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Bank of America's long trek to recovery. Reorganization and world growth point way out of the woods

By Staff writer of The Christian Science Monitor / April 7, 1986

San Francisco

Leland Prussia talks calmly about the quakes that have rocked Bank of America. Not the earthquakes, which in themselves sometimes sway the Bank of America tower and other San Francisco high-rises.

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Instead, Mr. Prussia, chairman of BankAmerica Corporation, talks about the financial shocks that have jolted Bank of America's financial foundation -- its record $337 million loss in 1985, its deeply troubled loan portfolio -- and how this giant, well-pedigreed bank intends to recover.

B of A got hit sooner with problems that many other banks are only now beginning to have, Prussia says, and is climbing back toward recovery earlier, too.

``Loss ratios of most major financial institutions are rising fairly rapidly. Ours, I think, are going to be going down now. We happened to get there earlier.''

Earlier -- and with a resounding thud throughout the financial community.

The bank's stock price plunged last year. It suspended its dividend for first-quarter '86, fired staff, and got involved last month in a short-lived takeover episode pitting American Express Company president Sanford Weill against B of A chief executive Samuel Armacost.

Things got so bad, in fact, that the bank had to sell its monumental headquarters building last year to cover losses. The plush corporate offices -- commanding a magnificent view of San Francisco Bay -- are leased today.

``They had been a tremendous success in so many areas,'' as Robert Shay, professor of banking and finance at Columbia University, puts it. ``It was a shock when one of the biggest banks in the world came a cropper.'' The disinflation dilemma

But now, maintains Mr. Prussia, the bank knows what the problems are, is tightening controls, and sees a resurgent world economy as likely to aid its comeback.

Unlike many other money-center banks, B of A itself is not heavily committed in the energy sector, although its smaller, Seattle-based Seafirst property is.

But there are plenty of problem loans still on the books: Mexico (both public and private sector), commercial real estate, California agriculture, and shipping.

``To be candid about it, it was a management problem going back some years,'' Prussia admits. ``We didn't tighten our credit screens in areas where our exposure was growing. . . . We have to pin it on management.''

He was part of that management. So was Mr. Armacost. So were others who are no longer involved in managing the institution.

The worst, Prussia maintains, is in the past. The board of directors apparently feels that way, too -- ``otherwise,'' one insider says, ``they would have brought in somebody else.''

And the Weill takeover episode -- as well as overtures by First Interstate Bank -- is an indication that ``sophisticated outsiders'' may be looking at Bank of America as a turnaround possibility, a report by Value Line analyst F. Barry Nelson says. Although he is still cautious on the stock, Mr. Nelson says, ``the outsiders may see an imminent return to profitability that would drive up BankAmerica shares.''

This is because despite its financial problems, Bank of America remains huge and well heeled. With offices around the world and $118 billion in assets, it is the second biggest bank in the United States (after Citicorp).

But it has fallen quite far from financial grace in recent years.

``I wasn't around during the Great Depression,'' says chairman Prussia, ``but given the size of the bank, I don't think there was anything like this. And all the more interesting: It happened while our competitors were doing fairly well.

``So what happened to Bank of America?'' he asks.