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Victor Riley: keeper of the keys.

In this interview by assistant editor Clifford Gerhart, the chairman, president and chief executive officer of KeyCorp discusses national banking trends, Key Bank policies and Alaska's future.

In the last 20 years, Victor Riley has overseen the expansion of the bank holding company KeyCorp from $1.2 billion in assets and 89 offices to more than $23 billion in assets and more than 650 offices. Riley, who has been in banking since 1955, joined the firm in 1964 and became chief executive officer in 1973. He is a member of the board of the Federal Reserve Bank of New York and serves on the Interstate Banking Commission for the state of New York.

Headquartered in Albany, N.Y., KeyCorp has banks in New York, Maine, Alaska, Oregon, Washington, Utah, Idaho and Wyoming. The bank entered the Alaska market by acquiring Alaska Pacific Bancorp of Anchorage in 1985 and is now the third largest bank in the state. In 1991, Key Bank acquired Goldome Savings Bank of Buffalo, N.Y., and in 1992 signed a preliminary agreement to acquire Puget Sound Bancorp of Tacoma, Wash. With the acquisition of Puget Sound, KeyCorp's asset mix will be 54 percent in the East and 46 percent in the West.

Q. All of your bank's indicators for performance nationally were up in 1991. For example, net income for KeyCorp was up 26 percent. What policies made that possible during a recession?

A: It's important to remember the kind of bank we are. Our balance sheet shows 53 percent in consumer lending, old-fashioned installment loans and mortgages. There were a good many variable rate loans. You can maintain a reasonable yield with them.

We're in areas where there aren't many financial institutions. People still need loans for cars, farm equipment, things like that. This recession we've got now is something people in our areas read about in the paper.

We make small loans. Our average commercial loan is $1.55 million. We're lending to middle America, where there is still growth. In the '80s, growth came from small business. There hasn't been any increase in the number of employees in manufacturing or farming. Employment growth is coming from small business. In our area, small business is still growing strong.

And in our areas, people don't forget to pay the bank on their consumer loans. Good banking is not only making loans, it's how good those loans are. We're still making loans and not charging them off.

Q: I understand your bank has a policy different from that of most banks of moving into slow-growth areas. How do you make that work for you?

A: "Slow-growth area" is an economist's definition. It's not a slow-growth area to the people who live there. They think it's a typical area. Also, in these areas, there is little competition. Where you've got rapid growth, you've got rapid competition. Also, since it's not like New England or California, we don't have to compete against irresponsible competition.

Q: How is the banking business in Alaska faring compared with the rest of the country?

A: Pretty good. Why? For one thing, three-fourths of our competition is gone. There's still enough good competition in Alaska to produce good banks. Reasonable bankers create good banks.

Q: Alaska is fairly remote from your base of operations. What made you decide to come into this market?

A: We saw the regionalization that was going on. We couldn't go into New York City, it was different from our kind of banking altogether. New England was closed out, and we were prevented by regulation from going into Ohio. We could just sit there and stagnate, or we could find a similar area with agricultural lending and small loans.

We wanted to get into the Pacific Northwest. That was closed off to us until we found out Alaska Pacific was acquiring a small bank called the Bank of Oregon. We got into Oregon by going through Alaska.

Q: How does the bank's performance in Alaska compare with its performance nationally?

A: Good and getting better. We're doing some real substantial deals.

Q: How have the low interest rates affected your company? Is there a lot of demand for commercial loans? Consumer loans?

A: Interest rates are making things difficult. Rates are terribly low, and we're having trouble meeting savers' needs. Interest rates of 3.5 and 4 percent don't really excite people. It's a real public relations problem and a real challenge to provide savers with what they need.

As the rates fall, this squeezes the spreads. From 10 to 6 percent is a nice range for interest rates. It's actually harder for us when the rates go above 10 percent into double digits.

For the banking business, it's better when the interest rates go up and down. What we don't like to see is interest rates staying flat like they were in '89 and '90.

Commercial loans in Alaska were up 12 percent last year, and we expect them to rise another 12 percent in '92. In the Northwest, we expect an increase of 8 or 9 percent. In Maine, we expect zero, no rise at all. In New York, Buffalo looks good, Long Island looks bad. We expect about a 4 percent rise overall.

In consumer loans, delinquencies have held. In the East, credit card delinquencies are up about 1.5 percent.

The demand for consumer loans is in used cars. Fifty percent of auto loans is in "nearly new" cars -- cars two to three years old. The nice thing about these loans is that there is no competition on the rate, since most banks don't even make used-car loans.

People buying a used car really need it. They're not just buying because they saw an ad on TV. And the car doesn't lose a lot of its value the minute you drive it off the lot. There's better paper on used cars. In Alaska, we're making about $3.5 million in loans a month, and 55 percent of that is used-car loans.

What I can't understand is why people aren't borrowing. Land prices and interest rates are low. Businesses should be looking to expand and update. What the hell are they waiting for? Lowering the interest rate won't stimulate borrowers. People are concerned about Congress raising taxes, about health care, about retirement. They're nervous.

Q: The banking industry is in a period of consolidation. Where do you think this will lead?

A: That depends on who you ask. The regulators say one thing, the Justice Department another. The Justice Department is in the Stone Age. Until we get some commonality between industry and government regulators, there won't be any great move toward consolidation because of our antiquated rules.

The problem is not laws but regulations. Congress passes the laws and the agencies put out regulations to implement them. They drive you nuts. They put out these regulations, and then you have to go to court to test them.

You've got to remember this: The fundamental business of a bank is to lend money. All this business about consolidation in the industry drying up loans for small business just isn't true. That's like saying if Carrs gets bigger, they'll sell less groceries. The bigger they get, the more supply there is on the shelf. We have to lend to succeed.

As a matter of fact, small-business lending is extremely attractive. There are Small Business Administration guarantees, and the loans carry a higher rate. You can do these loans with a less senior officer, and you don't have to police them nearly as much.

Q: Does Key Bank have any new acquisitions planned? Are there plans for growth in Alaska?

A: I can't say yes and I can't say no. We're looking here in Alaska and in the Northwest. I'd like to have something by the end of the year. We're ready. We've put together a lot of good management talent. We've got goals accomplished, like the computer linkup of all the branches. The question about acquisitions is: What will provide shareholders with value in the next few years?

Q: Are there any other aspects of banking or the economy you'd like to address?

A: Our responsibility as a leading bank -- and for the state of Alaska and academia -- is to see what's happening worldwide and move into markets in the 21st century. The future of Alaska is in exporting. I think one of the big exports for this state in the future will be water. But most people don't even think of it as a resource.

We haven't completely explored the agricultural possibilities in this state, the things that will grow here. And it's the same with all our other natural resources. We need to provide, particularly to Asian countries, what they don't have. Alaska should be a leading exporter.

The state legislature has to figure out what to do with the Permanent Fund. It should be invested in Alaska. We should be using Permanent Fund money as seed money at universities, in fishing and agriculture, in mineral research and in natural gas exporting.

It came from Alaska, it should be invested in Alaska. The state legislature isn't doing its job by letting it sit there.
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Article Details
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Title Annotation:chairman, president and chief executive officer of KeyCorp
Author:Gerhart, Clifford
Publication:Alaska Business Monthly
Article Type:Interview
Date:May 1, 1992
Previous Article:Flying through market turbulence.
Next Article:Staff slicing.

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