"Entrepreneurial" was not an adjective used much when Communism collapsed here. Economists worried that large, formerly state-owned companies would not survive in the new capitalist era, and that not enough small and medium-sized businesses were being created in their place. Yet today, signs of commercial success are everywhere. Clothing boutiques and consumer electronics shops line the major streets and pedestrian malls. Pubs and sidewalk cafés are crammed with clients devouring the standard trio of Czech specialties—sausages, dumplings and cabbage—along with pints of local full-bodied brews such as Pilsner Urquell and Budvar.
Behind the boom is a dramatic reform of Czech banking in which yet another American transplant, Jack Stack, has played a leading role. Like the rest of the banking system during the Communist era, Ceska Sporitelna, a savings institution founded in 1825, had fallen under state control. After the Velvet Revolution, Czech banks were expected to adapt quickly to the new market economy. Instead, corruption and chaos ensued. In the early 1990s, many businesses were privatized by shady promoters, who secretly sold off the most valuable parts of the firms. They then took out bank loans on the companies' money-losing remains, never intending to make repayments. In other cases, politicians pressured banks to make loans to large companies whose managers could deliver their employees' votes in elections. By 1999, almost half of all bank loans had failed. "The Czech economy was in bad shape, and investors were losing interest in the country," says Zdenek Tuma, governor of the Czech National Bank—the equivalent of the Federal Reserve Bank in the United States.
It was then that Stack, a lifelong New Yorker and veteran banker, decided to plunge into Prague's murky financial waters. He had spent more than two decades at Chemical Bank (now part of JP Morgan Chase) in a variety of management positions. "But I always wanted to run a bank, and I wasn't getting any further up the managerial ladder," says Stack.
Through a headhunting agency, Stack had been contacted in 1999 by Austria's Erste Bank, which was negotiating to purchase Ceska Sporitelna and was looking for a chief executive officer, a daunting assignment. According to a 2000 survey by international management consulting firm Accenture, Ceska Sporitelna ranked dead last among local banks in customer satisfaction. Though it was the most overstaffed bank in the country, its employees were the most poorly paid—and among the surliest, according to client complaints. Investments in technology were so low its ATMs failed to operate at times of greatest demand. Stack talked it over with his wife, Patricia. "She pointed out the bank was in such bad shape that I could only improve it—and the adventure began," Stack recalls.
Once installed, he decided to draw on measures that had worked well at Chemical Bank. He slowly reduced the bloated staff by a third. He offered the 10,000 who remained bonuses based on the number of new accounts they opened and the old ones they induced to stay. The interior design of branches was altered from state-era stodginess to a more relaxed free-market style. Gone are the long counters attended by clerks whose subliminal message to customers appeared to be: "Wait to be called by the authorities." In their place are curved desks set in small, open, individual spaces. Investments in new technology vastly improved the performance of ATMs, and Ceska Sporitelna's appalling 45 percent bad-loan rate has been brought down to less than 2 percent, thanks to risk-management policies that value clients' creditworthiness more than who they know in high places.
The same sorts of reforms have since spread throughout Prague's banking system. "Jack Stack played a very important role in this process," says Tuma, the Czech National Bank governor. "The turnaround he led at Ceska Sporitelna was a key milestone in the transformation of our banking system." For Stack, the secret of Czech banking's recent success has been to tap consumer demand that had been pent up for decades. Mortgages in Prague are growing at over 40 percent a year, and bank loans to small and medium-sized businesses are up by 20 percent a year. "Czechs want to make up for having lost so much time during the Communist era," says Stack. "People here and throughout Central Europe will become the engine of growth for all of Europe because they are more ambitious, harder working and are developing a real entrepreneurial spirit."
Stack won't be around to see Prague return to the lofty living standards of Paris and Vienna. At 61, he is moving back to New York this year to take some time off and catch up with old friends and family. "I'm very reluctant to leave Prague because I will miss it," he says. "But I'm also very sure it's time for somebody else to take over the bank."
For the other Americans, Prague has become home. With direct flights now available, Feldman returns to New York several times a year. "I don't have to make choices anymore about where I should live permanently," she says. Graves' and Minkowski's Prague-born children have doting Czech grandparents who won't allow them to wander too far away for too long. And Prince William's son, William, wants Lobkowicz Palace to be more kid-friendly. He's helped create a kids' menu for the palace restaurant, featuring peanut-butter sandwiches and tuna melts. He has also created another diversion, a handout sheet containing a castle maze game—with three levels of difficulty—allowing diners of various ages to doodle away while awaiting their food. "Not a bad idea from a 12-year-old," says his dad.
Writer Jonathan Kandell is based in New York City. Photographer Tomas Van Houtryve works from Paris.