Why Bank Stocks Notched Their Best Year Since 2019, and What's Ahead — Barrons.com

By Benjamin Mullin

Richard "Dick" Parsons, the affable troubleshooter who helped some of the most beleaguered U.S. companies navigate the 1990 savings-and-loan meltdown, the dot-com bust and the 2008 financial crisis, died at age 76.

" Dick Parsons resides comfortably on the Mount Rushmore of financial and philanthropic leaders. There is no one comparable," said Ray McGuire, president of Lazard.

With his preternatural calm, gregarious charm and keen instincts for corporate politics, Parsons ascended rapidly through the ranks of American corporations, ultimately serving as chairman of Citigroup and chief executive of Time Warner, interim chairman of CBS and interim chief executive of the Los Angeles Clippers basketball team. He was a board member at Estée Lauder for some 25 years until stepping down this month because of his health. Add it all up, and Parsons was one of the most powerful Black business executives in American history.

Along the way, he clashed with business titans, including billionaire financier Carl Icahn, served in the White House under President Gerald Ford and tried to salvage the biggest merger in corporate history: the ill-fated $156 billion combination of AOL and Time Warner that he initially blessed, a deal that marked the peak of the dot-com bubble.

Born Richard Dean Parsons in Brooklyn on April 4, 1948, Parsons grew up in Ozone Park, Queens. The son of an electrical technician and a homemaker, he was one of five children and attended public schools in New York. By his own admission, his grades were " fair to partly cloudy." He skipped kindergarten and eighth grade, landing him on the wait list for Princeton University. When asked to list his top three university picks, a college-bound Parsons couldn't think of a third, so he scribbled down University of Hawaii — because an attractive high-school classmate of his was from that state. He ended up attending that university at age 16.

Parsons, who arrived in Hawaii without so much as a hotel reservation, didn't distinguish himself academically in college — he later jokingly called himself "the world's least successful undergraduate student." But he had fun, joining a fraternity, playing cards and going to mixers. "School got lost for a while in that miasma," he recalled in an interview with the Brooklyn Historical Society.

But he began to get more serious after he met his future wife, Laura Ann Bush, in a sophomore English class. It was Bush who honed Parsons' focus, encouraging him to apply to Albany Law School even though he hadn't received an undergraduate degree from the University of Hawaii. He was accepted and finished first in his class. Parsons said in a 2008 interview that her expectations pushed him to achieve more than he would have if they hadn't met.

"When I got married, it mattered that my wife think well of me," Parsons said during an interview for the book "Beside Every Successful Man: A Woman's Guide to Having It All." "I'm certain I would not have followed the career track that I ended up following if I hadn't been married because I'm actually more of a passive type B personality than a hard-charging type A."

After law school, Parsons worked as an intern with the New York state Legislature. There, he met one of the biggest sponsors of his early career: then-New York Gov. Nelson Rockefeller. Parsons already had a connection to the Rockefeller family: His maternal grandfather was head groundskeeper at Kykuit, the sprawling Rockefeller family estate in Pocantico Hills, N.Y.

Parsons was invited to work as a lawyer on Rockefeller's staff. He moved to Washington, D.C., after Rockefeller was appointed vice president in 1974 and eventually served as a senior White House aide under President Gerald Ford.

After Ford lost re-election in 1976, Parsons moved back to New York, where he joined the law firm Patterson Belknap Webb & Tyler LLP. There, he worked alongside future New York Mayor Rudy Giuliani.

"Rudy used to like to party and so did I," Parsons recalled in a 2001 interview with the New York Times. "And so we would keep everybody at the firm until all hours of the night and then we would go to Les Oubliettes or someplace and dance the night away."

His corporate career began in earnest after he was recruited to be president of the Dime Savings Bank of New York in 1988. He helped engineer a financial turnaround at the imperiled savings and loan, which lost about $92.3 million in 1989. He became chief executive of Dime Bank in 1990, cut costs and merged the company with a rival, Anchor Bancorp, in 1994.

He soon jumped to a media powerhouse, becoming president of Time Warner in 1995. Within a year, Newsweek hailed him as "arguably America's most influential black executive." Asked in 1998 about being a Black man in corporate America, Parsons said he didn't consider his race a disadvantage throughout his career, comparing it to the weather.

"You know, some days it rains, some days it doesn't," Parsons told the New York Times in a 1998 interview. "You can't let those factors determine what you're going to do with your life."

As the right-hand man to the late Time Warner CEO Gerald M. "Jerry" Levin, Parsons made the fateful decision to endorse the 2000 merger of AOL and Time Warner. The new company, AOL Time Warner, promised investors corporate synergy, selling the deal with a word-salad of new-media buzzwords.

But the combined company soon foundered, reporting a net loss of $98.7 billion in 2002, including a fourth-quarter charge of $45.5 billion, mostly to write down the value of its America Online unit.

"History will record that it was really Jerry's deal," Parsons told the Hollywood Reporter in 2018. "But at the end of the day I voted for it. I thought we could make it work."

Making it work is exactly what Parsons was tasked to do in 2002, when he succeeded Levin as CEO of AOL Time Warner. It was a tough job: Parsons had to contend with staggering losses, sagging employee morale and bellicose shareholders. One of those investors was Icahn, who in 2005 began waging an aggressive campaign to persuade the company's directors to spin off its cable unit and undertake a stock-buyback program.

Responding to accusations from Icahn that AOL Time Warner was "bloated with an unnecessary bureaucracy," Parsons in 2006 let fly a characteristically courtly rebuttal during the company's earnings conference call.

"If I can be allowed one moment of immodesty, no one can run these businesses better than the current management is running them," Parsons said.

AOL Time Warner reached a settlement with Icahn's shareholder group in 2006, a deal that Parsons helped broker. Under the terms of the agreement, Time Warner agreed to buy back stock, recommend the appointment of new independent directors and undertake additional cost cuts. In exchange, Icahn suspended his campaign to seize control of the company. Parsons was — as usual — affable in his statement announcing the settlement, praising Icahn's "constructive suggestions."

Parsons stepped down as CEO of AOL Time Warner at the end of 2007. He soon found his next fixer-upper: Citigroup, the embattled banking giant, where he was appointed board chairman in early 2009 during some of the darkest days of the 2008-2009 financial crisis.

Citigroup had just been bailed out by the federal government and was still teetering on the edge of failure. Weeks after Parsons took over, the bank struck a third rescue deal with the government. Parsons raced to stabilize the bank's relationships with regulators, including for CEO Vikram Pandit, orchestrated a management shake-up and recruited banking veterans to the company's board.

Parsons' calming demeanor helped ease the tension between the bank and its regulators, who believed he could right a ship they thought had been badly mismanaged. Citi executives say he refused to get rattled, even if the rest of them were angry or upset. Occasionally, someone angry would ask how Parsons himself could possibly stay calm once again.

"That's not going to get us anywhere," he'd say.

At the time, bankers were facing populist revolts and hiding their identities. Parsons typically took a car only a few blocks from his office to meetings in Midtown New York. But it wasn't because he was afraid. Sara Wechter, his chief of staff at the time, said he once walked with her and the four blocks took more than an hour because he was stopped so often by people he knew who wanted to chat. He knew their names and their children's names.

Parsons left Citigroup's board in 2012, with the company by then in a steadier state.

After Citigroup, Parsons was recruited to stabilize another prominent business, the Los Angeles Clippers. The National Basketball Association in April 2014 was pressuring the team's then-owner, Donald Sterling, to sell the franchise after he made racist comments that became public in a recording. Weeks later, Parsons became interim CEO of the Clippers and made it his mission to "insulate the team" from the swirling controversy. Sterling agreed in June 2014 to sell the team to former Microsoft CEO Steve Ballmer for $2 billion.

Parsons was called upon once again to calm a troubled company in 2018, when CBS was reeling from the effects of a lawsuit it filed against its controlling shareholder, National Amusements, and from allegations of sexual harassment against employees including its then-Chief Executive Leslie Moonves. Parsons was named interim chairman of CBS's board in September 2018 but stepped down about a month later, citing illness.

People who worked closely with Parsons remember an executive who was cool under pressure and never seemed to get rattled, traits that earned him the loyalty of colleagues. He had a set of simple one-liners that could quickly give perspective and help cut through the noise. ("Don't forget, everyone is replaceable" or "Don't ever check a generous impulse.") "Everybody he worked with admired and respected Dick. He leaves mentees and friends across many industries," said Ed Adler, a former Time Warner executive who knew Parsons well.

But it wasn't all business for Parsons. A jazz enthusiast who fondly recalled his father's skill at the trumpet, Parsons served as chairman of the Apollo Theatre Foundation and as co-chairman of the National Museum of African American History and Culture. He also owned a winery in Italy, served as chairman of the board of trustees of the Rockefeller Foundation, co-chairman of New York City Mayor Michael Bloomberg's Commission on Economic Opportunity and was a member of President Obama's Council on Jobs and Competitiveness.

In business and in life, Parsons said he tried to follow two tenets articulated to him by Army Gen. H. Norman Schwarzkopf during a meeting of Time Warner executives.

"Rule number one: When put in a position of command, take charge, make decisions," Parsons said in the 2018 Hollywood Reporter interview. "And rule number two is: Do what's right. I tend to subscribe to that."

• David Benoit contributed to this article.

Abby Schultz

Organizations representing the nation's largest banks and business groups sued the U.S. Federal Reserve on Tuesday for stress-test practices they say are opaque and lead to inaccurate capital charges.

The suit was filed a day after the Fed said it would seek public comment beginning early next year on the agency's plans to improve transparency in the annual stress-test process.

The lawsuit was filed in the U.S. District Court for the Southern District of Ohio Eastern Division by the Bank Policy Institute, the Ohio Chamber of Commerce, the Ohio Bankers League, the American Bankers Association, and the Chamber of Commerce.

In a Monday news release, the Federal Reserve said the board was seeking comment on changes that would "improve transparency of bank-stress tests, and reduce volatility of resulting capital requirements."

The proposed changes include seeking public comment on models that determine hypothetical losses and revenue of banks during stressful periods, in addition to allowing the public to comment on the scenarios the board uses before they are finalized, the Fed said in its release.

Next year, the Fed will "take immediate steps to reduce the volatility of the results and begin to improve model transparency," it said.

In a statement, the plaintiffs noted the Fed's acknowledgment of a problem, but they sued anyway to preserve their right to challenge the board's approach. That's because the statute of limitations on agency actions establishing the stress-test framework expire in February 2025.

"Filing comments on potential changes is great, but it doesn't change anything yet," Steve Stivers, president and CEO of the Ohio Chamber of Commerce told Barron's.

The stress tests were designed to ensure banks have enough capital to survive an economic downturn and were first instituted by the Fed after the financial crisis. The banking and business organizations filing the lawsuit agree stress tests are valuable, but "we just want them to be accurate," Stivers said.

According to the lawsuit, the Fed's lack of transparency into the models and scenarios they use each year for stress testing is illegal and ultimately harms businesses and consumers.

"We've talked to a lot of member banks, and we've talked to main street businesses that tell us they don't have as many opportunities as they think they could or should have to get credit," Stivers said.

The lawsuit could have been filed in any state, he added. Ohio is home to several regional banks — including KeyCorp, Fifth Third Bancorp, and Huntington Bancshares — all of which serve consumers in addition to middle-market and large businesses.

"For years, we have highlighted serious concerns about the stress testing framework and the need for reform," Greg Baer, the Bank Policy Institute's president and CEO, said in a statement on Tuesday. "The current opaque regime, combined with the lack of clear standards for the global market shock and the operational risk charge, continues to produce capital charges that are inaccurate, volatile and excessive, resulting in reduced lending and economic growth."

The institute, which represents major banking organizations including Bank of America, Citigroup, Goldman Sachs Group, and JPMorgan Chase, among others — and the co-plaintiffs — argue that secrecy surrounding the current stress-testing framework violates the Constitution and federal statutes such as the Administrative Procedure Act, according to a statement.

The APA requires public notice and a comment period for any significant regulatory changes, the statement said. But the Federal Reserve often "substantially" changes the minimum amount of capital a bank must hold without doing so, the statement said. "Subjecting the work and thinking behind these capital charges to public scrutiny would allow errors, mistakes and poor policy choices to be clearly illuminated, and thus corrected," the statement said.

According to the plaintiffs, "arbitrary, counterintuitive, and sometimes inaccurate results," occur each year. "The lack of transparency and volatility in the results makes it difficult for banks to plan and manage capital effectively, leading to higher borrowing costs for their customers," they said.

A Federal Reserve spokesman didn't immediately have a comment on the lawsuit.

Write to Abby Schultz at abby.schultz@barrons.com

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