Edward M. Carson.

In the summer of 1990, shortly after Ed Carson took over as chairman and CEO of troubled First Interstate Bancorp in Los Angeles, he shocked the low-key bankin world with a bold prediction. With the California economy teetering on the brin of recession and rumors swirling that the bank was being pursued as a takeover candidate, Carson avowed he would cut First Interstate's burgeoning portfolio o bad loans to 1 percent of assets by the end of 1993 from a level of 5 percent, and restore the bank to health.

The brash proclamation seemed nearly impossible to attain and out of character for the deliberate, soft-spoken Carson--less Broadway Joe Namath than the near-cliched image his peers and the business press are fond of perpetuating: Jimmy Stewart in pinstripes. Yet he has exceeded expectations, not only slashin bad loans deeper than expected, and ahead of schedule, but paring down bloated costs and boosting revenues with a flamboyant campaign to lure customers from competitors such as BankAmerica. In the process, he has turned $51.5 billion-asset First Interstate from hunted to hunter, snapping up a valuable banking organization in Southern California and seeking additional acquisitions in East Texas and Washington state.

Carson launched the comeback with an elementary three-point formula: Jettison non-core businesses--including global operations--clean up the balance sheet, and flawlessly execute the basics.

"I don't mean to oversimplify things, but in most cases, when things turn bad you have to get back to blocking and tackling," he says. "The best way for us t satisfy our shareholders is to focus on the man and woman on the street. Consumer banking remains our priority--not trade finance and foreign exchange."

The sharper focus put First Interstate, the nation's 13th largest bank and the third largest in California after BankAmerica and Wells Fargo, back in the black. Following a loss of $288.1 million in 1991--largely the result of provisions to cover bad loans in California, Nevada, and Oregon--the bank chalked up income of $282.3 million in 1992 and $561.4 million last year. Its stock, which traded recently at a 52-week high of $71 5/8 a share, has nearly quadrupled in value since October 1990.

Carson's strategy beat a hasty retreat from that of his ambitious predecessor, Joseph J. Pinola, who dreamed of First Interstate competing with such full-service, global financial giants as Citibank and Merrill Lynch and who stitched together a far-flung empire in 14 states. Like other self-styled visionaries of the 1980s, however, Pinola collided with the tough realities of eroding real estate values and declining credit quality. So unfavorable was the bank's position, that when Carson took over in mid-1990, he reportedly said at an investors conference: "I'd like to try to convince you that we're not a bunc of idiots."

The CEO's first step toward credibility was to bite the bullet on bad loans, bailing out of $3 billion worth in California alone at the beginning of 1991. H proceeded to lop off nearly one-quarter of the company's 35,000 jobs. Carson reorganized First Interstate's domain into four regional areas and imposed strict, universal credit policies across its 16 banks. He required personnel to take a test so demanding that the bank's president, William E.B. Siart, failed seven of its 15 sections. Carson flatly says of the exam: "I was too scared to take it."

While these maneuvers have worked wonders for the balance sheet, revenue growth has lagged, partly because of the winnowing effect of the new credit standards.

"I'm impressed with the turnaround," says Salomon Brothers analyst John D. Leonard. "But the question becomes, 'What are they going to do to drum up business?'"

Flush with liquidity, Carson has turned First Interstate loose on the acquisition trail, picking up the San Diego Trust and Savings Bank last August for $340 million in stock. Combined with pending, smaller additions, Carson expects the asset base to grow by $4 billion.

He also has launched "Revenue Rev-Up" and "Project WIN," programs geared to boost business and enlist customers dissatisfied with the merger of BankAmerica with Security Pacific in August 1991. Project WIN included a door-to-door drive by branch bankers, staffers standing outside Security Pacific branches barking: "Free checking," and trucks hauling 18-foot billboards that read: "Don't Merge. But as much as the campaigns were designed to attract business, Carson says, they also aimed to empower front-line staffers and steep them in the rudiments of the company's new sales- and service-oriented culture.

Carson has spent his entire career with First Interstate, signing on in 1951. H is slated to step down as CEO in November, when he turns 65. Though Siart is mentioned in some quarters as a possible successor, Carson won't fuel the rumors, saying only that he will consider staying on as a member of the board. Whoever takes over, he says, likely will bear the blue-collar stamp of the new First Interstate, marked less by a propensity for banking pyrotechnics than by desire to satisfy customers.

"I'll guarantee you that there's somebody down the street who will give you a quarter of a point more," Carson says. "But most people just want no hassle and good service. You try to keep that in perspective. If you don't, you run the risk of going broke chasing rainbows."