A fiery ex-Marine and an avid mountain climber, Hugh McColl Jr. has scaled the Swiss Alps and Tanzania's Mount Kilimanjaro. But his loftiest goal is to lead NationsBank, the Charlotte, N.C., company he has run since 1983, to the summit of American banking. Through more than 50 acquisitions, McColl has turned NationsBank into the third largest U.S. lender (behind Chase Manhattan and Citicorp), with branches in 16 states and $316 billion in assets. And NationsBank stock, which has swelled to $65 billion in total value, makes the bank No. 1 in market capital. "In most of life's endeavors," declares McColl, 62, "you are either growing or dying."
Just last week Republican leaders in Congress, acknowledging the changes sweeping Main Street and Wall Street, proposed a way to end Depression-era barriers that formally separate banks, investment firms and insurers. Already, though, hard chargers like McColl are overrunning the crumbling regulatory barricades. "Hugh McColl is the General Patton of the consolidation process," says Michael Ancell, a banking analyst with the Edward Jones investment firm.
McColl's conquests have enriched the shareholders of NationsBank and the banks it has bought--shareholders that include many bank employees, from tellers to vice presidents. But the growing profits of NationsBank and other expansionist lenders have come in part from new and higher fees charged customers, shuttered branch offices and a decrease in traditional services at teller windows and by telephone. How long can any business keep increasing profits if many of its customers feel neglected? One answer can be found in a state that McColl has targeted for expansion: California. There, Wells Fargo, after its hostile 1996 acquisition of a large competitor, drove away so many customers with annoying fees, computer glitches and long teller lines that the exodus contributed to a profit plunge.
In a 1997 study of 419 banks, the U.S. Public Interest Research Group found a widening gap between fees charged at the 300 largest banks (which account for most mergers) and at small banks and credit unions. "You used to be able to walk in without a deposit slip, and they'd just hand you one," says Skip Shipman, a florist in Woodstock, Ga., whose local bank was acquired by McColl in 1996. "Then NationsBank started charging a dollar for a deposit slip." After a wave of protests, the bank halted the practice last year. But complaints persist about other fees and services.
NationsBank and its big competitors emphasize new services, offering everything from mortgages to mutual funds via round-the-clock banking. "When we acquire a company in a new neighborhood, then obviously some of the things that customers have been accustomed to will change," says Lynn Drury, a NationsBank spokeswoman. "Some services can be added and some taken away. Some fees may go up and some go down. And because some people are uncomfortable with change, they might choose to go to another bank." Indeed, such refugees are enabling new local banks that stress service to customers to blossom in the shadow of the giants (see box).
So far, though, NationsBank has gained far more profit than it has lost through acquisitions, earning a record $3.08 billion in 1997. Its shareholders have enjoyed an average gain of 26% a year over the past decade, handily beating the 18% annual return for the benchmark S&P 500 stock index.