Banking

Steel's challenge: Save Wachovia

As investment bank Bear Stearns imploded this March, Bob Steel was among the financial titans weighing an unappetizing choice: Let the firm's demise possibly unravel the global financial system, or engineer a rescue sure to be labeled a government bailout.

From his New York hotel room, Steel, then a top U.S. Treasury Department official, dialed into a 5 a.m. conference call where he, Treasury Secretary Henry Paulson, Federal Reserve Chairman Ben Bernanke and others finalized steps to prop up Bear Stearns. Later that day, it was Steel's job to brief President Bush.

It was a memorable moment, Steel acknowledges: “I didn't talk to the president every day.”

Named Charlotte-based Wachovia's chief executive last week, the 56-year-old Steel will need these crisis management skills if he is to restore the tarnished financial institution. Those who know him say the former Goldman Sachs executive has the knack for drawing the most from those around him to meld a successful plan.

“He thrives under adversity,” Paulson, a longtime Goldman colleague, told the Observer. “I watched him at Goldman Sachs when we went through tough times. I watched him deal with others on the team, people inside and outside. He is cool under fire. He is measured. He knows how to pace himself, how to motivate others around him.”

His resume isn't spotless. As chairman of Duke University's board of trustees, he has faced criticism for the administration's handling of the lacrosse scandal that rocked the campus. Some analysts also have questioned his lack of experience in retail banking, which provides 70 percent of Wachovia's profits.

But by all accounts, Wachovia's board tapped a Durham native who stands out for his intellect, work ethic and people skills.

He can help fashion a blueprint for regulating the banking system as well as he can lead a search for a new university president. Instead of moving ahead on his own, he taps the opinions of everyone from senior executives to receptionists. He sends e-mails to co-workers stamped in the wee hours of the morning yet finds time to tend to an ill mother. His well-worn witticisms are peppered with self-deprecating lines about his wife being the boss. And when an analyst poses an uncomfortable question, he courteously praises the query before deftly begging off answering.

Now Wachovia, the nation's No. 4 bank by assets, needs Steel to revive a company reeling from loan losses that are overwhelming its valuable retail banking franchise. Charlotte, where the bank employs 21,000, and the entire banking industry will be watching closely.

Steel, who made an energetic debut Thursday with employees, analysts and reporters, says he will take the tack that he has used during crises at Goldman and at Treasury: identify the problem, gather multiple perspectives, select the best solution offered and drive hard.

“There isn't always a perfect or easiest alternative,” he says.

Growing up in Durham

The new boss of 120,000 Wachovia employees from Connecticut to California grew up in a traditional middle-class neighborhood just a short walk from the Duke University East Campus.

In his early childhood, Steel's father had a jukebox service route, but that business went belly-up. Later, he sold life insurance. His mother, now 86, worked part-time in a Duke psychiatry lab, where children with cleft palates were studied. There are three Steel boys – Robert in the middle, Charles, six years his senior, and John, eight years his junior. The Steels' driveway, with its basketball goal and wide berth between houses, often was where the neighborhood children gathered.

When they were old enough, the boys were expected to work. Bob mowed lawns and had a job at the Young Men's Shop less than a mile from their home. He also was a Boy Scout, proudly earning the prestigious rank of Eagle Scout.

He rooted for Blue Devils sports teams. And when it was time for college, he went to Duke, his parents' alma mater.

There, Steel showed little sign he would become the financier that he is today.

“He enjoyed his college experience,” older brother Charles Steel said. “You would not have found him in the library every night.”

Steel got his first taste of the financial world in Chicago, when an old Marine buddy of his dad's helped him get a job at a bank that would eventually become part of JPMorgan Chase.

In Chicago, he juggled graduate school at the University of Chicago, where he got his MBA. He also met his future wife, Gillian, who earned a graduate degree in journalism from Northwestern University in nearby Evanston, Ill.

He joined Goldman Sachs' Chicago office in 1976. “Once he got there, he saw what hard work and diligence could result in,” said Charles Steel, a Triangle securities lawyer. “There was no limit on what he could make or what he could achieve.”

The Chicago office was relatively small, fostering collegiality in an industry known for its competitiveness. Steel worked in securities but became close with an investment banker who had joined the firm about two years earlier: Paulson.

A career financier

At Goldman, Steel rose through the ranks.

In London, where he moved in 1986, he founded the equity capital markets group for Europe. One of the more trying times he remembers was a stock sale as part of the privatization of British Petroleum. It came just as the market crashed in October 1987. The deal went through, but the underwriters, including Goldman, took a hit.

In 1994, he transferred to New York, where he served as head of equities, a key stock trading business, and climbed to vice chairman in 2001.

On Wall Street, Goldman is known for a culture that gives great weight to controlling risk, a factor that helped the firm avoid some of the subprime mortgage mess that walloped other investment banks. While at Goldman, Steel built a reputation for his risk management expertise and high personal standards, said Wachovia chairman Lanty Smith, outlining traits that attracted the bank to Steel.

“He knows it's not inconsistent to have a culture that values people but holds them accountable,” he said.

He retired in 2004. A New York Times profile said he left as eventual CEO Lloyd Blankfein consolidated power.

After nearly 30 years at the firm, Steel said it was the right time to think about what to do next. He became a senior fellow at the John F. Kennedy School of Government at Harvard University. “It was a natural transition time,” he says.

By then, he also had accumulated the kind of wealth that goes with a top investment banking post. In 2003, his last full year at Goldman, he made about $12.6 million. As of February 2004, he had compiled 1.6 million shares of Goldman stock, worth around $173 million at the time.

The Steels have three homes, with a combined value of more than $12 million, according to tax records. The main family home is in upscale Greenwich, Conn., with another in Washington's trendy Georgetown district and a Colorado condo near the base of Aspen Mountain.

Much of his wealth is revealed in a financial disclosure form filed last summer, as required by his Treasury post. His extensive holdings included more than $50 million of cash in one brokerage account and partnerships invested in Bordeaux wine futures, British pubs, office buildings in Greensboro and Cary, and Carolinas timberland.

The disclosure also shows Steel with shares in several private planes through NetJets, which provides personal jet service. The investment is valued at $5 million to $25 million.

His Treasury salary was $158,500; he stands to make up to $22.1 million a year as Wachovia president and CEO.

Public service

His time in academia didn't last long. His friend Paulson called in 2006. He became undersecretary for domestic finance just as the nation's housing bubble was about to bust.

During nearly two years at Treasury, he routinely worked with top presidential advisers, and occasionally Bush. With an office overlooking the Washington Monument, he was Paulson's top adviser on financial markets and responsible for overseeing federal government finances.

Colleagues describe a high-energy man careful to think through unintended consequences, not one to pounce on the easy or popular fix.

He could “hit pause” and review options, said Anthony Ryan, who took on Steel's responsibilities at the agency. Ryan recalled numerous times that Steel would sense people had questions or weren't fully on board. Ryan said he would make time to talk privately, resulting in better decisions and broader support.

Steel was readily available to colleagues, whether for a quick chat, dissecting complex issues or hashing out workplace problems. He also encouraged them to make time for family and fun, such as the Duke basketball games he attended when he could. But global markets and the nation's financial crisis demanded long days.

“He's always thinking about these issues,” said Ryan, the recipient of many a late-night e-mail.

Steel's ability to work effectively with many personalities served him well in Washington's often divisive arena. He worked regularly with lawmakers, making appearances before the House Financial Services Committee as Congress wrestled with regulatory reforms and responses to the nation's mortgage meltdown.

“He was very adaptable,” committee chair, U.S. Rep. Barney Frank, a Massachusetts Democrat, said in an interview. “Unlike many in business, he got the political side as well.”

Frank, a liberal, found Steel more conservative than he is but “not rigid.” He appreciated Steel's get-down-to-business approach.

“I'm an impatient person,” Frank said Friday. “He was good for that. You could disagree, and he didn't take anything personally. You could get things done.”

Despite circulating in these high levels, Steel was obviously familiar with waiters and other service workers at Treasury, said Shaw University president Clarence Newsome, who visited Steel there a few weeks ago.

“There are days when you wonder how people (really) are. You don't have to wonder with Bob Steel,” Newsome said.

Involvement at Duke

While living out of state since his days at Duke, Steel has kept close ties to Durham and his alma mater. He has served on the board of trustees since 1996 and assumed the chairmanship in 2005, where he commands a 37-member board including Newsome, the CEO of General Motors and a former speaker of the N.C. House.

He led the search for a university president in 2003 and guided the administration when basketball coach Mike Krzyzewski toyed with leaving for the Los Angeles Lakers, but perhaps drew the most attention for his role in the 2006 lacrosse scandal that capsized the campus community.

Some praise Steel's steady hand in the crisis, while others criticize him and other university officials for not standing behind the players accused of raping an exotic dancer. They were later exonerated, and the prosecutor was disgraced.

He said that in such a situation many decisions are made, sometimes based on incorrect information. “There's no way you can go through something like that and do everything perfectly,” he said.

His Duke connections helped him land his new job. Smith, the Wachovia chairman, had served with him on the board of trustees and made him his top candidate when company directors ousted Ken Thompson in June after a series of missteps, including an ill-fated expansion in the mortgage business. Steel initially resisted the overture but said he was increasingly drawn to the position in recent weeks.

He faces a daunting task. The bank last week said it expects to post a loss of up to $2.8 billion for the second quarter, not counting a noncash charge that will push it deeper into the red. Analysts expect everything from layoffs to a dividend cut to the sell-off of the bank's troubled mortgage portfolio are on the table.

In his first two full days on the job, Wachovia's shares fell more than 19 percent, closing Friday at $11.54 per share. They're down nearly 70 percent for the year.

So far, Steel said he's been busy meeting with top executives in groups and making plans to spend more time one-on-one. He said he has been impressed by the quality of the talent, but analysts expect that some of these lieutenants will ultimately depart.

Last week, he dismissed criticism that he doesn't have any retail banking experience, noting that that part of the business is doing well. Smith said the company has a “deep bench” that can show him the ropes.

Steel has resisted giving details about plans for the company until earnings are released July 22.

“You're always thinking about how to make a business better,” he said. “Some you grow like little children. Others are bigger and need to be reshaped.”

Anne Blythe and Tim Simmons of the (Raleigh) News & Observer and researchers Marion Paynter and Maria Wygand contributed.

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