John Tugwell

John Tugwell decided to give up his Harley-Davidson motorcycle two years ago after a nasty run-in with a pothole. But the president, CEO, and chairman of NatWest Bancorp, the U.S. unit of National Westminster plc, hasn’t backed off from the challenges of leading a “foreign” bank in the rapidly changing American market.

His work was cut out for him when he was sent over from NatWest’s London headquarters in 1991 to whip the U.S. operation into shape. Mired in recession and real estate loans gone sour, it had racked up $353 million in losses the previous year. Now, after three years of cost cutting, write-offs, and new management, the picture has changed dramatically. From his offices in a gleaming Jersey City skyscraper, Tugwell oversees a regional bank that covers New York and its stronghold, New Jersey, where it has 221 of its 348 branches. It has assets of $30 billion and posted a record net income of $298.6 million for 1994, nearly double that of two years earlier.

Most surprisingly, Tugwell has engineered this turnaround by carving out a solid base in U.S. consumer banking, a notoriously competitive arena that has proved disastrous for other British banks. Barclay’s, NatWest’s arch-rival at home, bailed out of its American retail business after it, too, suffered heavy losses in the early ’90s.

A cornerstone of Tugwell’s winning strategy has been running the bank’s branches like franchises. NatWest branch managers act more as retailers than bankers, catering to the needs of local customers with everything from Saturday hours to special loan sales. All branch employees receive bonuses if they exceed their profit goals-but they’re on notice that they had better not slack on service, a priority for gaining market share in Tugwell’s view. “If I get a service complaint, no matter what contribution you’ve achieved above your target, you’ll suffer financially,” he states flatly.

Also part of what Tugwell calls the bank’s “armory of delivery systems” is a network of shiny, red automatic teller machines, expected to number 1,000 by the end of 1995, and telephone customer service, which currently fields about 1.3 million calls a month. An array of pilot projects that deliver product directly to the customer are underway, including “mortgage vans” stationed outside realtors’ offices and banking via interactive television.

The objective, Tugwell says, is to win more sales per customer. “We’re currently selling just three products to each one. The target is five.” Right now, the bank is aggressively pushing higher-margin products such as residential mortgages and home equity loans; Tugwell is waiting for regulatory changes that will permit banks to sell insurance products as well.

The bank’s retail business has received another boost with the acquisitions of two New Jersey community banking groups in the past year. Current market share figures are difficult to come by, but Beth Summers, an analyst with Ryan, Beck & Co., a broker? age specializing in bank stocks, reckons that makes Nat West fourth and possibly third in the state. “It’s become a major player,” she says. “It’s very visible and very committed to this market.” She adds that the bank’s size gives it the economies of scale and efficiency to market a wider range of products, something the many small banks in New Jersey‘s fragmented retail market are ill-equipped to do.

On another front, Tugwell is taking a major step forward in his cost-cutting battle with a new $31 million service center in Scranton, PA. Labor costs at the facility will fall by a hefty 30 percent, shaving another two percentage points off the bank’s “efficiency ratio,” the cost in cents of producing a dollar of revenue. That figure, which stood at a whopping 72 percent in 1991 now will fall to 60 percent. Tugwell’s goal is the a industry average of 55 percent.

But retail banking isn’t the only item on NatWest’s ambitious U.S. agenda. In February, Lord Alexander, the bank’s London-based chairman, announced it may buy an investment bank in the U.S. The impetus is the crumbling of the Glass Steagall laws that separate commercial and investment bank activities. NatWest is one of a crowd of foreign and U.S. commercial banks jockeying for a foothold in investment banking, despite its unpredictable flow of income and brutal competition.

Tugwell hopes to gain an edge by homing in on specific industries. The bank already has a strong position in the media industry, and recently, it teamed up with NatWest Markets, its existing investment banking arm in Manhattan, on a $350 million lending facility for a media client. “We don’t want $350 million on our books, because it’s too big an exposure,” Tugwell explains, “but using the syndication sales of NatWest Markets, it will be sold out, and we’ll underwrite it.” The bank also has a 13 percent market share in fashion industry lending; its newly renovated branch in the heart of New York City‘s garment district features monthly fashion shows-for designers who are customers, of course.

“Without those relationships, and coming into a mature market, how would you persuade people who do business with a NationsBank-which also has an ability to underwrite with the falling away of GlassSteagall-that they should come to a foreign bank that hasn’t been here long?” Tugwell asks.

Unpretentious and hard-driving, Tugwell is a new breed of executive in British banking, once a bastion of the “old Etonian” network. He studied banking on a scholarship from predecessor Westminster Bank, starting work there as a part-time teller while in school, and rising through the ranks to a seat on the current board of directors. Though it hasn’t been an easy ride for the past three years, Tugwell seems to have kickstarted NatWest in the right direction.