I’m at a loss to understand why reporters continue to view Hugh McColl as a banking-industry genius. He’s anything but: as a result of the enormous bank-buying binge he embarked then-NCNB on starting in the mid-1980s, McColl is arguably responsible for perhaps more value destruction than any executive in stock market history. I just don’t see why reporters keep on printing the nonsense that McColl spouts.
But it’s hopeless. McColl was popping up in the papers again last week following the death of his predecessor at NCNB, Tom Storrs, who ran the bank from 1974 to 1983 and hand-picked McColl to succeed him.
Sure enough, the McCollian blather was on full display. “The truth is I really continued a strategy developed by [former CEOs] Addison Reese and Tom Storrs,” he said last week. “We realized that if we didn’t leave North Carolina we would never amount to anything, that we would not be important. The reason was North Carolina was the 11th largest state in the Union so, ergo, you’ll never be better off than the state’s growth would be.”
Expensive words! There you have as revealing an instance of Hugh McColl’s monumental egomania and contempt for shareholders as you are likely to find. The whole point of running a bank, McColl now says, has nothing to do with generating an adequate return for the people who actually own the business. Of course not! All McColl cared about was making NCNB-and by extension himself- “important.” I’m a little shocked that he even has the nerve to say that in public.
Not only is McColl’s comment deeply misguided, it’s also plain wrong. In fact, banks all over this country have, do, and will grow at rates considerably in excess of the growth rate of the state in which they operate. And when that happens, their shareholders–the owners of the company–are rightly rewarded.
But it appears to me that McColl never cared about shareholders. He famously noted on a number of occasions that big-bank CEOs make more money than small-bank CEOs, and that he preferred to be the CEO of a big bank. But he never said anything (and I doubt it ever occurred to him) about the returns that shareholders of big banks earn relative to shareholders of small banks. He seemed to be oblivious to the interests of shareholders.
The kindest view of McColl’s strategy for running BofA was that he believed there was some advantage in getting big fast. In a consolidating industry, he might have thought, the winners would be the companies that were the first to be able to exploit economies of scale and pricing power. So do deals as fast as you can, then hammer out the operating details later on.
We now know this was a recipe for disaster. The mirror image of BofA’s strategy was the one that Dick Kovacevich followed when he ran Wells Fargo. Kovacevich’s plan: build a constantly improving organic growth machine, then apply operating skills to improve operations of acquired companies.
Shall we compare how the two approaches panned out? It’s not even close:
One hundred thousand dollars invested in Wells Fargo at year-end 1994 is now worth $500,000. If that shareholder had invested in the S&P 500, it would be worth just over $200,000–so Wells’ strategy and execution caused its stock to outperform the market by 80%.
At BofA, meanwhile, the results of the McColl-Lewis approach were pathetic. If that same shareholder had invested $100,000 in BofA at the start of 1995, he’d have only $60,000 left. So let’s see: the Wells Fargo strategy led to a return of 400% over 17 years while Bank of America strategy led to a decline of 40% over the same period.
I scarcely need to add, by the way, that over the course of this disgraceful stock performance, McColl and Lewis ladled themselves out hundreds of millions in compensation.
You would think that, having seen the market decisively repudiate his life’s work, McColl in retirement might have some second thoughts. But of course, he doesn’t. Not from this egomaniac. When asked in 2010, McColl said, “No regrets, I have no regrets about building it large.”
Rather, sources tell me that McColl blames BofA’s unravelling on Ken Lewis. But if he does blame Lewis, McColl is only conning himself. Not so long ago, he couldn’t gush enough. “Ken always was a better businessman than I am,” McColl told Business North Carolina in late 2006. “He’s better at making money than I am.”
The McColl-Lewis, acquire-every-bank-you-can-and-to-hell-with-what-it-costs strategy was fatally flawed. When it reached its logical conclusion, BofA had become a patched-together, unmanageable hodgepodge where no one knew exactly what was going on. At Wells Fargo, meanwhile, Dick Kovacevich’s and John Stumpf’s emphasis on organic growth through smart operations and management has been totally vindicated. Kovacevich and Stumpf created a great company and great value for its owners. McColl and Lewis burned down their shareholders’ house.
Meanwhile, McColl’s original premise all those years ago, that NCNB could never succeed because North Carolina wasn’t big enough, has been shown to be fantastically wrong. Here’s one piece of evidence. There is a bank headquartered in Warsaw, Indiana that was founded in 1872. Today it has assets of $3 billion. It has never made a large acquisition and has never left the state (even though Indiana is only the 15th-largest state in the nation and is growing more slowly than the country overall), yet its shareholders have seen a 608% increase in the value of their stock.
Hugh McColl and Ken Lewis leave a disgraceful legacy in my view. They never worked for their shareholders and only cared about lining their own pockets. Their strategy was fundamentally flawed. Their execution was epically inept. The company they ran turned into a basket case. And they took hundreds of millions. In a fair world, shareholders would be able to claw back some of those millions from these buffoons.
What do you think? Let me know!