1980s, and restructuring into Norwest
Banco was beset by a series of major setbacks in the early 1980s. The troubles actually began in June of 1979 when Richard H. Vaughan, the president and CEO, was electrocuted by a wire that had fallen during a storm. This set off a management crisis. Chester Lind stepped in as a caretaker leader until a more permanent successor could be found. In October 1981 John W. Morrison was named chairman and CEO.
The new leader began centralizing the still loosely knit confederation into a more traditional bank holding company. In 1982 the 80-odd affiliates began to be grouped into eight regions reporting to a corporate vice-chairman. Plans were also laid to unify all the affiliates and Banco itself under a new name. The change occurred in 1983, when Northwest Bancorporation became Norwest Corporation.[3] Tellingly, the new name did not include 'bank' or some variant thereof because Morrison aimed to reposition Norwest as a diversified financial services company. He'd taken steps in this direction a year earlier, when he engineered the acquisition of Dial Corporation (not to be confused with the consumer products company of the same name) in September 1982 for $252 million. Based in Des Moines, Iowa, Dial had more than 460 offices in 38 states offering consumer loans for everything from cars to sailboats. It was considered one of the top consumer finance firms in the country and had a $1 billion consumer loan operation.[4] Dial was renamed Norwest Financial Services Inc. in 1983.[3]
While these restructuring initiatives were being carried out, the bank suffered another blow during the 1982 Thanksgiving weekend when a Thanksgiving Day fire destroyed the downtown Minneapolis headquarters. Norwest immediately announced plans to build a modern 774-foot tower, the Norwest Center, as its replacement. However, until the Norwest Center opened in 1988, corporate staff was scattered around 26 different sites in the city, leading to numerous logistical difficulties.
Meanwhile, with the farm economy going into a tailspin starting in 1981, Norwest began feeling the effects of its heavy farm loan portfolio--$1.2 billion, or seven percent of its overall loan portfolio. Norwest had another $1.2 billion in loans in foreign markets, which caused additional problems in the early 1980s as Norwest, like most U.S. banks, had made many bad loans overseas. As a result, Norwest saw its non-performing loans increase 500 percent from 1983 to 1984, to more than $500 million. Further trouble came from the bank's mortgage unit, Norwest Mortgage Inc., which had been quickly built into the second largest holder of mortgages in the United States. In the summer of 1984, Norwest Mortgage lost nearly $100 million from an unsuccessful effort to hedge its mounting interest-rate risk on adjustable-rate mortgages. The loan losses and the mortgage debacle led to a drop in net income from $125.2 million in 1983 to $69.5 million in 1984.
In August 1984 the head of Norwest Mortgage was fired because of the hedging losses. By early 1985 substantial portions of Norwest Mortgage were divested, including operations involved in servicing mortgages and buying mortgages from other lenders for resale. The unit now focused strictly on originating mortgages. In the wake of Norwest's poor performance in 1984, Morrison resigned and was replaced by Lloyd P. Johnson, former vice-chairman of Security Pacific Corp. Johnson soon brought on board Richard M. Kovacevich, who was hired away from Citicorp to become vice-chairman and CEO of Norwest's banking group in early 1986 (he was named to the additional posts of president and COO of Norwest Corp. in January 1989). The new managers began slashing away at Norwest's bloated bureaucracy. They drastically curtailed the bank's agricultural and international loan portfolios, the former being reduced to $400 million by early 1989, the latter to $10 million. By December 1988, the nonperforming loan total stood at just $150 million. To help prevent future calamities, Norwest instituted tighter lending criteria.
On the banking side, Kovacevich continued the process of standardizing the operating methods of the various Norwest banks, increased marketing efforts, and expanded the services offered. He also began seeking acquisitions, particularly aiming to bolster Norwest's presence in key cities; in 1986, for example, Norwest acquired Toy National Bank of Sioux City, Iowa, which had assets of $145 million. At the same time came the pruning of some rural operations, including eight banks in southern Minnesota and seven branches in South Dakota. Later in the decade, opportunities to expand outside the group's traditional seven-state banking region began to arise as the barriers to interstate banking began to be dismantled. In 1988 Norwest entered rapidly growing Arizona for the first time through the purchase of a small bank near Phoenix. Norwest ended the 1980s fully recovered from its early-decade travails and ranking as one of the nation's most profitable regional banking companies and the 30th largest bank overall, with assets in excess of $25 billion. Net income stood at $237 million for 1989.
