BankAmerica, Chemical: Two Distinct Merger Styles
Iida, Jeanne, American Banker
Two of the biggest back-office mergers ever attempted in the banking industry - at BankAmerica Corp. and Chemical Banking Corp. - are a study in contrasts.
BankAmerica, for example, has quickly junked many of Security Pacific's advanced computer technologies, opting in most cases to stick with its own "meat and potatoes" systems.
By contrast, Chemical has taken a much more deliberate approach, retaining many Manufacturers Hanover systems and some high-level people, trying to weave them with its own as seamlessly as possible.
Both strategies carry risks. Clearly, one danger for BankAmerica is that customers will be alienated by rapid change. The concern with Chemical's go-slow strategy is that cost savings will come sluggishly. In addition, the gradual approach extends the Chinese water torture for employees who are wondering whether they will survive the merger or be laid off.
Both Chemical and BankAmerica appear to have dodged the worst pitfalls - for the most part. Though watchful, Wall Street so far seems pleased with both mergers, keeping both companies' shares relatively buoyant.
Why do investors appear equally comfortable with the divergent merger strategies? One explanation is that BankAmerica and Chemical have already unveiled credible management plans and provided ample evidence of cost cutting. In the end, investors aren't overly concerned about what kind of technology is chosen or how it is melded.
The nature of the BankAmerica deal, in particular, suggests that rapid cost cutting is especially important. Under pressure from Wall Street, BankAmerica has promised more cost savings - $1.2 billion over three years. Chemical is looking to save $700 million over a similar period. This may help explain why Chemical is moving more slowly than BankAmerica.
"We wanted to establish the computer systems for the new company as rapidly as possible," said Richard Rosenberg, chief executive officer of BankAmerica. "Because technology expenses are high, eliminating redundant operations quickly is a key to the success of this merger."
The melding process will take Chemical about a year longer than BankAmerica. This pace befits a "merger of equals," as the Chemical-Manny Hanny deal has been billed.
"You don't get the synergistic benefits of a merger when one partner dominates over the other," said John McGillicuddy, chief executive officer of Chemical Banking Corp.
On top of that, in the competitive New York marketplace, Chemical is particularly sensitive about maintaining steady customer service during the technological transition.
While moving quickly to merge systems, BankAmerica has tried to control this risk - not always successfully. One example: BankAmerica showed little interest in the government securities clearance business run by SecPac's Sequor unit, a New York-based processor. After the merger, senior managers in that business left for competing banks, quickly followed by many customers. BankAmerica absorbed other Sequor businesses, such as cash management. Just a handful of software developers are left at Sequor.
In other areas, such as cash management, a few BankAmerica customers have defected, and others may follow suit. "There's more business up for bid" among former SecPac customers, said a banker who spoke on the condition of anonymity. But, he adds, "So far, I've seen no absolute shift in business."
BankAmerica says it is on target to save $1.2 billion over three years, with $175 million from consolidating computer systems alone. By merging banks in one year, instead of two as most banks do, BankAmerica adds $185 million to $285 million to the bottom line in the first year of the merger, said Lawrence A. Willis, a consultant with First Manhattan Consulting Group.
The San Francisco-based giant is about a quarter of the way through the consolidation of its 2,260 retail branches. …