Bane One Corporation

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Bane One Corporation

100 East Broad Street
Columbus, Ohio 43271-0251
U.S.A.
(614) 248-5944
Fax: (614) 248-5220

Public Company
Incorporated: 1968 as First Bane Group of Ohio, Inc.
Employees: 45,300
Total Assets: $7.22 billion
Stock Exchanges: Boston Midwest New York Pittsburgh Pacific
SICs: 6712 Bank Holding Companies; 6021 National Commercial Banks; 6022 State Commercial Banks; 6162 Mortgage Bankers & Loan Correspondents; 7389 Business Services, Nee; 6099 Functions Related to Depository Banking, Nee; 6091 Nondeposit Trust Facilities

Bane One Corporation ranks among the most esteemed, profitable, and fastest-growing banking organizations in the United States. In the early 1990s, Euromoney featured Bane One on its list of Best Banks in the World, Institutional Investor named it America’s Best Bank, and analyst Joseph A. Stieven told Bank Management magazine that the corporation was “the best bank in the country regarding acquisitions.” The corporation’s phenomenal growth was facilitated by its formation of over 100 “Uncommon Partnerships”—Bane One’s euphemism for mergers—beginning in the late 1960s. The basic principles of the Uncommon Partnership remain affiliate autonomy, centralized support, market diversity and balance, and emphasis on high margin products. In 1993, Bane One had affiliate banking organizations in the American Midwest, South, and West, providing a variety of financial services, including: data processing, venture capital, investment and merchant banking, trust, brokerage, investment management, equipment leasing, mortgage banking, consumer finance, and insurance. Bane One has been led by three successive generations of John McCoys— John Hall, John Gardner, and John Bonnet—each distinguished by his mother’s maiden name and all three of whom had served on the Federal Reserve advisory board.

While the corporation was created in 1968 as First Bane Group of Ohio, Inc., a holding company of The City National Bank & Trust Company of Columbus, the organization’s origins may be traced to the Great Depression and the McCoy family. John H. McCoy began his career in banking when he left the eighth grade to work in a bank in Marietta, Ohio. By 1930, he was successful in the field and began serving on the Ohio state bank advisory board, soon thereafter becoming the Ohio representative to President Herbert Hoover’s Reconstruction Finance Corp. (RFC). In 1935, the RFC appointed McCoy president of Columbus’ City National Bank & Trust (CNB).

CNB, formed from the consolidation of two small Columbus banks, had an infamous anniversary: October 29, 1929, Black Friday. The bank had struggled through the Depression, surviving only with the help of the RFC, and when John H. McCoy took control, the two banks were still operating semi-autonomously. During this time, two families dominated banking in the state capitol; the Huntingtons, with their namesake Huntington National Bank, and the Wolfes, who owned Ohio National Bank and several major media outlets. While the Huntingtons controlled the lucrative trust business, Ohio National, by far the biggest bank in town, had the majority of the commercial lending.

Moreover, during this time Ohio state regulations prohibited banks from expanding across county lines, limiting growth possibilities and creating interdependence among banks in most of Ohio’s 88 predominantly rural counties. When large transactions were required, smaller banks established affiliations with bigger banks like Huntington National in Columbus or Fifth Third in Cincinnati, which in turn established ties to money center banks in New York or Chicago. These cooperative banking relationships in Ohio formed a “pyramid” in which small banks were, out of necessity, dependent on larger ones. As a result, there was little competition among local banks, and none at all among banks in different counties.

John H. McCoy made a fortuitous decision when he opted to focus CNB’s operations on retail banking, a field virtually untapped by his primary Columbus competitors. John H. was an impressive figure and established an enduring corporate culture at CNB. He is said to have worked so hard that he fainted several times at CNB, and, despite enduring four heart attacks between 1943 and his death in 1958, the patriarch never quit the bank. He established strictures against drinking coffee in the office and alcohol at lunch, and he earned the nickname “five percent McCoy” due to his insistence on charging customers five percent interest on loans, when most bankers were charging much less. John H. maintained that the valuable added services CNB offered its customers were worth these higher rates. McCoy’s progeny carried on that legacy: net interest margins still ranked among the highest in the business in 1992. Moreover, CNB’s corporate culture came to reflect John H.’s often paradoxical principles: autonomy, control, individuality, and uniformity; over the years, CNB entered many new ventures, as long as the stakes were low and the potential fallout from failure was limited.

In 1937, John G. McCoy finished his studies at Stanford and joined his father at the bank. One of the keys to CNB’s local success during this time was its transformation of branch banks from smaller replicas of cold, imposing bank buildings to friendlier neighborhood centers. During World War II, John G. served in the Navy and a younger McCoy, Chuck, ran the bank when a heart attack briefly put John H. out of commission. John G. returned to find that Columbus in general, and his father’s bank, in particular, were enjoying a boom in retail. Moreover, Chuck had introduced several innovations at the branches, including carpeting, modern lighting, community rooms with kitchens for local meetings, and continuous counters to replace the traditional teller cages. In the postwar period, CNB built the first drive-in branch bank; a few other banks were providing window service, but CNB built a specially designed, freestanding, drive-in bank.

When John H. McCoy suffered a fifth heart attack and died in November 1958, CNB was still ranked third among the banks in Columbus. John G., an operations specialist, was quickly named president, and, one year later, he was asked to take over as chairperson. The 46-year-old countered the board’s offer with demands of his own, including the creation of a research fund consisting of three percent of the bank’s profits. The board agreed, and John G. went to work. The research fund provided financial support for the technological innovations CNB would pioneer in the years to come, including a computer center for check-reading and other data processing functions.

By the late 1950s, the increasingly profitable CNB was gaining on local competitors Huntington and Ohio National, and John G. brought on an innovative advertiser, John Fisher, to promote new retail products like checking accounts. Over the course of his 30-year career at CNB, John Fisher combined marketing and computing intuition to revolutionize CNB and the banking industry as a whole. Moreover, Fisher, a former disc jockey, cultivated a unique image for the bank when he hired comedienne Phyllis Diller as CNB’s spokesperson in 1962. Board members worried that Diller would not convey the dignified image typically cultivated by banking institutions, and they voiced their concerns to John G. at subsequent board meetings. As Fisher told Institutional Investor in 1991, the CEO defended his visionary marketing director to the board by saying, “Gentlemen, it’s very simple: You can have either dignity or dividends. I vote for dividends.”

While Fisher’s outlandish campaign gave CNB a higher profile among competitors as well as customers, his unconventional ideas were not limited to advertising. At his and McCoy’s instigation, CNB became the first bank outside of California to market Bankamericard (which later became Visa) in 1966, beginning a very profitable credit card processing sideline. Handling all the data processing duties associated with the credit card, CNB helped to make Bankamericard the first nationally accepted credit card. This innovation not only poured revenue and credibility into CNB but helped transform Americans’ buying and spending habits, ushering in the “age of plastic.” In 1968, CNB helped issue more than one million credit cards through 50 banks. Two years later, on Columbus Day, Fisher activated the country’s first automated teller machine (ATM). Fisher also led unprecedented, and ultimately failed, efforts into videotex-based home banking, with which customers could view their accounts and pay their bills using their television screens.

During this time, John G. devised a plan to sidestep state banking regulations prohibiting interstate mergers and acquire other Ohio banks in the process. He decided to develop a holding company—a corporate body that, technically, was not a bank and thus could lawfully expand across county and state lines. The holding company, formed in October 1967, was called First Bane; its unusual spelling was the result of Ohio laws forbidding holding companies from calling themselves “banks.” John G. first approached the directors of Farmers Savings & Trust, a county-seat bank in Mansfield, Ohio. The directors of Farmers Savings, nearing retirement and looking to sell the company, agreed to the merger proposition, becoming CNB’s first acquisition through a stock swap.

Strict guidelines for acquisition soon developed. Proposed acquisitions were required to have assets amounting to no more than one-third of those of the buyer, a policy that ensured manageable deals and allowed the buyer to survive a bad acquisition. In addition, acquisitions were forbidden from diluting earnings, even during the first year of the merger. First Bane usually avoided such turnaround situations by focusing on acquiring banks that were strongest in its own retail and small business markets, which would generate economies of scale in areas such as processing. Under First Bane’s merger policy, salaries, hiring and firing, staff allocation, and even the pricing of products and services remained the responsibility of the affiliate bank, which maintained its own president, board of directors, and business plan.

First Bane soon proved especially proficient at consolidating management information systems. Each new affiliate was required to submit detailed monthly reports, which were then compiled on First Bane’s powerful computer system for comparative purposes. The surveys induced competition among the branches and provided an incentive to match the best. Virtually all new affiliates met the challenge and improved their return on assets and profitability after merging with First Bane.

From 1968 to 1978, First Bane acquired at least 15 Ohio banks, raising its profits to over $25 million annually, and formed First Bane Group Financial Services Corporation to offer personal property leasing and mortgage servicing. The company’s growth was also fueled by the liberalization of Ohio banking laws during this time, which were amended to allow statewide branching and mergers between banks located in any county. The holding company’s name was changed to Bane One in 1979, and by 1980 the corporation was one of only seven banking organizations among the 100 largest in the United States to have recorded ten consecutive years of increases in both earnings and dividends. In 1981, Time magazine called Bane One “perhaps the most advanced financial institution in the United States.”

The corporation’s assets passed the $5 billion mark in 1982, as barriers to interstate branching continued to deteriorate. Federal and state banking regulations changed dramatically in September 1985, enabling Bane One to enter its first agreement with a banking organization outside of Ohio. Purdue National Corporation in Lafayette, Indiana, became the first out-of-state bank to affiliate itself with Bane One. After a relative lull in acquisitions from 1983 to 1986, Bane One’s merger activity picked up. In 1987, for example, the company purchased the $4.4 billion American Fletcher of Indianapolis, and the next year it acquired $4.3 billion Marine Corp. of Milwaukee. Bane One took advantage of nationwide reciprocal banking soon after it was legitimized in Ohio in 1988. By the end of the following year, the corporation had added affiliates in Kentucky, Michigan, and Wisconsin. Nevertheless, the corporation focused on regional operations until the early 1990s, when it began to extend its presence west and south as virtually every barrier to interstate banking was removed.

John B. McCoy, son of John G., also entered the banking business. Like his father, John B. graduated from Stanford. After three years in the U.S. Air Force, he took a position at Citicorp in New York, where he stayed for less than a year before returning home to Columbus in 1970. The younger McCoy worked his way through six different sections of the bank—including the credit card division, which he built into one of the nation’s largest—and, in 1984, he was named CEO of the corporation. John B.’s efforts to keep Bane One focused on consumer banking allowed the corporation to avoid the real estate loans, Third World debt, and leveraged-buyout problems that troubled many banks during the 1980s. The bank lent more to consumers than to businesses and rarely offered loans at all to large companies. From 1984 to 1990, John B. engineered 54 acquisitions, thereby tripling Bane One’s assets to $27 billion. These acquisitions helped Bane One to thrive during an early 1990s recession.

Bane One continued to refine the branch banking experience in the 1980s by decreasing its number of tellers, adding new drive-in lanes and ATMs, giving the platform officers separate offices, adding travel agencies and a discount securities broker, and leasing space to insurance agents and real estate brokers. The corporation also introduced such innovative concepts as Sunday hours in Ohio, “weekly specials,” and credit card tie-ins with groups such as the American Association of Retired Persons and airline frequent flyer programs.

However, by the beginning of the 1990s, Bane One’s five-state Midwestern market, in which the population had remained stagnant for years, was becoming saturated. In order to maintain the corporation’s customary 15 percent annual profit growth, John B. decided on a course of expansion. Focusing on Texas, the nation’s third-largest bank state with $175 billion in deposits in 1990, McCoy found a retail void in the banking market that could be filled by his bank’s successful formula. First, he agreed to the government-assisted purchase of 20 failed Texas banks, known as MCorp, for $500 million, which brought Bane One’s assets to approximately $36 billion. Just two days after taking control of those former MCorp banks, he bought Dallas-based Bright Bane Savings Association and its 48 branches for $45 million from the Resolution Trust Corporation, making Bane One the country’s 16th-largest bank, with $37 billion in assets. MCorp was Bane One’s first turnaround situation, and observers wondered whether the corporation was up to the challenge, especially given the competitive banking environment in Texas. Led by John B., the corporation achieved that and more, acquiring banks in Colorado, Arizona, California, Utah, West Virginia, Kentucky, and Oklahoma in 1992 and 1993.

For fiscal 1993, Bane One earned a return on assets of 1.53 percent, marking the first time in history that an American banking institution with over $50 billion in assets crossed the 1.5 percent mark. The company sustained its annual earnings per share increase, becoming one of only 14 nationally traded U.S. companies to do so in 25 years. American Banker named John B. McCoy “Banker of the Year” for 1993.

In the mid-1990s, analysts’ primary fear was that Bane One would encounter a crisis of rising expectations. Mark Lynch, an analyst at Shearson Lehman Brothers, pointed out that the corporation would have to keep up the somewhat hectic acquisitions pace just to satisfy the market’s expectation of growing earnings per share. Moreover, others questioned Bane One’s ability to maintain the “friendly hometown bank” atmosphere that brought it to prominence in the first place, as its operations expanded increasingly further from its Midwestern roots. Nevertheless, many analysts displayed confidence in Bane One; Richard Fredericks of Montgomery Securities, for example, predicted that Bane One will become America’s first nationwide bank.

Principal Subsidiaries:

Bane One Ohio Corp.; Bank One Lexington N.A.; Premier Acquisition Corp.; Bane One Colorado Corp.; Bane One Illinois Corp.; Bane One Interim Corp.; Bane One Indiana Corp.; Bane One Alpha Corp.; Bank One West Virginia Corp.; Sterling Assurance Co.; Bane One Diversified Services Corp.; Bane One Investor Services Group; Bane One Capital Corporation; Bane One Community Development Corporation; Bane One Funds Management Company; Bane One Management and Consulting Corporation; Bane One Services Corporation.