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A Steady Hand: Observers expect bank to follow Allison's game plan for a while
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Published: September 7, 2008
Kelly King has no interest in being a management caretaker at BB&T Corp.
King will replace the retiring John Allison as BB&T's chief executive on Jan. 1.
He knows that one of his duties will be developing the new generation of management at the bank and, ultimately, choosing his successor, but King said in an interview last week that he is energized and ready to run BB&T for at least five years -- a period during which the bank anticipates a major shopping spree once the current industry downturn is over.
"I decided a long time ago that I did not need to be a chief executive of a bank to feel successful and fulfilled in my career or as a human being," said King, who will turn 60 on Friday.
"I have never felt that ego, that I had to be at the top.
"I did work within the framework of the executive-management team to be prepared to become chief executive in the event that such an opportunity came here, and now it has."
Allison, who plans to retire as chairman at the end of 2009, said he has total confidence in King's ability to run BB&T.
"I've relied on his counsel, and I have admired his commitment to the principles and values of BB&T," Allison said. "He's been involved in every strategic decision that has mattered, and there's not a significant strategic decision that he and I would have disagreed with over that 25-year period.
"Kelly has earned the right to lead the organization."
King "knows BB&T as well as anyone," said James Maynard, the lead corporate director for BB&T. "He knows the culture and knows the values and will keep both intact as CEO."
King's long involvement in BB&T's key decisions trumps any lack of experience running a major bank, said James Early, a senior banking analyst for the financial-consultant company The Motley Fool.
"Put it this way, Kelly King is not a step down by BB&T's management by any means," Early said.
There is little doubt that the most important management transition in BB&T's 136-year history is under way in the wake of Allison's surprising retirement announcement on Aug. 27.
Already, some analysts are discussing how much of a factor Allison's absence will have on profitability, corporate culture and even its independence.
BB&T has been rumored as a takeover target several times in recent years, including again last week in reaction to Allison's retirement plans. Local observers are still recalling Wachovia Corp.'s cutting of 1,300 local jobs as part of being bought by First Union Corp. in September 2001.
All of this resonates in BB&T's adopted hometown of Winston-Salem. It had 1,521 employees in Forsyth County as of last week, 605 in Greensboro and 2,606 overall in the Triad.
"If the company had any thought of selling itself, you would have thought that John would have done it before announcing his retirement plans," said Bob Maneri, who manages financial-services stocks for Victory Capital Management in Cleveland.
"He could have made such a deal, and brought himself a very lucrative retirement.
"So by announcing now, and naming Kelly King right away as John's successor, it appears BB&T's board of directors and its management are committed to remaining independent under Kelly's run as CEO," Maneri said.
However, another analyst, Dick Bove with Ladenburg Thalmann & Co., considers Allison's retirement plans as a potential negative for the bank.
"Because the company is essentially an extension of John Allison's personality and philosophies, it will be challenged to maintain the same path under different leadership," Bove said. "It will be challenging for Kelly King to match John Allison's drive and creativity.
"As long as John was in charge, it was very unlikely that BB&T was going to be sold since John wasn't going to accept an equal or secondary role in any merged bank. With John retiring, the board of directors may decide there is more leeway to consider offers."
Some analysts also are discussing how well King can replicate Allison's acquisition touch.
BB&T built its reputation, and most of its assets, by being a major wheeler-dealer during Allison's nearly 20 years as chief executive and chairman.
BB&T expanded from a $4.5 billion bank in Wilson when Allison took the reins to a $136.5 billion bank on June 30 primarily because of 60 community- and regional-bank purchases, and a series of insurance and other deals that bolstered its nonlending revenue.
Although buying a bank is never easy, typically requiring months of due diligence, analysts said that the acquisition environment that King inherits will be more treacherous than the marketplace that Allison maneuvered through so well.
Most banks are sold by their boards of directors and shareholders, and not bought through a hostile takeover. BB&T's reputation as a preferred buyer has been the difference in most of the bank deals.
However, most banks large and small are still trying to determine how many bad commercial and residential real-estate loans they will have to absorb from the housing crisis.
And unless BB&T, under King's leadership, pushes forward with a long-expected deal with a bank of similar size, it would take more than a handful of community-bank purchases to vault BB&T back among the top 10 financial-holding companies in the country.
BB&T ranked as high as ninth as recently as 2004 before a wave of bank deals moved it back to 14th.
All of which means that King must be extremely diligent in choosing between viable community banks in key markets and buying someone else's rocky loan portfolio, analysts said. The bank is giving King more flexibility in the pursuit of bank deals. It announced last Wednesday that it is raising at least $200 million through the issuance of trust preferred securities.
"As we come out of this down economy, we want to be in a position to take advantage of some strategic opportunities, such as looking at community banks, insurance companies, asset-management groups as possible acquisitions," spokesman Bob Denham told The Associated Press.
"This is something we're choosing to do, and we're doing it from a position of strength."
Allison said that BB&T is likely to remain on the deal-making sideline until the banking industry begins to rebound and a bottom is found in the real-estate market. "I'm convinced that BB&T and Kelly will have great buying opportunities on the other side of this banking cycle," Allison said.
"There are shareholders and board of directors of community banks that have been burned by their recent performances. They will be more willing to sell at prices that make more economic sense."
Analysts said that because BB&T's value system is so closely tied to Allison, it could be difficult for King to maintain the same hold on the corporate culture. The value system extols such virtues as trust, respect, integrity, pride, reason and justice.
The virtues are not just "nice-sounding concepts for a mission statement," Allison said in a June 2003 profile in the Winston-Salem Journal. They are the basis by which Allison measures the success of BB&T, its employees and its impact on the communities that it serves.
King said that while he is not as devoted as Allison to the economic theory of objectivism, as made popular by author Ayn Rand, they share a strong belief in the virtues of capitalism and the free-market system.
"Some people view capitalism as immoral and bad, that all business people are greedy and out for themselves," King said. "We reject that and prove that thinking wrong through our value system."
Mac Hodgson, an analyst with SunTrust Banks Inc., dismissed concerns about BB&T's losing its culture once Allison retires, saying the transition is "likely to be operationally and culturally transparent."
Allison believes that BB&T's odds of remaining independent "have improved pretty dramatically. The way we run our business has been reaffirmed in the marketplace."
"A lot of our bigger competitors were making a lot of money doing things we weren't doing," Allison said, "things we consciously chose not to do, or we experimented on little levels and said, ‘This doesn't work.'"
Allison said he believes that the national and regional real-estate markets will begin to recover in earnest next year now that some of what he called "irrational" mortgage lenders are disappearing from the marketplace or have been sobered by their lending practices.
Buddy Howard, an analyst with Equity Research Services, said that BB&T "is widely regarded as a well-run organization that has avoided many of the problems plaguing some of the other large banks serving the same markets."
"Clearly, much of this credit goes to Allison and the management team," Howard said.
By the time Allison retires as chairman, the six senior-management officials hired since 2003 will be "sufficiently seasoned and sufficiently in control of the franchise to set its future course," said Tony Plath, a finance professor at UNC Charlotte.
Those six officials are: Barbara Duck, 41, the bank's electronic delivery-channel manager; Steve Wiggs, 50, the chief marketing officer; Ricky Brown 52, banking network manager; Chris Henson, 47, the chief financial officer; Clarke Starnes, 49, chief credit officer; and Donna Goodrich, 45, deposit services manager.
All six officials followed in the footsteps of Allison and King in joining BB&T's Leadership Development program out of college. Each has at least 20 years of experience with BB&T.
Allison said that King understands that one of his major duties is grooming his successor.
"We know that BB&T has within itself the talent to lead the bank as chief executive well into the future," Allison said. "Kelly has the responsibility to develop the right person for that time."
The new generation of BB&T leaders will "need to be among the best and the brightest in the industry," Plath said. "They have a tough act to follow in the likes of Henry Williamson (a former chief operating officer), John and Kelly."
There's no doubt that Allison's legacy will "cast a large shadow over BB&T," Plath said, "which is why he's limiting the time he remains as chairman to one year past his departure as CEO.
"It's just impossible for a new leadership group to take strategic control of the company when the previous leaders remain connected to the company; the legacy of their accomplishments and the fingerprints of their strategic course remain too indelibly attached to the company.
"So, for the time being, anyway, it will be business-as-usual at BB&T."
■ Richard Craver can be reached at 727-7376 or at rcraver@wsjournal.com.
Kelly King
• AGE: 59
• JOB: Named as BB&T Corp. chief executive, effective Jan. 1. Currently serving as chief operating officer, since July 2004.
• 2007 Pay: $643,500 in salary.
• CAREER: Joined BB&T management-development program in 1972. Has served as president of BB&T Corp., banking manager for BB&T's branch network, manager for the Central and Metropolitan regions and Raleigh city executive,
• EDUCATION: Bachelor's degree in business administration, East Carolina University; MBA from East Carolina; Stonier Graduate School of Banking at Rutgers University.
• QUOTE: "I decided a long time ago that I did not need to be a chief executive of a bank to feel successful and fulfilled in my career or as a human being. I have never felt that ego, that I had to be at the top. I did work within the framework of the executive-management team to be prepared to become chief executive in the event that such an opportunity came here, and now it has."
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