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Q&A with BB&T's Kelly King

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Focusing on growth, from the inside

By Christina Rexrode
crexrode@charlotteobserver.com

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  • HEADQUARTERS: Winston-Salem

    SIZE: By assets, it's the 14th-largest bank in the country and the third-largest based in North Carolina, behind No. 2 Bank of America Corp. and No. 4 Wachovia Corp. It has 31,000 employees and about 1,500 branches in 11 states and Washington, D.C.

    HOW IT'S DOING: Earnings were $428 million in the second quarter, down 6.5 percent over the year. However, that's far better than many competitors. (In the same period, Bank of America's earnings were down 41 percent, and Wachovia lost $9.1 billion.) Also, BB&T just increased its quarterly dividend payout by a penny, signaling strong capital levels. It's largely avoided the subprime lending and subprime-backed assets that are now haunting other banks.

    However, its exposure in residential real estate could prove problematic if housing prices continue to decline.

    WHAT ELSE: It's a big player in insurance. In 2007, it was the nation's sixth-biggest insurance brokerage with $877 million in revenue, according to Business Insurance magazine. Wachovia ranked No. 12, and Bank of America didn't make the top 50 list.

    WHAT'S HAPPENING: Kelly King will take over as BB&T's CEO at the beginning of next year. He's replacing John Allison, who held the post for almost 20 years.



Kelly King has been the understudy at BB&T Corp. for years. Now, he's about to take the lead at the country's 14th-largest bank, and he plans to stick to the script.

Unlike new chiefs at some other big banks, King's job is to maintain an already successful company, not to clean up one that is struggling. Though all financial institutions are suffering in the current downturn, Winston-Salem-based BB&T is holding up better than most. Earnings are relatively steady, and it has largely avoided the subprime debacle. “Our operating strategies are being affirmed through turbulent times,” King says.

His corporate game plan isn't the only thing that echoes of his longtime boss, John Allison, who on Wednesday announced his plans to retire. Both were born and educated in North Carolina. Both came to BB&T straight from college. And both turn 60 this year: King's birthday is next month, and Allison's was a few weeks ago.

King, a Raleigh native and an alum of East Carolina University, is currently BB&T's chief operating officer. He talked with the Observer about expanding in Atlanta, what to do about Fannie and Freddie, and the latest earnings report. Questions and answers have been edited for clarity and length.

Q. BB&T grew quickly on Allison's watch by buying up lots of smaller or inefficient banks. Any more big acquisitions on the horizon?

Nothing for right now. In the past two and a half years, mergers have not been as effective because of prices of acquisitions and other factors. But on the other side of this correction, in mid to late '09, there will be substantial opportunities to consolidate and we expect to be an active player in that process.

Right now we're focused on organic growth. The first way to do that is to take care of our existing clients. … The second is to open new offices. For the past few years, we've been increasingly opening new offices in markets we're already in but where we need more branches. We have 100 branches in Atlanta but want 300 or 400.

Q. What parts of the country are you looking to move into?

We're not looking at expanding the footprint, because we have so much opportunity to grow in places (we're already in) like the greater Baltimore area, the greater Atlanta area, and really all of Florida.

Q. Any new products in the pipeline?

We're now rolling out a new supply chain management product. It works for medium to large businesses and helps them move their cash through the business more efficiently. … This works between companies and their suppliers; it creates a more seamless paper flow.

Q. What are your thoughts on your second-quarter earnings? (BB&T earned $428 million, down 6.5 percent over the year.)

The second quarter, we feel, was superior relative performance. No one can be happy with their earnings being down, it's just that our earnings were down less versus everybody else. Some people say, ‘How'd you do?' I say, ‘Well, we made money.'

Q. Any plans to move your headquarters to Charlotte?

No, no, no. I have two kids in Charlotte, I've worked twice in my career in Charlotte, and I love Charlotte, but we're staying in Winston-Salem.

Q. Have you talked to Bob Steel (new Wachovia CEO)?

No, I know about him, but I do not know him. I hope he does well – it's in our industry's best interests for all our major institutions to do well. He can stick to his problems in Charlotte; I'll worry about mine in Winston-Salem.

Q. Your bank steered clear of subprime mortgages during their heyday; you and Allison have both said that you didn't think they made sense. But did you think the fallout would be this bad?

I personally did not think the foreclosure rates would be this high. I think most bankers were unaware, or certainly did not grasp the magnitude, of how much subprime lending was going on. It was a very dispersed business because it was being done by independent brokers … so it was difficult for the Federal Reserve or anybody to get a handle on how much was going on.

Q. What's the biggest problem facing our economy? Is it inflation, like some Fed leaders are saying?

I do not think it's inflation. That's already self correcting – commodity prices are dropping, and we haven't seen the full effect of all these housing prices dropping. The main issue today is stabilizing housing prices so that the American public can restore their confidence and be comfortable in making purchases of durable goods or making decisions about vacations. The truth is, people today are nervous, and they will be until housing stabilizes. Part of it you can't do anything about, part of it is they need to resolve issues around Freddie and Fannie. …

We're in uncharted territory, but we believe that in the spring (of 2009) or so, we'll see the bottom of the housing market. It will probably be a slow recovery, and that's not a bad environment to operate in.

Q. So what should be done with Freddie and Fannie? (Freddie Mac and Fannie Mae are the troubled mortgage lenders sponsored by the U.S. government.)

That is a great question. I think they need to somehow deal with the massive level of debt that Fannie and Freddie have relative to their equity. They either need to transfer part of the assets and debt to the Treasury, then put very tight controls on Fannie and Freddie in terms of how they can operate in the future, or they need to inject federal money into Fannie and Freddie, and in that process, the existing holders will most likely be eliminated.

Q. Doesn't all this government intervention make you nervous?

Yes, I would much prefer to not have the intervention. But we wouldn't need it if the federal government hadn't messed it up in the first place. You've got to do something in the short run because we've got a crisis, and the only one who can step in right now is the federal government.

The long-term solution is we need to get the government out of the house lending business. I would put together a long-term plan to privatize Fannie and Freddie so that eventually they go away. That's the way it used to be, and that's the way it works best.

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