B of A Chief : A Storybook Hero Backed to the Wall

SAN FRANCISCO —  In his hometown of Redlands, folks reminisce about the university president’s son as a handsome lifeguard whom “the girls would drool over” at the municipal swimming pool.

Buddies from Denison University’s Beta Theta Pi--”not an animal house, but a jock house,” says one fraternity brother--look back on their former treasurer as a gregarious lacrosse player who married his campus sweetheart.

Fellow bankers remember him as the hard-working boy wonder who rose swiftly--perhaps too swiftly--to the top as protege of former BankAmerica Corp. President A.W. (Tom) Clausen.

Nothing, it seems, in the storybook life of 47-year-old Samuel H. Armacost has prepared him for the trauma of his spectacularly public failure to stop the bleeding at BankAmerica, the wounded giant--parent firm of the Bank of America--that reported a stunning loss of $640 million for the second quarter of this year. Although Armacost has repeatedly heralded a turnaround since he took over as president and chief executive officer in 1981, BankAmerica’s financial performance has gone from bad to worse.

Slumbering Behemoth

His early setbacks as chief executive were easier to explain away. After all, the energetic young banker had inherited a slumbering behemoth whose bloated bureaucracy was ill-equipped to meet the rigors of deregulation. Increasingly, however, Armacost, who has spent his entire career with the bank, is seen as a product of the undemanding corporate culture in which he grew up.

“There is no way Sam can escape culpability,” contended one longtime defender, who noted that most of the bank’s loans that are now souring were made by subordinates installed--and subsequently removed--by Armacost. “The question is: When does the finger finally point to the CEO?”

It is a question that Armacost has grown weary of. Sure, he said, there are things he would have done differently. Maybe he moved too slowly to cut costs. And as a manager, he said, “I’ve become much less tolerant, much less forgiving.”

But, he added, “I am not about to do any great mea culpa . That’s neither productive nor relevant.”

Intensity Increasing

The drumbeat of criticism and the suggestions that he should resign have gone on for more than a year, and are now increasing in intensity.

“The debate on whether he should step down is almost unparalleled in American business,” said William Esrey, president and chief executive of United Telecommunications and a buddy from the Beta house and an Armacost supporter.

The embattled Armacost’s tone ranged from reflective to combative during an hourlong interview Wednesday. He had returned the week before from burying his 87-year-old mother, Verda, who died of a heart attack in Florida.

A six-day bedside vigil brought together the Armacost siblings, who include Peter, president of Eckerd College in Florida; Michael, undersecretary of state, and Mary, a Baptist minister.

“She was one tough lady,” recalled Peter Armacost. “The doctors gave her an hour to live, and we sat there for a week watching her defy all odds. Characteristically, there were moments of both sadness and great hilarity.”

Still grieving for his mother, Sam Armacost returned to work in San Francisco to find the clamor in the local press for his resignation unabated. Perhaps the most poignant moment in the interview came when he was asked about reports that subordinates throughout the bank had started handicapping the prospects of his possible successors.

The man once hailed as the savior of Bank of America paused briefly before he spoke: “I’ve created the alternatives. It’s part of my job.”

He was referring, of course, to Thomas A. Cooper, a cerebral Philadelphia banker who was promoted in March to the new position of president and chief operating officer of the Bank of America. Cooper, who joined the bank just last year, is thought to be an attractive alternative to Armacost because he was never a part of the bank’s old-boy network; he is not bound by old friendships and alliances.

Won Plaudits

As president and in his earlier position with the bank, Cooper has won plaudits for quickly trimming entire layers of management from the bank’s sprawling bureaucracy.

“Coop really put the pedal to the metal,” one admirer said.

It was an abrupt cancellation by Cooper and an associate of a series of meetings with New York securities analysts Wednesday that fueled rumors of an impending takeover or management shake-up at BankAmerica.

Other names that have been tossed into the increasingly active rumor mill as possibilities to succeed Armacost include bankers Frank V. Cahouet (formerly of Security Pacific and Crocker) and Richard P. Cooley (Wells Fargo and Seafirst); turnaround specialists Sanford C. Sigoloff (Wickes) and Donald Guinn (Pacific Telesis), and investment banker and former Treasury Secretary William E. Simon.

In addition, New York investor Sanford Weill and First Interstate Bancorp’s expansionist chairman Joseph J. Pinola openly covet Armacost’s job. Pinola has proposed acquiring BankAmerica. Weill, who “is still sniffing around,” according to a BankAmerica officer, said in March that he would raise $1 billion in new capital for the troubled company in exchange for the top job.

BankAmerica’s increasingly uninvolved chairman, Leland S. Prussia, whose job is traditionally the second most important in the company’s Byzantine corporate structure, would also likely be replaced.

Sports Metaphor

In the interview, Armacost, as he does frequently, invoked a sports metaphor to describe his view of his situation: “If the line doesn’t block and the quarterback gets sacked, it’s the quarterback’s fault.”

In such situations, he said, “you go out and get new linemen who can block.”

“And I think we’ve got a new line that can block damn well,” he said.

Securities analysts and other critics who expected him to build an effective management team in a year or two were “naive,” Armacost insisted. Organizations as large and complex as BankAmerica and its Bank of America subsidiary are constantly evolving, and “you’ve got to keep adding and filling,” he said.

He was feisty in assailing those who shield themselves with anonymity while attacking him in the press.

“It is a cowardly way to proceed,” said Armacost, who is especially irritated by leakers within the bank. “If they’re afraid to wear their jerseys in public, they should turn them in.”

He lashed out at the press for “second-guessing” and questioned the integrity of reporters.

“In this new journalism, I have this gut feeling that half (of the unattributed quotes) are contrived,” Armacost said.

Growing Harsher

Meanwhile, the attacks on Armacost’s performance are growing harsher and more personal. Not long ago, New York author Ken Auletta wrote a column in the San Francisco Examiner accusing Armacost of “chutzpah” and calling him “a business leader who prattles about accountability but does not seem to be held accountable.”

“Sam Armacost gets away with losing, year in and year out, the way no manager of the San Francisco Giants could,” the column added.

A few days earlier, the same paper ran a vicious caricature that blew up Armacost’s nose to near-Pinocchio dimensions.

Armacost shrugs off the attacks.

“As a public figure, it’s a burden you have to carry. . . . If you read that stuff and take it seriously, you’re dead,” he said.

Auletta is the one with “chutzpah,” he added, and his column was “one uninformed guy’s opinion.”

Still, he worries about the effect of negative stories on employee morale and on his wife, Mary Jane, and their two teen-age daughters.

“It’s very hard on a child or a wife,” Armacost said. “We’re not politicians. We’re not elected officials. That’s not to say it’s fair or unfair. You can quit any time you want.”

Taking Its Toll

Further evidence that the bank’s crisis is taking a toll on Armacost’s family life came when he canceled a planned vacation cruise in Northern European waters later this month. His wife, a fund-raiser for the San Francisco Zoological Society, will lead a group of zoo members without him.

“She’s not overjoyed about it,” Armacost said.

Such workaholic tendencies are nothing new for Armacost, who typically rises at his Hillsborough home at 6:15 a.m., is in the office before 8 and does not get back home until 8 or 8:30 p.m. with a bag full of unfinished paper work.

“Two, three, four times a week, you get dragged to client dinners,” he added.

His recreation consists of an occasional round of golf with friends or his wife at the Burlingame Country Club, skiing in Colorado or Utah and light reading before bed.

“It’s hard to turn off the business,” he said, “but if you can’t keep your sense of balance, you may as well chuck it in.”

Friends say Armacost inherited his work ethic from his parents, a pair of deeply religious professional educators, who spent 25 years as president and first lady of the University of Redlands. During their tenure, which ended in 1970, the school had much closer ties to the American Baptist Church than it does today.

‘High Expectations’

“Verda had very high expectations of her children,” recalled John Townsend, pastor of the First Baptist Church of Los Angeles, at a memorial service for Mrs. Armacost in Redlands last week. She was “feisty, spunky, a motivator.”

Added Peter Armacost, who followed his father, George, into university administration: “Our parents were constantly dwelling on the things we did well. They didn’t nail us too hard for our shortcomings.”

Significantly, that seems to be another trait of Sam Armacost. He is frequently criticized by securities analysts for being “too nice” to subordinates who do not measure up and for having waited too long to order needed layoffs.

But, as is the case with Sam Armacost, who in recent months has demoted or fired six executive vice presidents and vice chairmen, there were limits to George Armacost’s tolerance.

Recalled Peter: “My dad was ready to haul Sam out of Denison (in Granville, Ohio) and bring him back to Redlands,” when as a freshman the future banker ignored his studies in favor of fraternity parties.

Sam Armacost, who later described his father’s action as “a swift kick,” buckled down, changing his major from pre-med to economics. His grades improved, “but by the time he switched majors, it was too late for him to make Phi Beta Kappa” as his two older brothers had done, Peter remembered.

Returned to School

Upon graduation, Armacost joined Bank of America in 1961 as a credit trainee but left a year later to do graduate work at Stanford University. Armed with his master’s degree in business administration, Armacost returned in 1964, and his rapid rise began. Clausen, Armacost’s predecessor, “tapped him on the shoulder early on,” recalled Armacost’s friend, David Brooks, who now works for Citicorp.

“It was like Clausen adopted him,” Brooks added. “Those of us who knew him were sure Sam would go to the top.”

“They should have told me,” Armacost said with a laugh during the interview. “It would have saved me a lot of hard work. Nobody can be anointed in a big corporation.”

To be sure, as an MBA, Armacost stood out at the Bank of America of the 1960s and 1970s. At the time, the bank was run largely by “branch manager-types,” said Armacost fraternity buddy David Reese. Armacost, himself, acknowledged that the environment at the bank was not very competitive.

“There was a lot of latitude to perform, but there weren’t a lot of people who wanted to do it,” he said.

Between stints at corporate headquarters, Armacost did three tours for the bank in London and one in Chicago, as well as one in Washington as a member of President Richard M. Nixon’s Executive Exchange Program. In 1981, the man dubbed “Clausen’s clone” took over when his mentor was appointed head of the World Bank.

The title, the $600,000-a-year salary and the perquisites never went to Armacost’s head.

Rubber Snake

“He doesn’t big-time you,” said Reese, president of State Savings Mortgage Co. in Phoenix. “He’s still a big practical joker.” A few years back, during a rafting trip down the Colorado River, Armacost delighted in slipping a rubber rattlesnake into the sleeping bags of his companions.

“He has always been a bit of a ham,” added Peter Armacost, who remembers his little brother “mugging for the cameras as a boy, doing voice imitations, making crazy sounds, that kind of thing.”

Friends and relatives say his balanced perspective will help Armacost during his current woes.

“He is not in easy circumstances,” Peter Armacost said. “But Sam has the intellectual and spiritual resources that will see him through.”

Armacost, himself, seemed philosophical as he ushered his visitor from his 40th-story office in the bank’s world headquarters building, which the company sold last year to help cover loan losses. Gesturing toward his desk, he said, “I’m not hiding under there.” And he added, “There’s a lot of opportunity in this world.”