines under one umbrella. That said, it’s easier said than done. So we as a company have to be thinking strategically.
We clearly have a major position in the banking world, particularly in the Northeast. We have the premier franchise. We have one of the premier franchises in Latin America.
That said, now there are opportunities and we’re evaluating those. I would say that it’s not our intention right now to run out and buy an insurance company. I just say, from a shareholders perspective, we are in an industry, Fleet now is earning almost 20 percent return on equity – high 19’s – we’re in an industry that earns 16 – 17. The insurance industry earns nine or 10. So to begin to combine these two industries is very diluted from the commercial bank’s perspective. That said, the commercial banking industry has grown the market valuations much more rapidly than the insurance industry in the last 10 years so we have an advantage when these combinations take place or could take place.
My own view would be to look at an insurance company that has different dimensions to it, like a big money management operation, under leveraged balance sheet where they have capital that we could take out of the company and enhance its return.
But we haven’t gotten that far yet. To me in the next year or two most of the growth will be organic. It’ll be investing more capital in high growth areas that we’re already engaged in, and will continue. We expect to earn, to generate almost three billion dollars in excess capital in the next 24 months, and that’s assuming no acquisitions, no stock buybacks. And so we have plenty of ammunition to invest in our business lines and that is where we’re looking right now.
But you can’t name specific companies you’re looking at.
Oh no. Those are trade secrets.
This landmark legislation – it’s been described as allowing one person to do everything with one company, from banking to insurance to mutual find investing to stock investing, to estate planning. How many years realistically before Fleet can offer that one-stop service?
Well, I think in terms of mechanically – and from products it won’t take that long. The question is whether the consumer is really for it. And really wants to “one-stop-shop.” A lot has been talked about for years and it never has really worked that well. We’ve been selling insurance products as an agent or as a sales outlet for insurance companies for years and it’s had modest success. So my feeling is don’t try to do too much initially. One product we just rolled out through Quick & Reilly, a discount broker which we own, and that is where we’re taking our private banking clients which have cash management type accounts that didn’t have brokerage. They will now, through Quick & Reilly have checking, savings, all the banking products all in one statement on a monthly basis. We’ve now integrated the brokerage dimension.
And my own feeling is, particularly the high net worth customers, the brokerage and investment vehicle, is the linchpin of the relationship, and the checking account, but we’ve got to prove that. And the product is out there.
Outside of the high net worth customer, is the average customer going to flock to this kind of thing?
Well, the average customer today owns stock. There’s 160 million Americans who own stock. That’s over half of the population. Whether you’re talking to people in the bagel shop or wherever, they’re interested in how Fleet is doing but they’re interested in what I think of the stock market, or what I think of Fleet stock or someone else’s stock. What has happened in the last 10 years is a revolution in terms of stock ownership. The average Joe is a shareholder today. We’re going to pilot it (the on-line banking/investing experiment) with the private banking client but then we’re going to market it across the whole system.
So let me ask you what the people in the bagel shop are asking – what do you think the stock market will do?
The answer of course is I don’t know – but my view is the economy will continue to be good in the next six months. But the market doesn’t always track a strong economy. In theory it should. The Rhode Island economy – relative to Rhode Island – has done very well the last several years. But relative to other states, other regions, it has not done well. Our growth patterns are much slower. Our job creations are much slower. In the ’90s we’ve lost 70,000 people in Rhode Island. That’s 6 percent off the population. As a percentage of population loss we’re greater than any state in America. The backbone of the Massachusetts economy is not only high tech, but it’s the mutual fund industry, the commercial banking industry, the investment banking, the venture capital industry, these are all financially related.
Rhode Island should be sharing to a greater extent in this type of growth. We haven’t had our fair share.
So what should we do?
As a for instance, BankBoston has been doing its underwriting of consumer loans in New Hampshire because New Hampshire had a very favorable charter for consumer loans. We have to divest our New Hampshire assets. So we’ve got to move it somewhere. We’re working with the Rhode Island Banking Association right now to draft legislation. Why not move it (consumer loan underwriting) to Rhode Island? The jobs in time will come with it.
We have difficulty moving high income people to Rhode Island because of the income tax rates in Rhode Island, Massachusetts and Connecticut.
It sounds like you are going to lobby for the income tax break for high income Rhode Islanders, even though legislators like Paul Kelly said it was dead this year.
I empathize with Kelly. He said we’ve got to make our case. It’s unfortunate that this has an “us versus them,” “tax break for the rich” connotation. It’s not that. It’s just to make the tax structure equal with Massachusetts.
So what do you suggest in terms of revisions, to make the idea more palatable to legislators and to the general public?
I haven’t thought it through yet. I’ve got to give it more thought and it’s got to accrue to the best interest of all Rhode Islanders, and the well being of the state. There are certain industries that have taken off and the wages are very high, and banking is one, money management is one, venture capital is one.
Unfortunately, there’s a tendency to look at this tax break as a way to help Terry Murray or to help someone else. It’s a question of playing field in the three states that makes some sense.
In other states, it’s a flat rate, and doesn’t escalate. Here it’s tied to the federal tax, so it’s progressive. It amounts to about 11 percent in Rhode Island, versus 5.75 percent in Massachusetts, so it’s a major difference.
So you and others will try again to pass this in the new session?
The business community in Rhode Island has to be behind this. The burden is on the business community to convince the powers that be that it makes sense. I’m not going to lead the charge. I’m busy. I’m working here. Others are going to have to be part of the process. We lend a hand? Absolutely.
Let’s talk about the future of banking at Fleet and elsewhere. Is the friendly neighborhood bank branch at the bank the size of yours soon to be extinct?
There is a demographic aspect to electronic banking. People my age and older, because this is the way we grew up, are comfortable going to their branch bank. They know Rose the teller or the manager and there’s a comfort level. People my children’s age, young professionals in their 20s to mid 30s, are totally comfortable with electronic banking because they grew up that way. They don’t want to go to a branch. They want to do all their transactions (on the Web) and they are good customers. Then there are the baby boomers that want both and probably don’t want to pay for it, the electronic side and the bricks and mortar side.
The electronic banking and the capacity to deliver these products is moving quickly. But I’m not convinced the appetite is there throughout all our constituencies. So my guess is it’s a 10-year evolution.
What about the future of the small community banks?
Their marketing strategy has been and will continue to be ‘we’re warm, fuzzy, small and hands on and big banks are big and impersonal and will over-charge you.’ I think the younger generation is going to demand an electronic dimension. Is that going to be the only channel? No. I would say even the community banks will have to make some adjustments.
Will ATM fees ever be eliminated?
ATM’s are a product. People can use them or not use them. And obviously many people like them because they’re so convenient. You can access them 24 hours a day. The fee is imposed on non-customers. I don’t think it’s illogical for us to have hundreds of millions invested in hardware – I think we have 4,000 ATMs in the Northeast – and ask a non-customer who wants the convenience of using our machines to pay a dollar or 75 cents for it.
You’ve already announced you’re retiring from the bank in about three years. What are your priorities as you wrap up your Fleet career?
I’m an old war horse. I’ve been at this a long time. This has been a great run – 35 years or so. Right now I’m going to worry about doing my job as CEO and doing it well, and I’ll worry about the next phase in a year or so.
And how many more acquisitions would you like to see under your belt in that remaining three years or so?
My guess is that the major acquisitions would be market fillers at this point as opposed to a mega-type transaction.
Any regrets during your tenure in charge of Fleet?
When you do a re-engineering of the company, Wall Street loves it, stockholders love it, but employees do not. And some of the communities you’re in do not. And I should have been more sensitive to those constituencies. Hopefully with the BankBoston transaction, there’s a far greater sensitivity to all those constituencies. I could have been more sensitive to some of those constituencies. Those were some of the regrets of thinking back on all the moves.
I’m not as bad as some articles convey – insensitive or hard-nosed or whatever the case may be. On the other hand, I’m not as good or as brilliant as some have painted in terms of accomplishing certain things.
So now that you’ve reached a career pinnacle and are certainly financially comfortable, what motivates you now?
My own feeling is that if you’re ever totally satisfied you’re going backwards. So there’s got to be an edge to always go forward. It has nothing to do with money or kudos or titles or degrees. It’s just you like the action. In business, it’s various standards of accomplishment, so part of that is what becomes ingrained in your make-up.
(Frank Coletta is host of WJAR, Channel 10’s Sunrise Show. Excerpts of this interview were aired on WJAR 10)
