The Wachovia Way

Its roots were in the Piedmont, where soon the maples will drop their yellow leaves on Old Salem’s shake roofs and the marble tablets of God’s Acre, resting place of Moravian dead since the 1770s. His roots are farther east, near the Johnston County town of Benson. He was born there during the Depression into a farm family that raised “whatever we could make a little money growing” — crops such as cotton, corn, soybeans and watermelons.

This month, for the first time in 132 years, no banks will bear the name Wachovia, taken from the tract covering much of what is now Forsyth County settled by the German-speaking Moravians, a Protestant sect that predates the Reformation. Not in Winston-Salem, where the bank began, or at its 317 Tar Heel branches or anywhere in the 21 states and District of Columbia where it once operated. John Medlin, sensible man that he is, knows that institutions don’t live forever. His tenure in banking spanned the era of brass teller cages to the age of megabanks. “But Wachovia will always be indelibly etched on my mind and in my heart,” he says. “It was my life for 40 years or so.”

San Francisco-based Wells Fargo & Co. bought Wachovia nearly three years ago, and when its last sign is replaced by Wells Fargo’s, a transition to be completed by Oct. 15, few will feel the change as poignantly as John Grimes Medlin Jr., 78, who shaped Wachovia Bank and Trust Co. into a national financial powerhouse. They call it legacy Wachovia now, the bank that existed from 1879 until its $14 billion acquisition by Charlotte-based First Union Corp. in 2001. First Union adopted the name, but by then banking — and Wachovia — wasn’t the same. Now even that vestige is passing, and with it, one of the last reminders of the  bank culture he personified.

He joined Wachovia in 1959 as a trainee, worked in all departments, became chief executive 17 years later and chairman in 1988, then served from 1994 to 1998 as nonexecutive chairman of the board. Since April 2000, he has been chairman emeritus. “Wachovia was not a product of me. I was a product of Wachovia.” Truth be told, it was more of an even split.

Financial World, the nation’s oldest business magazine, selected him as CEO of the Decade of the Eighties for Southern Banks in 1990 and best CEO in the nation in 1993. American Banker, the industry trade paper, named him most admired CEO in 1991 and 1992 and gave him its Lifetime Achievement Award in 2002. “Wachovia has been referred to as the J.P. Morgan of the South,” says Don Jud, a longtime business professor at UNC Greensboro. “People had great respect for Wachovia and its business judgment and integrity. And John Medlin was a banking leader not just in North Carolina and the South but the nation. When people thought about banking, they thought of John Medlin.”

Like the wavy, crisscrossing lines of the blue-and-green Wachovia signs coming down this month, the life of Medlin and the history of the bank are intertwined. They were an odd pair. He was a farm boy who knew the feeling of dirt under his fingernails. Wachovia was born 54 years before him to serve the budding, later iconic, industrialists in Winston, the commercial, secular town that grew up on the outskirts of once communal, theocratic Salem.The towns merged in 1913 to become Winston-Salem. That clicked. So did the merger of Medlin and Wachovia.

“Wachovia was rooted in the Moravian culture,” Medlin says. “It was a hardworking culture, one in which you cared about your employees, your customers and your shareholders.” By the time he arrived, America felt the chill of the Cold War, but to customers the bank still felt much the same as when William Lemly founded Wachovia National Bank in 1879. In 1911, it merged with Wachovia Loan and Trust Co. to become Wachovia Bank and Trust, the South’s largest bank and largest trust operation between Baltimore and New Orleans.

During the Depression, Wachovia was sound enough to lend money to the state to pay its employees. When the nation went to war, it sold bonds and raised money to defeat Hitler and Hirohito. Some 130 miles to the east of the Twin City, those times were shaping Medlin. “I was a product of the Great Depression and World War II. I was old enough by the late ’30s to know a little about the hardships of the Depression, particularly in a farming community. You learned sacrifices.”

At UNC Chapel Hill, where he graduated in 1956 with a business degree, he was in the Naval Reserve Officer Training Corps and, following three years of active duty, sought civilian work. “I had just gotten back from an overseas cruise in 1959, to the Persian Gulf and Mediterranean. I didn’t have much time to look for a job, so when Wachovia offered me one, I took it without looking around much. I was impressed with the culture and heritage.”

The postwar economy was booming, regulations were relaxing, and banks were plunging into new products such as installment loans. “The baby boomers began to come through in the late ’60s, and the culture of society changed,” Medlin says. “It influenced banking. Lending was more liberal, although still not as crazy as it got to be later on. It was a good, comfortable culture in a way, but it was a culture of high expectations.”

Wachovia was changing too, but more cautiously than other banks. It was known as the steadfast bank for trusts and pensions, the starched-collar bank for well-to-do Tar Heels and corporate chieftains. The bank where bankers acted like bankers instead of riverboat gamblers. “That was the atmosphere I felt comfortable with. In the Navy, accountability and standards were pretty strict, and I didn’t see much change. My upbringing on the farm had involved more traditional values.You went to church on Sunday. That’s what people did back in those days.”

Wachovia’s traditions were ingrained. Medlin followed in the banking-purist footsteps of predecessors such as Archie Davis, who had joined Wachovia in 1932, the year before Medlin’s birth, and risen to chairman in 1956. “When I got there, you still had some loans made during the Depression that hadn’t been fully collected, farm loans in particular. So you learn. I got a feel from some of the old-timers who were still there what it was like to go through the Depression. It was a good experience for a young banker.”

Like the union of farm boy and finance, the bank itself was a paradox. It handled money conservatively, maintaining low ratios of loans to deposits and deep reserves, but its operations were entrepreneurial. They always had been. Wachovia Loan and Trust President Francis Fries had opened what amounted to the state’s first branch banks in Salisbury, Asheville, High Point and Spencer in 1902-03. Robert M. Hanes had run Wachovia Bank and Trust from 1931 to 1956 like a growth company, buying smaller financial institutions to create the first statewide banking network, aided by the fact that North Carolina, unlike almost every other state, didn’t confine banks to local markets. “We were disciplined entrepreneurs,” Medlin says. “We took risks, but we took knowledgeable risks, calculated risks, where we knew we had a good chance of winning.”

The bank, though, was not too cautious. “We made loans in which you were taking risks on people who had good character and ability but not strong finances at the time you made the loan. In the ’70s and ’80s, we pioneered employee stock-ownership plans. In the ’80s, we were one of the first to have variable-rate credit cards. When rates went through the roof, you had a better chance of selling somebody a credit card because you could tell them their rates would go down when overall rates went down. We pioneered variable-rate home loans.” 

When technology hit banking, Medlin led Wachovia with the same mix of old valuesand new pragmatism that had attracted him there to start with. “We had something called the Sundown Rule. If a customer called and had a need or a problem, the rule was, you didn’t leave that day until you had the need satisfied. You didn’t let the sun set on unfinished business.” At the same time, he pushed the bank to become an early adopter of computers, bending them to fit Wachovia’s strong customer bonds. Early in his career, it had seemed to him as if banking was stuck in its inkwell-and-quill days. “If somebody wanted to know how much money they had in their savings account, you looked in one ledger. If they wanted to see how much wasin their checking account, you looked in another ledger. If they had a loan, you looked in another. We developed a computer program called the retail-accounts information system. You no longer had to go on a treasure hunt to find customer information.”

Using computers to manage accounts, Wachovia introduced its Personal Banker program in the ’70s, then hired lawyers to fend off other banks that attempted to poach the concept. Each customer got an account statement with a banker’s name and contact number. One call, all the answers. “The banker could also say, ‘I see you don’t have a credit card. Would you like one?’ We capitalized on those kinds of marketing opportunities and trained bankers to do more than just open accounts.” In the early ’70s, Wachovia automated teller machines could provide account information, along with cash.

With Medlin at the helm, the bank grew steadily, both organically and through acquisitions. In 1985, it bought First Atlanta Corp. for $15.5 billion, thrusting the Winston-Salem bank into the national spotlight and splitting its headquarters between Winston-Salem and Atlanta. “We often were accused of being too conservative, but our basic mantra was always soundness, profitability and growth, in that order of priority,” Medlin says. “We wanted to make money for our shareholders and to be able to reinvest to serve our customers. And you wanted to grow. But growth was never the No. 1 priority. It was always the other two.”

In 1991, Medlin led Wachovia’s acquisition of South Carolina National Bank. It was driven by necessity: By then, bank consolidation meant buy or be bought. But it also fit culturally. South Carolina National’s roots were deeper even than Wachovia’s, dating to the American Revolution, and its predecessor bank was the only one in the South to survive the Civil War. It was Medlin’s present to L.M. “Bud” Baker Jr. when he handed over the CEO reins in 1994. That, and $36 billion in assets and a bank with offices in, among otherplaces, Tokyo and London.

Medlin became chairman of the board, but clouds were on the horizon. In Charlotte, a competitive North Carolina National Bank had launched a string of takeovers in the Southeast and a trajectory that morphed it into NCNB, NationsBank and, ultimately, today’s Bank of America Corp. This was no environment for a good but modest-size bank, even one that American Banker had praised in 1992 for its “enviable performance record” and “its place as one of the highest and most stable earners.” Wachovia was tugged, reluctantly, into the fray. It acquired two Virginia banks, Jefferson Bankshares Inc. for $542 million and Central Fidelity Banks Inc. for $2.3 billion, in 1997. Two years later, it closed its acquisition of Charlotte-based Interstate/Johnson Lane Inc., a securities brokerage.

Behind the scenes — and unrevealed until now — Medlin had seen the future, and it looked a lot like the present. “Back during my day and Bud Baker’s day, there were conversations between Wells Fargo and Wachovia. Wells Fargo was a very respected, revered name since the mid-1800s. We had a lot of common philosophies and ways of doing business.” Six years after Baker succeeded him as CEO, Medlin stepped down from the board. Exactly a year later, in April 2001, 

Wachovia — after fending off a hostile takeover bid by Atlanta-based SunTrust Bank Inc. — agreed to be bought by Charlotte-based First Union Corp. for $14 billion. As part of the deal, the Wachovia name would live on, while First Union relinquished its. “Their brand had some baggage, I guess you’d call it,” Medlin says. “Wachovia hadn’t had a perfect past, but we had a pretty good name.”

He began watching, as he says, “sitting in the stands, observing rather than playing.” First Union was reeling from disasters such as its 1998 purchase of California-based The Money Store, which it had to close at a $1.7 billion loss a year later, and its heavy-handed efforts to force customers into online banking  had shattered goodwill and drained deposits. But he also saw positive changes, as legacy Wachovia’s customer-service creed seemed to take hold in the new Wachovia. Internally, though, the new Wachovia looked little like the legacy one. 

It  had trouble integrating acquisitions, especially Oakland, Calif.-based Golden West Financial Corp., the nation’s second-largest  thrift. The $25.5 billion deal, announced at the peak of the housing boom in 2006, turned into a world of woe as the industry slid into the subprime-mortgage crisis. In April 2008, the new Wachovia suffered its first quarterly loss. On a Friday the following September, customers started a silent run on the bank. On Oct. 3, Wells Fargo struck a deal to buy what now had become one of the banks too big to fail. It paid what many considered a pittance: $15.1 billion.

On a late-summer day at his second home on Grandfather Mountain, John Medlin reflects.  Veterans of legacy Wachovia, such as Stan Kelly, who headed its wealth-management division, remain with Wells Fargo, bridging the old and new. That brings him comfort. And Medlin knew and respected such Wells Fargo executives as Dick Kovacevich, his counterpart there, and the man who succeeded him, John Stumpf, the chairman and CEO now changing those signs. It’s a good fit, Medlin says. “The way I look at the disappearance of the Wachovia name is that I can’t think of another name I’d rather be identified with or have our company merge with.” That is, he adds, if “it had to happen.”