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Fleet CEO Envisions Era of Mega-Banks

TERRENCE MURRAY, chief executive officer of Fleet Financial Group Inc., New England's largest banking company, says when he walks into the Four Seasons Hotel in Boston, he is struck by the fact that the people there are better trained than the employees at Fleet.

``They know your name, they're courteous, they're responsive, and when something goes wrong they correct it,'' Mr. Murray says. ``I don't think banks have reached anywhere near that level.''

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Murray, who was in Boston last week to address a CEO Breakfast Forum sponsored by Northeastern University's business school, says Fleet has begun working on a ``new strategic vision.'' The grimmer part of the vision includes layoffs and cost-cutting. But it also includes better training.

``I think I'll start with the H.R. [human resources] department, which right now is deficient,'' Murray says. ``They're filling spots rather than focusing on talent.''

Fleet, based in Providence, R.I., is the 14th largest banking company in the country. Fleet Financial purchased the failed Bank of New England in 1991. In the second half of this decade, Murray predicts, consumer regional banks will be combining into ``mega-banks'' that cover several regions. These banks can achieve tremendous economies of scale, he says. A bank with $100 billion to $200 billion in assets with a diverse base can spread risk across regions and markets. Fleet's total assets on Sept. 30 were $46.9 billion.

``Community banks will still have a place,'' Murray says, ``but mega-banks will have a unique cost-advantage.''

First, however, the regulatory environment has to change. ``Banks should be free to serve national markets, not arbitrary regions with boundaries dating back to colonial times,'' Murray says.

Fleet, for instance, has seven subsidiary banks in six Northeast states. Each is regulated independently and governed by different legal statements. A resident of Boston, for example, who attends Brown University in Providence faces paperwork problems in making a deposit in a Fleet branch there.

``What we really need is a [comprehensive] interstate banking law to pass through Congress,'' Murray says. ``Regulators themselves would [then] have a more macro-perspective on the industry.''

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Atlanta-based Fleet Finance, a unit of Fleet Financial, is currently under investigation for high-interest mortgage loans in that state. Earlier this month, federal bank regulators said Fleet Financial would be part of a sweeping review of national banks involving more than 200 institutions.

OVERALL, Murray sees continued massive consolidation of the banking industry. He anticipates the number of banks in this country to shrink from about 12,000 to 6,000. The successful banks, he says, will be highly efficient at a lower cost.

To make Fleet more efficient, a program called ``Fleet Focus '94,'' was announced last July and will be implemented in 1994. The program is aimed at ``reengineering'' the bank's basic work processes and, as Murray says, looking for the first time in decades at the details of how even the smallest tasks are done. ``Nothing is a sacred cow,'' he says. ``Everything is going to be looked at.''

One example of the inefficiencies the program hopes to root out is the arcane approval process for commercial loans. The bank evaluated hundreds of commercial loans and realized that the average memo for a loan was 40 pages long. ``The irony of this is that most of the memos did not focus the reader on the relevant risks in the transaction,'' Murray says.

Advances in technology should help improve the bank's efficiency ratio from 67 percent to around 60 percent, Murray says. Efficiency ratios measure how much a bank has to spend to generate $1 of revenue.

So far, the bank has received 30,000 recommendations from its approximately 26,500 employees. The program will take up to six months, Murray says.