Business

He says big banks can survive

Ed Crutchfield, one of Charlotte's former top bankers, expects “scary gyrations” for the city's two big banks but believes they have strong businesses that will carry them through the nation's nasty financial crisis.

“The fundamental, underlying earnings power of Wachovia and Bank of America will pull them through this just fine,” said Crutchfield, who retired as CEO of First Union, now Wachovia, in 2000 as he battled cancer. He remains a shareholder but emphasized he has no inside information, calling himself “an old warrior looking in.”

“People need to keep cool,” he said. Bank profits will likely suffer for awhile, but he said, “They'll come out on the other side … in good shape, and life will go on.”

Crutchfield became president of First Union, now Wachovia, in 1973. At 32, he was the youngest president of a major U.S. bank at the time. In 1984, he rose to the CEO's seat. A year earlier, Hugh McColl Jr. took the top post at what became Charlotte's Bank of America. The two men, fiercely competitive, made Charlotte a national leader in banking. In so doing, they made banking a bedrock of economic security for the region. The mortgage meltdown has bruised that foundation, eroding stock values and jobs, spreading anxiety.

Crutchfield, just turned 67, talked with the Observer last week about the economy, his optimistic take on Charlotte's two big banks and Wachovia's new CEO. Questions and answers are edited for clarity and brevity.

Q: Your decades as a banker saw market downturns, recessions and corporate scandals that battered stock values and wiped out jobs. How does this downturn compare?

1974-75 (a recession often blamed on spiking oil prices) was a tougher period for the Charlotte banks, if you can believe it. The trouble you now see nationwide was more regionalized to the Southeast. We had had a massive real estate expansion. Loans were imploding. We didn't have the Fed and the Secretary of the Treasury going to Congress for us. We were just kind of country banks down here in North Carolina. It was every bit as bad and scary then as it is now.

Q: Why are you “pretty optimistic” about the future of Bank of America and Wachovia?

Both these banks have thousands of branches all over the United States, an enormous retail consumer business. They have huge money management businesses, managing hundreds of billions of dollars for a fee. That's steady income, almost like an annuity. Wachovia has a big stock brokerage, and they're still doing the transactions that generate fees.

The table I'm trying to set is these are very big basic businesses, which are highly profitable. There are worms in the apple, but not enough to permanently damage either one. Give them a year or two, they'll earn their way out of it.

It's like you have a mortgage and some other bills that you're paying, and your car breaks down. It's traumatic when they say you need a new car. It's a disaster when it happens, but if the rest of your house is in order, you can weather the storm.

Q: What are your broader economic concerns?

I'm an optimist, an entrepreneur. I hate talking about doom and gloom, but we have to be realistic. We have pushed off dealing with important issues. What have we done about energy? We've done nothing. My pessimistic bones say we won't do anything until it's a bigger crisis. We are dawdling at a time when we need a Manhattan Project focus. (The Manhattan Project was the project that included U.S. efforts to develop the first nuclear weapon during World War II.)

We have the housing thing, the credit situation, inflation and this enormous national debt and energy problem. I think…the U.S. is just going to kind of muddle through for another three years. The banks will pull out slowly; don't look for starbursts.

Q: What's your analogy, from your days at Davidson College on a football scholarship?

It's going to be two yards and a cloud of dust.

Q: What's your take on the demand for regulatory reform to prevent a replay?

They are saying Wall Street needs more regulation. I think it probably does. These guys are high flyers. They're risk takers. But, it's very easy to knee jerk in tough times, and make everything seem riskless. If we do, we won't have any vibrancy. We won't have any wealth creation. No pain, no gain. No risk, no reward. I know that may sound utterly capitalistic, but it's true. The American economy's ability to take risk and move on…is why we're the best economy.

Q: Do you know Bob Steel, the former longtime Goldman Sachs banker and Treasury Department official, named Wachovia's CEO last week?

I never met him, but I've read his credentials. I've had long dealings with Goldman Sachs. I do know (Treasury Secretary) Hank Paulson personally. If he picked Bob Steel to help him, he's good. No pun intended: You can take it to the bank.

Q: What's the best advice you ever received?

When I went to Davidson, I was 17. As I unloaded my cardboard boxes, my mother handed me a note. It said: Keep your feet on the ground and your eyes on the stars. (The quote, attributed to Teddy Roosevelt, was a signature tagline for radio host Casey Kasem.)

Even when you're in a banking crisis, that's pretty good advice. Stay grounded but don't lose your spunk.

Ed Crutchfield, one of Charlotte's former top bankers, expects “scary gyrations” for the city's two big banks but believes they have strong businesses that will carry them through the nation's nasty financial crisis.

“The fundamental, underlying earnings power of Wachovia and Bank of America will pull them through this just fine,” said Crutchfield, who retired as CEO of First Union, now Wachovia, in 2000 as he battled cancer. He remains a shareholder but emphasized he has no inside information, calling himself “an old warrior looking in.”

“People need to keep cool,” he said. Bank profits will likely suffer for awhile, but he said, “They'll come out on the other side … in good shape, and life will go on.”

Crutchfield became president of First Union, now Wachovia, in 1973. At 32, he was the youngest president of a major U.S. bank at the time. In 1984, he rose to the CEO's seat. A year earlier, Hugh McColl Jr. took the top post at what became Charlotte's Bank of America. The two men, fiercely competitive, made Charlotte a national leader in banking. In so doing, they made banking a bedrock of economic security for the region. The mortgage meltdown has bruised that foundation, eroding stock values and jobs, spreading anxiety.

Crutchfield, just turned 67, talked with the Observer last week about the economy, his optimistic take on Charlotte's two big banks and Wachovia's new CEO. Questions and answers are edited for clarity and brevity.

Q: Your decades as a banker saw market downturns, recessions and corporate scandals that battered stock values and wiped out jobs. How does this downturn compare?

1974-75 (a recession often blamed on spiking oil prices) was a tougher period for the Charlotte banks, if you can believe it. The trouble you now see nationwide was more regionalized to the Southeast. We had had a massive real estate expansion. Loans were imploding. We didn't have the Fed and the Secretary of the Treasury going to Congress for us. We were just kind of country banks down here in North Carolina. It was every bit as bad and scary then as it is now.

Q: Why are you “pretty optimistic” about the future of Bank of America and Wachovia?

Both these banks have thousands of branches all over the United States, an enormous retail consumer business. They have huge money management businesses, managing hundreds of billions of dollars for a fee. That's steady income, almost like an annuity. Wachovia has a big stock brokerage, and they're still doing the transactions that generate fees.

The table I'm trying to set is these are very big basic businesses, which are highly profitable. There are worms in the apple, but not enough to permanently damage either one. Give them a year or two, they'll earn their way out of it.

It's like you have a mortgage and some other bills that you're paying, and your car breaks down. It's traumatic when they say you need a new car. It's a disaster when it happens, but if the rest of your house is in order, you can weather the storm.

Q: What are your broader economic concerns?

I'm an optimist, an entrepreneur. I hate talking about doom and gloom, but we have to be realistic. We have pushed off dealing with important issues. What have we done about energy? We've done nothing. My pessimistic bones say we won't do anything until it's a bigger crisis. We are dawdling at a time when we need a Manhattan Project focus. (The Manhattan Project was the project that included U.S. efforts to develop the first nuclear weapon during World War II.)

We have the housing thing, the credit situation, inflation and this enormous national debt and energy problem. I think…the U.S. is just going to kind of muddle through for another three years. The banks will pull out slowly; don't look for starbursts.

Q: What's your analogy, from your days at Davidson College on a football scholarship?

It's going to be two yards and a cloud of dust.

Q: What's your take on the demand for regulatory reform to prevent a replay?

They are saying Wall Street needs more regulation. I think it probably does. These guys are high flyers. They're risk takers. But, it's very easy to knee jerk in tough times, and make everything seem riskless. If we do, we won't have any vibrancy. We won't have any wealth creation. No pain, no gain. No risk, no reward. I know that may sound utterly capitalistic, but it's true. The American economy's ability to take risk and move on…is why we're the best economy.

Q: Do you know Bob Steel, the former longtime Goldman Sachs banker and Treasury Department official, named Wachovia's CEO last week?

I never met him, but I've read his credentials. I've had long dealings with Goldman Sachs. I do know (Treasury Secretary) Hank Paulson personally. If he picked Bob Steel to help him, he's good. No pun intended: You can take it to the bank.

Q: What's the best advice you ever received?

When I went to Davidson, I was 17. As I unloaded my cardboard boxes, my mother handed me a note. It said: Keep your feet on the ground and your eyes on the stars. (The quote, attributed to Teddy Roosevelt, was a signature tagline for radio host Casey Kasem.)

Even when you're in a banking crisis, that's pretty good advice. Stay grounded but don't lose your spunk.

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