George R. Baker was forced out as executive vice president and chief lending officer of Continental Illinois National Bank, the latest casualty in the July 5 failure of Penn Square National Bank.
Continental bought more than $1 billion in loans from Penn Square of which the bank estimates $220 million are bad.
Until this year, the 53-year-old Baker was considered the leading candidate to succeed Roger Anderson as chairman of the nation's seventh largest bank. Anderson, who will reach 65 in four years, is said to be fighting for his job now, bank sources said.
The Penn Square debacle merely highlighted the risks Continental was willing to take during a six-year quest to become the nation's largest lender to U.S. corporations, even though in overall asset size it was the country's seventh-largest bank.
On Sept. 30, 4.7 percent of Continental's loans were classified as "non-performing." The average big bank, called a money center bank, had 1.7 percent of its loans in the "non-performing" category -- that includes loans that are behind schedule, that have had their terms renegotiated or on which the bank has foreclosed and taken possession of real estate.
In a house-cleaning last September, Continental demoted or ousted a number of top executives, including John Lytle, who had been in charge of energy lending in the Southwest and who was responsible for buying the $1 billion of loans originally made by Penn Square, and Gerald K. Bergman, to whom Lytle reported. Bergman reported to Baker.
Baker will be replaced by Edward M. Cummings, 61, a 34-year veteran and former Baker rival who has headed the bank's European operations for two years. He had told friends he planned to retire at the end of December. "He was talked out of it," one insider said yesterday.
Baker's ouster leaves a big hole in the succession ranks at Continental. Gail Melick, the executive vice president in charge of operations and management service, and David G. Taylor, executive vice president in charge of the bank's financial operations, are thought to be the contenders.
Several top bank officials said that Continental might be forced to search outside to find its next chairman.
The last time the bank had to do that was in the Depression when the venerable La Salle Street institution was near bankruptcy. It tapped the head of the Federal Deposit Insurance Corp., Walter Cummings. Yesterday Continental talked his son out of retiring.