ONE-ON-ONE
- March 2000
by Ed G. Lane
"Change
is happening much faster than a lot of people realize"
A conversation with Fifth Third Bancorp CEO George
A. Schaefer, Jr.
George
A. Schaefer, Jr.
George A. Schaefer,
Jr. is the president and CEO of Fifth Third Bancorp, where he has worked
since 1971, when he was hired as a management trainee. Schaefer attended
the U.S. Military Academy at West Point, earning a degree in engineering
before serving in the Army for five years in Europe and Vietnam. After
his return, he earned his MBA in Finance from Xavier University in 1974.
He serves on numerous civic boards and executive committees, and has
served as a director at Anthem, Inc.
Fifth Third
Bancorp just completed its 26th consecutive year of increased earnings,
with the last 21 of those increases at a double-digit rate. The corporation
has $42 billion in overall assets, with $3.8 billion in assets and $2.6
billion in deposits in the Commonwealth, and 82 offices across the state.
Fifth Third also processes over four billion electronic transactions
annually through its subsidiary, Midwest Payment Systems. The company’s
strong performance earned it the #1 ranking in Salomon Smith Barney’s
Top 50 Bank Annual in 1999 for the eighth year in a row.
How did Fifth
Third Bank get its name?
In 1858, Fifth
Third Bank started operations in Cincinnati as the Bank of the Ohio
River Valley. A couple of years later, that bank merged with the Third
National Bank. In 1908, the Third National Bank merged with the Fifth
National Bank. So that’s where the name came from; it was the
result of those two mergers. And the humor is that the merger occurred
during the time of temperance movements – so management couldn’t
call the bank the Third Fifth.
How many hours
a week is it necessary for you to work in order to effectively plan
and oversee the bank’s operations?
I arrive at the
office between 7:00-7:15 a.m. and work until about 6:00 p.m. That
would be an average day, but there are chamber of commerce dinners,
weekend commitments, board meetings and client entertainment. The
day will also get a little longer when you’re traveling. I don’t
sit there with a stopwatch, but 60-70 hours is a good estimate. And
that doesn’t count the time spent working at home.
How would you
compare economic development trends in Kentucky and Ohio?
Fifth Third’s
corporate headquarters – in Cincinnati – sits right on three
state borders. Fifth Third is the second largest bank in Ohio, the
third largest in Indiana, and is growing fast in Kentucky. Northern
Kentucky, around the Northern Kentucky/ Greater Cincinnati International
Airport, is one of the bank’s fastest growing markets.
In terms of business
activity, local economies are booming all over. The competition for
employees is significant. People now are going where the workers are.
Companies are locating plants, factories, call centers, data centers
where they can find the talent, whether it’s high-tech talent,
manufacturing skills, or general plant labor.
Also, there’s
an auto manufacturing boom going on in Ohio, Kentucky and Indiana
where Fifth Third Bank operates. When I recently met with Teruyuki
Minoura, head of Toyota Motor Manufacturing North America, he said
Toyota is building automobiles at full capacity.
Since the first
quarter of 1997, the stock price of Fifth Third Bancorp has increased
from $27 to a recent high in excess of $70. What key factors contributed
to the stock’s higher price?
Fifth Third Bank
is in its 26th consecutive year of record earnings. The last 21 years
the bank has grown annually at 10 percent or more earnings per share.
That’s a very rarefied atmosphere. There are not very many companies
that have done anything like that in terms of growth. Fifth Third
Bank has been a growth company that is also AA rated. Its earnings
and growth have been consistent for 26 years.
Fifth Third
Bank’s 1999 operating income was $752 million, up 17 percent over
1998 income of $625 million. Was the growth due to mergers or did the
bank earn a higher return from operations?
It’s both.
About 80 percent of our increase in earnings comes from what you would
call same store sales and about 20 percent of our earnings growth
comes from expanding our markets – new offices and acquisitions.
What is Fifth
Third’s plan for future growth in Kentucky?
Fifth Third Bank
will continue on the same kind of positive growth pattern. Kentucky
has been a very good market for Fifth Third’s three separate
independent bank operations – Northern Kentucky, Central Kentucky
and Greater Louisville. Fifth Third is moving into Southern Indiana
from Louisville and the bank will continue to expand there. Growth
in all three of those markets has been very positive, very solid.
Fifth Third has been well received.
Is Fifth Third
more interested in buying existing bank operations or in building new
operations (people, facilities, market-share) from the ground up?
If you look at
the way Fifth Third has grown in Kentucky, the answer is both. A lot
of it depends on pricing and who’s for sale. If you want to expand
in Lexington, for example, and nobody wants to sell, then Fifth Third’s
got to build. If a bank in Louisville wants to sell, but the price
is unrealistically high, then Fifth Third will expand on its own.
Are you concerned
that high employment levels in the U.S. may be inflationary and do you
think productivity gains are offsetting those pressures to a certain
extent?
Technology is
creating productivity gains. In 1999, Fifth Third had four million
transactions on its internet site (www.53.com)
and handled 17 million phone calls at its phone center. Automation
is taking some of that burden off our branch employees so they can
give good service when a customer wants to cash a check.
What advice
would you give business owners and managers about business conditions
during the next 24 months?
Change is happening
much faster than a lot of people realize. Fifth Third did about four
billion electronic transactions last year. Those are huge numbers
and the pace of change has gone very quickly. At the same time, it
will be tougher and tougher to make a buck. With all this efficiency…
everything is online electronically and everybody knows everybody’s
prices instantaneously. It’s not just airplane tickets you can
buy online – there are CDs, mortgages and car loans, too. Even
with technology, it is very important for Fifth Third to have friendly
people greet its customers when they visit our 650 offices.
How does Fifth
Third Bank manage its regionalized operations?
Fifth Third –
a $42 billion bank – delivers all the products and services.
But we want to be like an "old local bank" to the customer.
Fifth Third would love to have the reputation of the old First Security
Bank.
In 1971, you
were hired as a management trainee with the bank and now you are the
CEO. What advice would you give a recent college graduate regarding
his or her outlook for a future business career?
There is a lot
of moving around among young people today. I’m totally the opposite.
I think you ought to work as hard as you can in your current position.
Management will recognize your efforts. I have done well by staying
at Fifth Third Bank. And the bank has got a lot of people that have
been with it for 25 years. As employees, we have been able to get
all the benefits of growth and wealth and stock options by staying
in our own backyard.
Does the bank
offer any special incentives?
Fifth Third has
a tremendous stock option program. With our stock growing, many of
our senior people are eight figure millionaires just due to the growth
in their stock.
What qualities
does the bank look for in new recruits?
The first thing
we look for is people who are willing to work hard. We think that’s
of the utmost importance no matter how sharp you are. No matter what
your pedigree is, you’ve got to be willing to work hard. Number
two, we look for people who can sell. If you look at the bank’s
screen savers, they say "what did you sell today?" We need
people who know how to sell our products, our ideas, our efficiency
concepts. So, we look for hard work, sales ability, and teamwork.
We need people who can talk to each other and work well in teams.
"Prima donnas" don’t get along very well at the Fifth
Third Bank.
In what areas
can Kentucky improve to make the business environment and the quality
of life better for its citizens?
In all honesty,
when we have openings in Louisville or Lexington or Northern Kentucky,
our employees – especially our young employees – really
like the Kentucky environment. Fifth Third doesn’t have any problem
at all getting people to go down to Wildcat territory or to Louisville.
Kentucky is a very good state in which to do business.
What suggestions
would you make to Governor Paul Patton on the state of the Commonwealth?
I don’t
really know Paul’s record, I just know the economy in Kentucky
is very good and whenever Fifth Third has gone to the state to do
business, the state banking people have been really good to deal with.
And Fifth Third deals with a lot of different states.
In foreign countries,
some credit transactions are being made using digital phones. What technological
changes is Fifth Third Bank planning for and anticipating during this
decade?
Fifth Third is
already there. If you’re in the U.S. Air Force at an air base
in Japan, you can walk up to an ATM there and get out either U.S.
dollars or yen that the Fifth Third Bank processed. Fifth Third is
running all of the ATM transactions for American Express worldwide
and we’re dispensing in 18 or 19 different currencies. And Fifth
Third is doing credit transactions worldwide – right now! If
you’re in Bangladesh and order something through www.barnesandnoble.com
or www. macys.com, Fifth Third is handling that transaction already.
Two old-fashioned things have to happen when you order something over
the Internet:Somebody in the brown truck headquartered in Louisville
has to deliver it to your house or place of business and then you
have to pay for it. UPS is delivering the package and Fifth Third
is the brown truck of the payment system.
During your
30 years of employment, what was the one most significant event that
occurred at the bank?
One day, 25 years
ago, somebody came up to me and said "George, bank management
wants you to go run the data processing operations." I kind of
protested and said "I know a little bit about engineering, but
I don’t know anything about data processing." Being knowledgeable
about computer technology probably had the biggest impact on my career.
I don’t know how to program and I would be careful hooking up
your PC, but based on my experience, I knew enough to see the potential
for the future.
How involved
is Fifth Third Bank with the communities it serves?
Local newspapers
are often pounding on the bank about service charges. Very rarely
does the newspaper recognize that the bank has 11,800 people and most
of them are involved in their communities, school districts, and churches.
This commitment really adds a lot to the quality of life. And the
bank gives a whole lot back to the local communities. In fact, if
you look at the total salaries and wages that our employees were paid
last year, then look at our federal and local taxes combined, the
governments end up getting paid more money than our employees do.
The bank could double everyone’s salary if it didn’t have
to pay those taxes.
Ed
G. Lane (edlane@lanereport.com)
is chief executive of Lane Consultants, Inc. and publisher of The
Lane Report.
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