First Interstate Bancorp Chairman Joseph J. Pinola, who aggressively built the nation's largest interstate banking network but bid unsuccessfully for rival BankAmerica, announced Wednesday that he will retire June 1.
Pinola, who turns 65 on May 13, will be succeeded as chairman and chief executive by Edward M. Carson, 60. Both moves were expected. Carson, currently president of the Los Angeles-based banking company and former head of its Arizona operation, is expected to cut costs and monitor daily operations more closely than Pinola.
Coincidentally, First Interstate's announcement came one day after its chief Los Angeles banking rival, Security Pacific Corp., disclosed that Richard J. Flamson III will step down as chief executive to be succeeded by Robert H. Smith.
First Interstate's move comes at a critical point for the nation's 10th-largest banking firm. It follows two years of turmoil that included big losses stemming from soft real estate values in Arizona and an ill-fated 1988 acquisition of a Texas bank. It also has been hurt by a plunging stock price that has made it vulnerable to takeover bids, and a spectacular May, 1988, fire that destroyed four floors of its downtown headquarters building.
First Interstate's strategy of operating banks in 14 states, and franchising banks in still others, is being increasingly questioned. The company sometimes is viewed like an engine that is chronically out of tune. Losses in Texas and Arizona units are offsetting strong profits in California, Washington, Oregon and Nevada.
Next week, First Interstate is expected to announce a quarterly loss that some securities analysts have projected may exceed $200 million, stemming from $400 million being set aside for real estate problems in Texas.
Those losses stem from the untimely acquisition for $161 million of Allied Bancshares in Texas, a move both Pinola and Carson acknowledged as a mistake in separate interviews Wednesday. First Interstate bought the ailing bank with no federal assistance. Rivals such as NCNB in North Carolina and Banc One in Ohio later were given assistance to buy similarly troubled banks.
"I'm sorry I made one giant mistake, but I added a lot of territory to the bank. I feel good about every aspect except Texas," Pinola said.
In choosing Carson, First Interstate's directors stuck to the bank's traditional, conservative method of succession. In recent months, there had been rumors that directors might be considering an outsider or might leapfrog the younger William E. B. Siart into the job. Siart, 43, who heads First Interstate's California operation, was named to replace Carson as president, putting him first in line to succeed Carson as chief executive.
But Pinola said the order of transition has been clear for a long time. He compared the method of succession to something like a baseball farm system, where executives serve at other banks in the company before returning to headquarters. Carson headed First Interstate's Arizona operations before it was hit by problems, and has served in most other areas of the bank.
San Francisco-based bank analyst Donald K. Crowley of Keefe, Bruyette & Woods called Carson a "journeyman banker" whose record in Arizona was admirable.
The 6-foot, 3-inch Carson became a banker by chance. The son of a truck driver from Peoria, Ariz., he studied marketing and advertising at Arizona State University in the early 1950s, playing basketball and serving as student body president. While in school there, he led a drive to raise money to build a student union building. One of the Phoenix executives he hit up for money ran the First National Bank of Arizona, the bank that evolved into First Interstate's operation there today. Carson impressed the executive, who hired him.
Carson said he supports interstate banking as a concept, and said he probably will be more involved in daily operations than Pinola. Carson also said he probably would not launch the kind of takeover bid like the one that Pinola launched three years ago for BankAmerica, although he was quick to add that he supported the bid at the time. BankAmerica, parent of Bank of America, successfully spurned the $3.9-billion bid.
Acquaintances describe Carson as methodical and more of an operations executive. Siart, in an interview, called Carson a "hands-on, take-care-of-the-machine-you've-got kind of guy" as opposed to Pinola, whom Siart called a visionary.
One sign of Carson's methodical approach is a vacation home in the Arizona mountains he has been building himself, doing much of the carpentry and other work. Carson said he has been working on the home off and on for 35 years.
Both Carson and Siart will move to deal directly with problems in Texas and Arizona. Siart disclosed that he will spend more time dealing with problems in Texas, while Carson will deal with problems in Arizona because he is more familiar with it.
One sensitive subject is First Interstate's vulnerability to a takeover, fanned by periodic comments from Wells Fargo Chairman Carl E. Reichardt that he would like to buy First Interstate if Pinola only wanted to sell.
Pinola's belief, according to people familiar with his thinking, is that shareholders could not get a good deal with the stock so low. He also is said to fear that any takeover would result in a blood bath where many employees are laid off.
In 1988, Carson earned cash compensation of $638,510, while Pinola earned $950,916.